SWOT analysis is a method to analyse the existing position of a firm and how it is likely to perform in the future
- S- Strengths of firm
- W- Weakness of firms
- O – Opportunities
- T – Threats
Example, Waterstones booksellers
- Established as premier book retailer in UK
- Good distribution network
- Prime retail location in many towns
- A degree of monopoly power in book retail
- Good staff motivation and low turnover.
- Becoming uncompetitive to online book retailers.
- Can’t carry as much stock as online retail
- Declining profit margins from greater competition
- Ability to diversify shops, e.g. add coffee shops with main bookstore to raise extra source of revenue and bring more people into the shop.
- Diversify into higher profit margin – gift and card sectors
- Growing dominance of e-book, e.g. kindle diminish prospects for traditional hard copy books. There may soon be no market for traditional books
- New generation may increasingly buy online rather than in high street.
Benefits of Doing SWOT Analysis
- Helps firm work out where it is doing well, and where it is doing badly.
- Helps to look at firm from a different angle.
- Helps in the planning process, e.g. where to expand, how to attract custom.
- Helps set clear goals on how to turn the firm around.
- SWOT may be stronger if done by an outside management consultant.
Limitations of SWOT Analysis
- Present management may be unable to see weakness in company. (Management may be a weakness itself)
- Hard to predict all threats and opportunities. e.g. microsoft, IBM companies which failed to stay on top of new developments in technology and lost out.
- Some economic events outside firms control, e.g. credit crunch of 2008 adversely affecting banks and mortgage companies.
- SWOT analysis doesn’t change anything. It only shows the company where it is doing well and badly. A strategy is still needed.