Case Study: SWOT Analysis Is Used by Organizations

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¶ … SWOT analysis is used by organizations to "assess their state of health and investigate business opportunities" (Occupational Health, 2008). A SWOT forces an organization to be honest about internal strengths and weaknesses and it force the organization to examine the marketplace for opportunities that can be exploited and threats to the business. The original SWOT framework was somewhat superficial, or at least it could be due to the lack of guidance provided with respect to identifying the individual elements. A resource-based SWOT analysis helps to drill down from vague notions to more specific details. This type of SWOT also encourages focus on causal relationships -- yes, it is a weakness that the company has poor inventory management, but that is a symptom. What resource is lacking that has resulted in poor inventory management? This is the probing approach of a resource-based SWOT, and the reason why such a SWOT should yield greater insight than a conventional SWOT analysis (Valentin, 2001).

Flowing from this should be two main objectives. The first is to find opportunities that match up with the firm's strengths. This allows the firm to gain a sense of direction with respect to how it can best proceed. If there are no opportunities that match up with the firm's strengths, management must remember that will it has little influence over the opportunities, it does have control over its strengths. The firm, knowing the opportunities that exist in the marketplace, can develop the strengths needed in order to exploit those opportunities.

The second objective is to match threat and weaknesses. The firm needs to understand if there are any threats in the external environment that directly exploit the firm's weaknesses. If this is the case, then the firm needs to gain a sense of how well the threats exploit the weaknesses. This will help the firm understand how much risk it faced with respect to the external environment. It also helps the firm to gain a sense of which weaknesses it needs to shore up.

When the two objectives are put together, the output should approximate a workable strategy. The idea of the SWOT analysis is to let strategy flow from dogmatic analysis of these four variables. The rough outline of a strategy should have both opportunities that the firm can exploit with its strengths and threats that exploit the firm's weaknesses. The firm will then need to weight those opportunities against those threats, ultimately settling on a strategy that it finds to be the best with respect to meeting organizational objectives.

The pre-warehouse incarnation of PetVet had several strengths that had helped it gain a foothold in the competitive marketplace. The first strength was the location of the two stores. Both were situated in areas that had a high level of pet ownership. This provided a baseline of business for PetVet, akin to a rising tide that lifts all boats. The locations were not a competitive advantage because there were many competitors operating in those regions, but good locations are a strength because they provide the company with a healthy baseline level of business upon which they can grow. A loyal customer base also was a source of baseline business. The loyal customers, however, were not a large group, so did not constitute a major advantage for the business they brought. Rather, they constituted an advantage because strong loyalty indicates that the company is doing something right -- that they have a good value proposition in the marketplace. Indeed, some of the minor advantages, such as the goodwill generated by extended operating activities and the qualified, committed staff were intertwined with the customer loyalty. Each of these variables is a relatively minor staff, but put together they formed the nucleus of a successful business. More importantly, they were significant enough strengths that Carter and Jackson knew they could put them together to yield loyal customers.

One of the most important advantages at the time was the access to capital. For PetVet, this was the major door-opener. Most firms cannot re-invent themselves the way that PetVet did, simply for lack of capital. This is especially true of a firm intent on pursuing a low-cost strategy. The availability of capital to finance bold plans proved to be a major strength for PetVet at the time.

PetVet had several weaknesses at that time as well. The biggest weakness is that they were undifferentiated. In a competitive marketplace, it is difficult to succeed without a strong differentiating figure. This put the firm in a poor competitive position, where organic growth was going to be hard to come by. Worse, the firm's operations were not very sound. They had three key operational disadvantages. The first was that the partners were overtaxed, working themselves to the bone trying to manage two stores. This poor managerial efficiency undoubtedly contributed to the two other operational weaknesses -- high levels of inventory and high fixed overhead. The latter indicates that the business model has some fundamental flaws, the former indicates that they are not executing particularly well with the model they have.

With respect to the external environment, there are a couple of major opportunities in the marketplace. The first is to build stronger relationships with the pet shop owners. There is a high degree of synergy between pet shop owners and veterinarians. The shop owners essentially provide future clientele for the veterinarians. Carter and Jackson were able to drive an additional 10% in business by offering a discount to and forging relationships with local pet store owners. There is opportunity for continued development of this synergy. Another opportunity in the marketplace is that the industry is in a state of inertia. This lack of direction has dulled the competitive edge, even though there are a number of different companies operating in a relatively small area. The current players are complacent and uncreative. A bold idea, if it has any merit whatsoever, can result in seizing large amounts of market share from a stunned group of competitors.

The current environment is threatened mainly by the competition. In particular, this refers to warehouse-style pet supply stores. These outlets do not offer veterinary services, but they can dramatically undercut Carter and Jackson with respect to pet supplies. Additionally, because the areas in which they operate have high levels of pet ownership, they will be on the radar screen of not only warehouse stores but every other prospective entrant to any pet-oriented business in Victoria. With operational weaknesses and caught in the same inertia as the rest of the industry, Carter and Jackson would have little capacity to defend their market share beyond their small clutch of loyal customers.

What the SWOT analysis indicates is that the pre-warehouse PetVet business was in a marginal position for survival. It had little hope of defending itself against new competition because of its operational weaknesses. Managers working 70 hours a week are unlikely to have much left in the tank if a major new competitor enters the market. The firm was also not taking advantage of its strengths to exploit the opportunities. Carter and Johnson had access to capital but were not using it. They had recognized the synergy between pet shop owners and veterinarians but their chosen method of building this synergy had only yielded marginal results. The industry lacked any sense of direction, but Carter and Johnson were guilty of this as well.

Thus, the SWOT points to the strategy that they ultimately adopted. Note that the SWOT does not explicitly identify the strategy. The role of management is not merely to conduct a SWOT analysis, but to exercise skill and creativity in interpreting its findings and applying those findings to the business. The first major indicator is that Carter and Johnson need to move away from their existing strategy, as it has no growth potential. The second major indicator points to a synergy that exists and a strength (access to capital) that can be leveraged to exploit that synergy.

2. Corporate level strategy refers to the overarching set of organization-wide initiatives aimed at achieving broad objectives. Corporate level strategies essentially provide the guidance from which business-level strategies and tactics are derived. For example, corporate level strategy drives decisions with respect to in what businesses the firm wishes to compete. The business-level strategy refers to the decisions made with respect to how the firm intends to compete in its chosen businesses (Beard & Dess, 1981).

The main corporate level strategy that Carter and Jackson pursued was the decision to pursue a combination of two business concepts -- a veterinarian and pet supply warehouse. Both concepts existed previously, but they had never been put together. The new PetVet company's entire corporate-level thrust was to invent a new model by which the firm could compete in both of these businesses simultaneously. The concept arose from the realization that while one industry (veterinary) was subject to considerable strategic inertia, the pet supply industry was undergoing a change with the arrival of warehouse retailing… [END OF PREVIEW]

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