SWOT^J BCG and capabilities analysis ppt
- 1. SWOT
- 2. SWOT ▪ SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position of the business and its environment ▪ Its key purpose is to identify the strategies that will create a firm specific business model ▪ That will best align an organization’s resources and capabilities to the requirements of the Market / environment in which the firm operates
- 3. SWOT ▪ It is the foundation for evaluating the internal potential and limitations and the probable/likely opportunities and threats from the external environment ▪ It views all positive and negative factors inside and outside the firm that affect the success ▪ A consistent study of the environment/ market in which the firm operates helps in forecasting/predicting the changing trends and also helps in including them in the decision- making process of the organization
- 4. Strengths ▪ Strengths are the qualities that enable us to accomplish the organization’s mission ▪ These are the basis on which continued success can be made and continued/sustained ▪ Strengths can be either tangible or intangible ▪ These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its consistency ▪ Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty ▪ Examples of organizational strengths are huge financial resources, broad product line, no debt, committed employees, etc.
- 5. Weaknesses ▪ Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential ▪ These weaknesses deteriorate positive influences on the organizational success and growth ▪ Weaknesses are the factors which do not meet the standards we feel they should meet ▪ Weaknesses in an organization may be depreciating machinery, insufficient research and development facilities, narrow product range, poor decision-making, etc. Weaknesses are controllable
- 6. Weaknesses ▪ They must be minimized and eliminated ▪ For instance - to overcome obsolete machinery, new machinery can be purchased ▪ Other examples of organizational weaknesses are huge debts, high employee turnover, complex decision making process, narrow product range, large wastage of raw materials, etc.
- 7. Opportunities ▪ Opportunities are presented by the environment within which our organization operates ▪ These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable ▪ Organizations can gain competitive advantage by making use of opportunities ▪ Organization should be careful and recognize the opportunities and grasp them whenever they arise
- 8. Opportunities ▪ Selecting the targets that will best serve the clients while getting desired results is a difficult task ▪ Opportunities may arise from market, competition, industry/government and technology ▪ Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue
- 9. Threats ▪ Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business ▪ They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable ▪ When a threat comes, the stability and survival can be at stake ▪ Examples of threats are - unrest among employees; ever changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.
- 10. Advantages of SWOT Analysis ▪ SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it involves a great subjective element ▪ It is best when used as a guide, and not as a prescription ▪ Successful businesses build on their strengths, correct their weakness and protect against internal weaknesses and external threats ▪ They also keep a watch on their overall business environment and recognize and exploit new opportunities faster than its competitors
- 11. Advantages of SWOT Analysis ▪ It is a source of information for strategic planning ▪ Builds organization’s strengths ▪ Reverse its weaknesses ▪ Maximize its response to opportunities ▪ Overcome organization’s threats ▪ It helps in identifying core competencies of the firm.
- 12. Advantages of SWOT Analysis ▪ It helps in setting of objectives for strategic planning ▪ It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out ▪ SWOT Analysis provide information that helps in synchronizing the firm’s resources and capabilities with the competitive environment in which the firm operates
- 13. SWOT Analysis Framework Environmental Scanning Internal Analysis • Strengths • Weaknesses External Analysis • Opportunities • Threats
- 14. Limitations of SWOT Analysis ▪ It may cause organizations to view circumstances as very simple because of which the organizations might overlook certain key strategic contact which may occur ▪ Categorizing aspects as strengths, weaknesses, opportunities and threats might be very subjective as there is great degree of uncertainty in market ▪ SWOT Analysis does stress upon the significance of these four aspects, but it does not tell how an organization can identify these aspects for itself ▪
- 15. Limitations not in control of management ▪ Price increase ▪ Inputs/raw materials ▪ Government legislation ▪ Economic environment ▪ Searching a new market for the product which is not having overseas market due to import restrictions; etc. ▪ Internal limitations may include- ▪ Insufficient research and development facilities; Faulty products due to poor quality control; ▪ Poor industrial relations; Lack of skilled and efficient labour; etc
- 18. Introduction ❑ BCG matrix has four cells, with the horizontal axisrepresenting relative market share and the vertical axis denoting market growth rate ❑ Resources are allocated to the businessunitsaccording to their situation on the grid ❑ The four cells of thismatrix have been called as stars,cash cows, question marksand dogs ❑ Each of these cells represents a particular type of business
- 19. Understanding
- 20. Understanding Stars- ❑ Starsrepresent business units having large market share in a fast growing industry ❑ They may generate cash but because of fast growing market, starsrequire huge investmentsto maintain their lead ❑ Net cash flow isusually modest ❑ SBU’s located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry ❑ Ifsuccessful, a star will become a cash cow when the industrymatures
- 21. Understanding Cash Cows- ❑ Cash Cows represents business units having a large market share in a mature, slow growing industry ❑ Cash cows require little investment and generate cash that can be utilized for investment in other business units ❑ These SBU’s are the corporation’s key source of cash, and are specifically the core business ❑ T hey are the base of an organisation ❑ These businesses usually follow stability strategies
- 22. Understanding QuestionMarks- ❑ Question marks represent business units having low relative market share and located in a high growth industry ❑ They require huge amount of cash to maintain orgain market share ❑ They require attention to determine if the venture can be viable ❑ Question marks are generally new goods and services which have a good commercial prospective
- 23. Understanding Question Marks- ❑ There isno specific strategy which can be adopted ❑ Ifthe firmthinksit has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted ❑ Most businesses start as question marks as the company tries to enter a high growth market in which there isalready a market-share ❑ If ignored, then question marks may become dogs, while if huge investment ismade, then they have potential of becoming stars.
- 24. Understanding Dogs ❑ Dogs represent businesses having weak market shares in low-growth markets ❑ They neither generate cash nor require huge amount of cash ❑ Due to low market share, these business units face cost disadvantages ❑ Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms
- 25. Understanding Dogs ❑ These business firms have weak market share because of high costs, poor quality , ineffective marketing, etc ❑ Unlessa dog has some otherstrategic aim, it should be liquidated if there isfewer prospectsfor it to gain market share ❑ Number of dogsshould be avoided and minimized in an organization
- 26. Limitationsof BCG Matrix ❑ BCG matrix classifies businessesas low and high, but generally businessescan be medium also, thus,the true nature of businessmay not be reflected ❑ Market isnot clearly defined in this model ❑ High market share does not always leads to high profits ❑ There are high costs also involved with high market share
- 27. Limitationsof BCG Matrix ❑ Growth rate and relative market share are not the only indicators of profitability ❑ This model ignores and overlooks other indicators of profitability ❑ At times,dogs may help other businessesin gaining competitive advantage ❑ They can earn even more than cash cows sometimes ❑ Thisfour-celled approach isconsidered as to be too simplistic
- 29. Resources and competences Tangible resources Physical assets of an organisation such as plant, labour and finance Intangible resources Non -physical assets of an organisation such as information, reputation and knowledge Resources
- 30. Categories of Organisation’s Resources Physical Resources Financial Resources Human Resources Intellectual Capital
- 31. Physical Resources ▪ They include no. of machines, buildings or the production capacity of the organisation ▪ The nature of these resources viz., the age, condition, capacity and location of such resource will determine the usefulness of such resources
- 32. Financial Resources ▪ Such as, capital, cash, debtors and creditors and suppliers of money (shareholders, bankers etc.,)
- 33. Human Resources ▪ Including the number and mix (eg., demographic profile) of people in an organisation ▪ The intangible resource of their skills and knowledge is also important ▪ This applies both to employees and the other people in the organisation’s networks ▪ In knowledge based economies people do genuinely become the most valuable asset
- 34. Intellectual Capital ▪ It is an important aspect of the intangible resource of an organisation ▪ This includes patents, brands, business systems and customer databases ▪ Intangible resources have a value, when the businesses are sold part of the value is ‘goodwill’
- 35. Efficiency and Effectiveness ▪ Efficiency and effectiveness of physical or financial resources or the people in the organisation is not ▪ their existence ▪ but how they are managed
- 36. Efficiency and Effectiveness ▪ Efficiency and effectiveness of physical or financial resources or the people in the organisation is not ▪ the cooperation between people ▪ their adaptability ▪ their innovatory capacity
- 37. Efficiency and Effectiveness ▪ Efficiency and effectiveness of physical or financial resources or the people in the organisation is not ▪ the relationship with customers and suppliers ▪ their experience and learning about what works well and what does not
- 40. Threshold Capabilities Threshold Resources Threshold Competences Threshold Capability Essentials • Threshold Capabilities are those essentials which help the organisation to compete in a given market • Without these an organisation is unlikely to be able to survive in the market
- 41. Threshold Resources ▪ If the organisation does not possess these resources it will not be in a position to meet customers’ minimum requirements and therefore will not be in a position to continue to exist ▪ For eg., increasing demands by multiple modern retailers made on their suppliers means the suppliers will have to possess sophisticated infrastructure to cope up with the requirement of the retailers
- 42. Threshold Competences ▪ Threshold competences are required to deploy resources so as to meet customers requirements and support particular strategies ▪ For eg. A powerful retailer does not expect its suppliers to have an required IT infrastructure in place, but should be in a position to use it effectively so as to guarantee required level of service
- 43. Some Important Issues….1 ▪ Threshold levels of capability will change and will rise overtime as the critical success factors change ▪ It will change through the activities of competitors and new entrants ▪ There is a need to continuously review and improve this resource and competence base just to stay in business ▪ Some industries and sectors have seen shakeout of suppliers as the process of competition make resource requirements an increasingly difficult barrier to achieve
- 44. Some Important Issues….2 ▪ One of the challenges that a Co. faces is the trade-offs that they may have to do in order to achieve a threshold of level of capability required for different types of customers ▪ In market segments which require large quantities of standard products – the co. might require high- capacity, fast throughput plant, standardised high efficient systems and low-cost labour force ▪ If segment requires value added specialised products then the co. may require a skilled labour force, flexible plant and a more innovative capacity to cater to that requirement ▪ The co. will have to make some difficult choices with danger that it fails to achieve the threshold capabilities required for either segment
- 45. Some Important Issues….3 ▪ A problem for established organisation is the redundancy of capabilities, that they may experience as changes in the business environment takes place (hand wound watches vs cell operated automatic watches, ordinary incandescent bulbs vs CFL vs LED) ▪ Unless an organisation is able to dispose off those redundant resources or competences or raw materials (periodic check of stores) ▪ It may not be in position to free up sufficient funds to invest in new ones that are needed and their cost base will be too high
- 46. Some Important Issues ….4 ▪ It is important to recognise that the threshold level required is likely to involve complementary resources and competences ▪ There is no point in meeting threshold levels in resource terms, if the threshold levels are not met with regard to competences ▪ Identifying these threshold resources and competences is important ▪ If the organisations do not pay attention to them they cannot even expect to be in the game ▪ They do not have the capability to be competitive
- 47. Unique Resources and Core Competences ▪ Threshold capabilities are fundamentally important they do not themselves create competitive advantage ▪ If the organisation has distinctive or unique capabilities that competitors cannot imitate (backward area benefits / moratorium on tax provided by government or exclusive use of a raw material or has bought the latest machine which no other co. has) (Vertical CT scans) ▪ Then the organisations competitive advantage is more likely to be created and sustained ▪ This could be possible because the organisation has some unique resources
- 48. Unique Resources and Core Competences ▪ Unique resources are those resources that critically support competitive advantage that others cannot imitate or obtain (example of Vini) (create disruption through strategic thinking and communicating it effectively) ▪ The organisation is able to achieve competitive advantage because it has distinctive, or core, competences ▪ Core competences are the activities and processes through which resources are deployed in such a way so as to achieve competitive advantage in such a way that others cannot imitate or obtain (technical tie-up)
- 49. Cost Efficiency ▪ Cost efficiency involves having both appropriate resources and the competences to manage costs ▪ Customers can benefit from cost efficiency in terms of lower prices or more product features for the same price ▪ In areas of public service, the key budget provider / stakeholder may wish to maintain levels of service provision and quality at a reduced cost ▪ Management of cost could be the basis of achieving competitive advantage for some organisations
- 50. Will to Sacrifice ▪ Customers do not value product features at any price ▪ If the price rises too high they will be prepared to sacrifice value and opt for lower priced product (organic vs normal product) ▪ Which means cost will have to be kept as low as possible to commensurate with the value to be provided, and everyone is forced to do so ▪ If not done, it invites customers to switch products or invite competition
- 51. Thank you