1 SWOT as a Strategic Management Tool Dr. Fred Mugambi Mwirigi JKUAT

2 Meaning of SWOT Strengths Strengths Weaknesses Weaknesses Opportunities Opportunities Threats Threats

3 Strengths Organizational capacity to take advantage of opportunities Organizational capacity to take advantage of opportunities Could be finances, HR, Technology, etc Could be finances, HR, Technology, etc Organizational Strength is: Organizational Strength is: 1. Internal 2. Controllable 3. Has a direct immediate effect on performance

4 Weakness The in ability to not only capitalize on opportunities but also defend oneself from threats The in ability to not only capitalize on opportunities but also defend oneself from threats Could be lack of adequate capital, HR, Technology, etc. Could be lack of adequate capital, HR, Technology, etc. Weaknesses: Weaknesses: 1. Are internal 2. Controllable from within 3. Have a direct immediate effect on performance

5 Opportunities These are external avenues that are open to grow business These are external avenues that are open to grow business They could be new market opportunities, increase in general income levels, improvement of infrastructure, etc They could be new market opportunities, increase in general income levels, improvement of infrastructure, etc Opportunities are: Opportunities are: 1. Largely external 2. Largely non-controllable from within (we respond to opportunities though in a few cases we can create opportunities)

6 Threats These are external competitive or non- competitive factors that hinder achievement of short as well as long-term goals of a firm. These are external competitive or non- competitive factors that hinder achievement of short as well as long-term goals of a firm. Threats are: Threats are: 1. External in nature 2. Largely non-controllable from within (we respond to threats with strengths)

7 SWOT Framework OT S How can X use its strengths to take advantage of the available opportunities? How can X use its strengths to overcome the threats identified? W What does X need to do to overcome the identified weaknesses in order to take advantage of the opportunities? How will X minimize its weaknesses to overcome the identified threats?

8 Decisions OT S Maxi-Maxi Decisions Maxi-Mini Decisions W Mini-Maxi Decisions Mini-Mini Decisions

9 Using SWOT as a Strategic Tool All firms need to identify and quantify their present as well as potential SWOT positions in order to plan ahead All firms need to identify and quantify their present as well as potential SWOT positions in order to plan ahead This starts with an in-depth and broad analysis of: This starts with an in-depth and broad analysis of: 1. The self 2. The market 3. Competitors 4. Other environmental factors (e.g. culture, economic factors, etc) This is called Environmental Scanning

10 Identifying SWOT Factors Identify at least ten Strengths, Weaknesses, Opportunities and Threats each in their order of effect. Identify at least ten Strengths, Weaknesses, Opportunities and Threats each in their order of effect. For example, poor/low technology in a bank would rate very highly (strong weakness) as compared to internal squabbles between two junior officers (weak weakness) For example, poor/low technology in a bank would rate very highly (strong weakness) as compared to internal squabbles between two junior officers (weak weakness) Categorize these as strong or weak depending on their effect (positive or negative) on performance Categorize these as strong or weak depending on their effect (positive or negative) on performance

11 Quantifying SWOT Factors Each listed SWOT factor should then be given a relative weight within its category Each listed SWOT factor should then be given a relative weight within its category For example out of a total weight of 10, low technology may be given 7 if it is the main weakness while squabbles between junior managers gets 2 out of 10. For example out of a total weight of 10, low technology may be given 7 if it is the main weakness while squabbles between junior managers gets 2 out of 10. These weights represent the extent of effect on performance by the factor These weights represent the extent of effect on performance by the factor Then add up all weights to get the total effect of each SWOT category on performance. Then add up all weights to get the total effect of each SWOT category on performance.

12 Decision Making from SWOT Analysis From the totals it is possible to establish where the organization needs to focus its strategies. From the totals it is possible to establish where the organization needs to focus its strategies. For example, if the total strength factor is high relative to the threat factor and if the opportunity factor is also as high the firm can take high risks in the foreseeable future For example, if the total strength factor is high relative to the threat factor and if the opportunity factor is also as high the firm can take high risks in the foreseeable future These effects can be cascaded down the organization’s structure as need demands for further decision making These effects can be cascaded down the organization’s structure as need demands for further decision making

13 Benefits of SWOT Analysis Helps to assess the firms internal capacity against external environmental factors Helps to assess the firms internal capacity against external environmental factors Provides a factual basis for planning and decision making Provides a factual basis for planning and decision making Provides a basis for resource allocation and reallocation Provides a basis for resource allocation and reallocation Reduces chances of resource wastage by providing focus Reduces chances of resource wastage by providing focus Reduces chances of strategy failure Reduces chances of strategy failure

14 Exercise Identify an existing organization of your choice Identify an existing organization of your choice List ten strengths, weaknesses, opportunities and threats respectively List ten strengths, weaknesses, opportunities and threats respectively On a range of 1-10, 10 being the highest in terms of importance allocate weights for each attribute (e.g. for each strength) On a range of 1-10, 10 being the highest in terms of importance allocate weights for each attribute (e.g. for each strength) Add the weights for each category Add the weights for each category

15 Exercise Determine: Determine: a. The strength/ weakness factor b. The threat/ opportunity factor c. The overall favorability factor