SWOT analysis

Another way of examining a business’ ‘status quo’ is to look at its internal and external risks and opportunities as they currently stand. A classic yet simple way of doing this is through a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis, which provides a systematic way of doing so.

As an example of the SWOT analysis approach, we will consider Walmart, the multinational supermarket chain.

Strengths

A business’ strengths are those factors which make it somehow ‘better’ or potentially better than the competition. These may also be labelled ‘competitive advantages‘. Walmart’s strengths include:

• exceptional buying power, due to its size relative to the competition;
• considered to be a very good employer, helping with recruitment and retention of top quality staff; and
• strong reputation based on a wide range of products at affordable prices.

Weaknesses

A business’ weaknesses are those factors which somehow place the business at a disadvantage relative to other companies operating in the same market. Walmart’s weaknesses include:

• it may be a global company but its business is focused in particular countries, such as the UK and US, meaning that it does not have market domination in many of the rapidly growing countries such as China and India;
• it has a very bad reputation for corporate social responsibility, despite considerable efforts in this field. Documentaries such as ‘Walmart: The High Cost of Low Price’ mean that it is seen as an unethical trader, reducing its brand value; and
• it is so big that it may be difficult to react quickly to rapid changes in the market, leaving it exposed.

Opportunities

Opportunities exist external to the business and are chances to increase sales or profits within the wider environment. Walmart’s opportunities include:

• mergers or acquisitions with companies in areas such as China or India to increase market share quickly; and
• the trend for smaller, local branches of supermarkets in the US and UK is something which Walmart has not yet exploited but where there is a potential for money to be made.

Threats

Threats also exist external to the business and are things which could cause problems. These may also be labelled as ‘competitive disadvantages’. For Walmart, these include:

• continuing bad reputation for corporate social responsibility means that Walmart needs to be very careful not to expose itself to bad publicity with regard to this;
• intense price competition between Walmart and other supermarkets or suppliers could reduce Walmart’s profit margins significantly; and
• the growing costs of food which are being experienced across the world may also reduce Walmart’s profit margins.

Once a business has undertaken a SWOT analysis, those involved will have a much better idea of its current status. This analysis will feed into the process of creating strategic options, allowing the business to capitalise on opportunities and competitive advantages and mitigate where possible the weaknesses and threats.