Visit the library, and go to IBISWorld. Enter the term “Soda Production in the U.S.” After you have familiarized yourself with the IBISWorld contents (be sure that you review all pages on the Soda ind

Module 2 - Background

SWOT ANALYSIS

In Module 2 of the course, we will continue our journey through the Strategic Management process by completing a SWOT analysis. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. An organization’s Strengths and Weaknesses are identified in an “Internal Analysis,” sometimes referred to as the “Internal Profile.” The Internal Profile is a critical and in-depth analysis and review of the organization’s core functional areas; these include Operations, Logistics, Customer Service Management, Finance, Accounting, Marketing, and Human Resources.

The external environment consists of everything that exists outside of and apart from the company. Included, among other things, are the organization’s competitors, suppliers, customers, the overall economy, government regulators, and social trends. The external environment is comprised of two sub-environments: the remote environment and the operating environment. The remote environment includes the larger Political, Economic, Social, Technological, Legal, and Environmental forces. These forces form an acronym that are referred to as “PESTLE”. In the Strategic Management process, we perform a PESTLE analysis in our assessment of the remote environment. The operating environment, very often referred to as the “industry” environment, consists of forces that are closer to the organization than are the PESTLE forces of the remote environment. The forces of the operating environment tend to have a more forceful and more immediate impact (whether negative or positive) on the organization; these forces also tend to change more rapidly, whereas PESTLE forces are more “distant” to the organization, they are more generalized forces (i.e., they affect many industries), and they tend to change more slowly (for example, the laws and regulations governing an industry tend to change slowly, although their impact on the organization can be very significant). The operating environment includes those industry players whose actions—for better or for worse—directly affect the organization, for example, competitors, suppliers, and buyers (customers).

Let’s begin our study of the external environment by reading Section 3.2: “The Relationship between an Organization and Its Environment” on pages 67-69 of the Mastering Strategic Management text.

Remote Environment

For an overview of the remote—sometimes called the “general”—environment, please read Section 3.3: “Evaluating the General Environment” (pages 70-82) of the Mastering Strategic Management text.

The “PESTLE Analysis” website provides an excellent overview of the forces in the remote environment. Read about PESTLE analysis here: http://pestleanalysis.com/what-is-pestle-analysis/

The following journal article written by Kukalis serves as an excellent discussion of the turbulence and change that are occurring in today’s remote environment. Note Kukalis’ observations concerning the digital economy and his reference to “hyper-competition.” While Kukalis does not mention social media specifically, he alludes to new and emergent social systems (Facebook is certainly one of these):

Kukalis, S. (2009). Survey of recent developments in strategic management: Implications for practitioners. International Journal of Management, 26(1), 99-106. Retrieved from ProQuest.

Porter’s Five Forces

Michael Porter’s Five Forces model assists organizations in the assessment of the operating environment. The Five Forces consist of the following:

1. Threat of Entry (or Potential Entrants): This is the likelihood that new competitors will enter the industry. This threat is dependent on such factors as the costs of capital (the costs required to “break in”), the nature of the competition (minimal or fierce), and the number of unserved or underserved customers;

2. Rivalry (amongst industry competitors): The level of competition between the competitors in an industry may be fierce (as in the soda industry), or minimal (as is true when a new product or service is early in the life cycle, and it first enters into a market);

3. Buyer Power: Dependent on the nature of supply and demand, buyers can have weak or strong purchasing power. When a product or service is in short supply and demand is high, buyers tend to have little power. Conversely, when there is ample supply of a product or service and the demand for that product or service is low, buyers will have greater power.

4. Power of Suppliers: This term refers to the suppliers of raw materials or suppliers of services that are needed by the organization in the production of a product or the delivery of a service offered by the organization. A raw material that is in high demand will give suppliers higher power, for example, than if the demand for that commodity is very low. The scarcity of raw materials will yield higher supplier power.

5. Availability of Substitutes: The ready availability of substitute products or services threatens the marketability of an organization’s products or services. For example, Blockbuster (a company that rented movies) went out of business because substitute services such as NetFlix, the evolution of cable television movie rentals, and web-enabled movie rentals (such as Amazon’s “Prime Video” service) became increasingly more readily available.

For a very good overview of Porter’s Five Forces, please read Section 3.4: “Evaluating the Industry” (pages 84-98) of the Mastering Strategic Management text.

Read the following two sections of the book Porter’s Five Forces: Stay Ahead of the Competition: 1) Porter’s Five Forces; and 2) Theory – the concept:

Michaux, S., Cadiat, A., & Probert, C. (2015). Porter's Five Forces : Stay Ahead of the Competition. [Place of publication not identified]: 50Minutes.com. Retrieved from EBSCO eBook Collection.

Next, please read Chapter 18 (“Choose Your Competition”) of Brian Tracy’s book:

Tracy, B. (2015). Business strategy (The Brian Tracy Success Library). New York: AMACOM. Retrieved from EBSCO-Ebook Collection.

Now, please open the Trident University IBIS World document and scroll to the bottom of the page. Click on the “Click Here” hyperlink at the bottom of the page. This will take you to IBIS World, an organization well known for conducting industry level research. Run a search on “Soda” in the search window. This will bring up a series of links that will lead you to a detailed and industry-specific report. Please click on the link entitled “Soda Production in the U.S.” At the bottom of the page, you will see a link entitled “Industry at a Glance.” Keep clicking on the links at the bottom of each page, and familiarize yourself with the data and information provided on the soda industry at each of the Web pages. Be sure to look specifically for information related to Porter’s Five Forces and PESTLE.

Internal Profile

As contrasted to the analysis of the remote and operating external environments, it is also necessary that management review the internal organization—i.e., each functional area is evaluated in-depth to determine the relative strengths and weaknesses of the company. The use of the term “relative” is of key importance here: “Relative” refers to the strengths and weaknesses that an organization has relative to those of competitors. For example, if an organization has much greater long-term debt than competitors, then this leaves the organization in a relatively weaker financial position than its competitors. However, if all companies in the industry carry the same (relative) long-term debt load, then long-term debt cannot be said to be a weakness. Similarly, a company that serves a significant share of the market (relative to the competition) enjoys a key strength.

Areas of internal evaluation include, but are not limited to, financial (e.g., liquidity, solvency, profitability, and efficiency financial ratios), market share, human resources (the ability to attract the most talented people in an industry), intellectual capital (patents, copyrights, and trademarks), research and development (the ability to innovate), marketing/ market development capabilities (the ability to develop new market segments and use new marketing channels), the quality of physical facilities (are buildings and equipment the most-up-date or are they more antiquated than those used by competitors?), and the use of technology (a company that uses more efficient methods of production than all other competitors has a distinct competitive advantage).

The Function Approach is a systematic process for evaluation of the internal profile. In the Function Approach, each major functional area is reviewed in detail. Using past – however recent – performance, key metrics, data, and information are evaluated in-depth to determine areas of strength and weakness relative to the industry-at-large and relative to the organization’s competitors.

Please review the following presentation as it relates to the Function Approach to internal organizational analysis:

The Internal Profile

In addition to the Function Approach, the Value Chain has been a very popular method of analyzing the Internal Profile. Read about the primary and secondary activities that comprise the Value Chain in Section 4.4 of the Mastering Strategic Management text (pages 127-132).

Importantly, organizations should always seek to build “Sustainable Competitive Advantages,” or SCA, which require that their products and/or services are:

1. Not substitutable;

2. Rare;

3. Valuable; and

4. Costly to imitate.

There are many ways in which organizations can achieve a sustainable competitive advantage:

1. People: Recruiting the most highly talented, skilled, and/or knowledgeable people in an industry yields a sustainable competitive advantage. Why? Because their knowledge and talent has no substitute, they are obviously rare, they are highly valued (and often lured) by competitors, and their knowledge, expertise, and talent cannot be easily replicated.

2. Organizational culture: We will discuss culture in greater depth in Module 4. For the meantime, however, consider how the unique culture of Southwest Airlines has contributed to the airline’s success: https://www.southwest.com/html/about-southwest/careers/culture.html

3. Product: Innovating a product that is unparalleled, new, or different – and that people want – yields a sustainable competitive advantage (one only need to consider the recent “Hatchimals” toy fad/ phenomenon).

4. Process: If an organization can make a product faster and better than the competition (because of state-of-the-art or enhanced technology or more efficient facilities or equipment), the organization enjoys a sustainable competitive advantage.

5. Technology: The unmatched use of technological know-how that an organization’s competition does not have yields a decided (and usually a sustainable) competitive advantage.

6. Capital: The organization has physical facilities and/or state-of-the-art equipment that no other competitor in the industry can match.

7. Finance: The organization has financial resources that are unmatched by competitors. Following is an overview of financial ratios:

   1. Drake, P. (n.d.). Financial Ratio Analysis. Retrieved from http://educ.jmu.edu/~drakepp/principles/module2/fin_rat.pdf

Please read Section 4.2, entitled “Resource-Based Theory” (pages 108-118) of the Mastering Strategic Management text. Notice how organizations having “strategic resources” (i.e., resources that are rare, highly valuable, or non-substitutable) enjoy competitive advantages. Hopefully, those resources are not easily duplicated, allowing the competitive advantage to persist over the long-run, and thus, allowing for a sustainable competitive advantage, or SCA.

SWOT

Please Review the definition of Strengths, Weaknesses, Opportunities, and Threats (SWOT) in slides 2-3 of the Grand Strategy Selection Matrices PowerPoint presentation. Also, be sure to take careful note of the SWOT diagram included on Slide 4. At this point, don’t be overly concerned with the definitions of each of the four cells, but note how S, W, O, and T are used to decide the most appropriate, generalized strategic direction (don’t be concerned with the rest of the slides—we will cover their content in Module 3).

Now that you understand the definition of strengths, weaknesses, opportunities, and threats, let’s put these concepts together to formulate a SWOT. Please read Section 4.6: SWOT Analysis on pages 136-138 of the Mastering Strategic Management text.

If you would like addition information on SWOT, read the following Quick MBA article:

SWOT analysis. (2010). Quick MBA. Retrieved from http://www.quickmba.com/strategy/swot/

Optional Reading

For a very good overview and examples of SWOT Analysis, review the links at the Free Management Library website (scan down to the section entitled “Do a SWOT Analysis of Results of Looking Outside and Inside the Organization?” here: http://managementhelp.org/strategicplanning/index.htm#anchor37202

Allio, R. J., & Fahey, L. (2012). Joan Magretta: What executives can learn from revisiting Michael Porter. Strategy & Leadership, 40(2), 5-10. Retrieved from ProQuest.  

Dobbs, M. E. (2012). Porter's five forces in practice: Templates for firm and case analysis. Competition Forum, 10(1), 22-33. Retrieved from ProQuest.

May the five forces be with you. (2016, May 08). Telegram & Gazette Retrieved from the Trident Online Library.

China's steel industry: Porter's five forces strategy analysis. (2016, Feb 03). M2 Presswire Retrieved from the Trident Online Library.

Ireland, R., & Hitt, M. A. (2005). Achieving and maintaining strategic competitiveness in the 21st century: The role of strategic leadership. Academy of Management Executive, 19(4), 63-77. Retrieved from EBSCO-Business Source Complete.

Privacy Policy | Contact