IB Docs (2) Team
BMT 1 - SWOT analysis
- Sir Richard Branson, founder of Virgin Group (b. 1950)
Sir Richard Branson has proven that business opportunities exist even if they are not initially apparent. He co-founded the Virgin Group in 1970, starting with the Virgin record label, and has since diversified into hundreds of different lines of business, including:
Books
Commercial aviation
Commercial space flight
Consumer electronics
Entertainment and Film
Health care
Internet services
Jewellery
Mobile phones and telecommunications
Music
Radio
Rail transportation
Retail
Travel and tourism
Today, the Virgin Group employs over 71,000 people and has gross annual sales revenue in excess of £16.6 billion ($22.6bn).
Source: adapted from https://www.virgin.com/
In the pursuit of achieving their aims and objectives, businesses face challenges from both within and outside of their organizations. Internal and external opportunities and threats will affect a firm’s performance and chances of success. Understanding these factors can facilitate effective decision-making. Internal threats are constraints within a firm’s own control. These limitations tend to be dominated by the rules, policies, and culture of the organization. Examples of internal constraints include:
Finance - Most firms lack sufficient sources of finance (see Unit 3.2) thereby limiting their ability to achieve organizational objectives.
People - Poor working relations and ineffective communication systems (see Unit 2.6) hinder the performance of an organization. Motivational strategies (see Unit 2.4) can go some way towards resolving these issues.
Marketing - Firms might not have as attractive marketing campaigns as their rivals, such as inferior products, packaging, customer service, and/or promotions.
Production - Firms may lack the resources and/or expertise to improve their operations such as production techniques or stock control systems in order to enhance their operational efficiency and competitiveness.
As a Business Management tool, SWOT analysis provides a framework for strategic analysis to allow managers to assess the current situation facing an organization. SWOT stands for strengths, weaknesses, opportunities, and threats. SWOT analysis came about from the research conducted at Stanford Research Institute between 1960 and 1970, with the intention of investigating why corporate planning failed.
SWOT analysis considers both internal factors (strengths and weaknesses) and the external business environment (opportunities and threats). It is one of the most used business management tools in the corporate world.
Firms have some degree of control over the internal factors, but not over the external factors.
Strengths – The things that the organization does well or better in comparison to its competitors, e.g. brand recognition, reputation, market share, cost leadership, profitability, quality, staff retention, well-trained staff, and customer loyalty.
Weaknesses – The things that the organization does not do so well in relation to its competitors, e.g. low productivity, high staff turnover, outdated technology, liquidity problems, high fixed costs, poor employer-employee relations, skills gap in the organization, overreliance on a product or particular market, or a poor corporate image.
Opportunities – External factors that provide openings (prospects) for an organization to succeed, e.g. new technologies, favourable demographic trends, economic recovery, and new prospects in overseas markets.
Opportunities require the identification of new or unsatisfied consumer needs. Identifying and exploiting market opportunities allows entrepreneurs to have a better chance of survival and success. Such opportunities can come about in several ways, including:
Identifying a gap in the market - Small firms and new businesses tend to thrive in niche markets (a small or unfilled segment of a market). Large organizations are often put off from entering a niche market because it is too small and hence profits are very limited. This allows market opportunities for smaller businesses. Niche markets do not necessarily stay small however; indeed personal computers, flat-screen televisions and mobile phones all started as small niche markets. Unit 1.5 examines other reasons why small firms can survive in a highly competitive environment.
Market research (see Unit 4.4) is imperative if business start-ups are to have a decent chance of survival. Many people go into business thinking that they know what is best, or hoping that things will fall into place. The reality is that a significant number of new businesses face problems and fail. The benefits of conducting thorough market research allow owners to better understand the nature of the industry and their customers’ wants and needs. In turn, this improves the organization’s chances of success.
Developing the entrepreneur’s personal qualities, skills and interests - Entrepreneurs such as Russian oil tycoon Roman Abramovich have built their businesses largely on their personal interests. Abramovich’s passion for European football led him to buying Chelsea Football Club. Although the Club was making huge financial losses at the time, Abramovich’s fortunes have significantly improved the trophies of the English Premier League club.
Innovative ideas and creations - Entrepreneurs may come up with new products and/or processes to meet consumer needs. Apple’s iPod, Google’s search engine, and e-Bay’s auctioning business are some examples. The key benefit of this approach is that the owners have good market and product knowledge. They can use their innovation as a form of product differentiation and market this as their unique selling point. New product designs and processes can be legally protected via copyright and patent legislation to prevent others from replicating the firm’s ideas.
Note: in some case, innovation can turn into a strength (rather than opportunity) if the organization is able to develop this into a cultural norm. In product-orientated organizations like Apple or Tesla, innovation and creativity are a core strength. However, do remember that in any SWOT analysis, categorizing variables or characteristics as strengths, weaknesses, opportunities, or threats is not always straightforward. What is an opportunity for one business might be a strength of another. It is therefore important to always justify your answers when constructing a SWOT analysis.
- Threats – External factors that hold back the business, preventing it achieving its organizational goals, e.g. detrimental weather conditions / seasonality factors, changing habits and tastes, increased competition in the industry, price wars, oil crises, natural disasters, the outbreak of infectious diseases, political constraints, environmental laws, greater regulation of the industry, media exposure, and economic recession.
Note: what might be considered as a strength for a particular organization might be viewed as a weakness for other firms. For example, whilst the coronavirus pandemic caused millions of job losses across the world due to lockdown laws and temporary closure of businesses, many online businesses such as supermarkets thrived. Sales at fashion retailer Zara were up 95 per cent in April 2020 as stores across the globe were closed during the coronavirus lockdown. Zara's parent company, Inditex, announced in June 2020 that it expected a permanent shift in buying habits, as customers become accustomed to social distancing rules and more comfortable with e-commerce to purchase their clothing items.
Advantages of SWOT analysis
It is a useful visual management tool with a very broad range of applications in dealing with real-world problems, issues and decisions for managers and decision makers in businesses and organizations.
It helps managers to develop a better understanding of the organization’s position in the market.
It enables the organization to reflect on its strengths (to be protected) and weaknesses (to be developed into strengths).
It encourages decision makers to examine the strategic opportunities for the organization and the possible threats (risks) of certain decisions, such as growth (expansion), diversification, or relocation.
It facilitates strategic thinking. For example, a SWOT analysis can help managers and decision makers to build on the strengths of the organization and focus on the opportunities or try to protect itself against the risks of weaknesses and threats.
Disadvantages of SWOT analysis
It is a static business management tool, i.e. it only provides a snapshot of the current situation for an organization. Changes in internal and external factors could make the SWOT analysis outdated quite quickly. For example, how many business back a the beginning of 2020 would have identified the potential for a prolonged global pandemic in their SWOT analysis?
It requires the organization to be honest, although it is not always easy to acknowledge or disclose to one's weaknesses or shortcomings.
Like any business management tool, a SWOT analysis is only as good as the person(s) who compiled it, i.e. there may be errors, biases and/or omissions.
SWOT analysis does not guarantee that a strategy will be successful, e.g. identifying weaknesses and threats does not necessarily mean that the business has sufficient resources to tackle these risks.
Hence, a SWOT analysis needs be used in conjunction with other business management tools in order to make more informed decisions.
Top tip 1!
Although a SWOT analysis can be presented in a table format, all bullet points must be clearly outlined and written in the context of the business organization.
Top tip 2!
When constructing a SWOT analysis, remember the importance of writing in the context of the organization in question. It can be helpful if students consider the industry in which the organization operates, and the economy in which the business operates.
Watch this short 5-minute YouTube video about how to create a SWOT analysis:
SWOT analysis Quiz
For each statement below, state the most likely category this would appear in a SWOT analysis. Whilst taking this quiz, also consider how SWOT analysis can be integrated in different parts of the Business Management syllabus.
| No. | Statement | SWOT category |
| 1. | Increased market share. | Strength |
| 2. | A sustained increase in the general level of prices, including raw material costs. | Threat |
| 3. | Highly experienced senior management team. | Strength |
| 4. | New entrants in the market. | Threat |
| 5. | Low labour productivity in the organization. | Weakness |
| 6. | Limited access to external sources of finance. | Weakness |
| 7. | Rising interest rates in the domestic economy. | Threat |
| 8. | Sustainable levels of economic growth. | Opportunity |
| 9. | High rates of market growth. | Opportunity |
| 10. | Advances in cybersecurity and Internet technologies. | Opportunity |
| 11. | Having a unique or distinctive selling point. | Strength |
| 12. | Political instability in the domestic economy. | Threat |
| 13. | Higher rental payments for commercial property. | Threat |
| 14. | Industrial unrest in the workplace, such as strike action. | Threat |
| 15. | Prospects of relocation, such as external economies of scale. | Opportunity |
Teacher only boxTeachers can download a PDF version of this quiz to use with students in class by using the hyperlink here.
Case Study 1 - Coronavirus: Threats only?
COVID-19 has been the greatest threat to businesses across the world in living memory
The coronavirus pandemic, which started in late 2019, has affected businesses in every country in every continent on the planet, with over 265.4 million cases of people with the virus, and more than 5.26 million recorded deaths globally by December 2021.
Examples of threats faced by businesses include:
Airbus cutting 15,000 jobs, mainly in Germany and France due to the decline in demand for its planes as a result of the stagnant air travel industry. The European aircraft manufacturer had previously furloughed 3,200 workers due to a cash flow crisis.
Oil giant BP announced 10,000 job cuts following the global slump in demand for oil (as people were stuck indoors during The Great Lockdown), around 15% of its global workforce.
British Airways announced in August 2020 that it would make around 10,000 employees redundant as the airline carrier struggled with a huge decline in flights to/from the UK.
In October 2020, Cathay Pacific (Hong Kong's flagship airline carrier) announced 6,000 job cuts globally along with closure of Cathay Dragon (formerly known as Dragonair) - its subsidiary airline. The company also announced that existing staff would need to take a pay cut - the more senior, the larger the pay cut.
In August 2020, Coca-Cola announced 4,000 job cuts in the USA, Canada and Puerto Rico due to declining sales caused by the coronavirus pandemic. The company said it may need to make job cuts in other countries at a later date. It estimates the severance expenses of the job losses could cost between $350 million to $550 million.
Dyson, famous for its bagless vacuum cleaner, announced in August 2020 that it would have to cut 600 jobs in the UK plus a further 300 jobs worldwide as the coronavirus harmed its global sales.
Frankie & Benny's (a bar and grill restaurant chain owned by the Wagamama group) closed 125 restaurants in the UK, causing 3,000 people to lose their jobs.
Rolls-Royce announced 9,000 job cuts around the world due to the global decline in air travel, hurting demand for its jet engines and maintenance services.
Examples of opportunities that businesses took advantage of, arising from the COVID-19 pandemic, included:
E-commerce businesses with well-developed online retail stores, such as Amazon and Taobao, gained from the huge rise in online shopping during the pandemic.
Entertainment streaming service providers (such as Netflix, Disney+, and Sky) gained from more subscribers who stayed at home far more often. During national lockdowns, cinemas and theatres were closed, so created commercial opportunities for online streaming providers.
Food delivery companies (such as Deliveroo, Delivery.com, DoorDash, Grab, Grubhub, Just Eat, Meituan Waimai, OLO, Postmates, Snapfinger, and UberEats) made the most of national Lockdowns by seeing an increase in the demand for their services as people worked and studied from home.
Logistics and courier companies (such as DHL, FedEx, TNT, UPS, and the post office) also gained immensely from the rise in online shopping.
Supermarkets and other retailers of food products (as more people ordered products online and/or ate at home instead of dining at restaurants).
Personal protective equipment (PPE) manufacturers of products such as surgical masks, hand sanitizing products, disinfectants, medical gowns, and gloves.
Video conferencing technology firms (such as Adobe Connect, Google Meet, Skype, and Zoom) enjoyed a huge boost for their services for online meetings, conference, and education. Zoom has more than 300 million daily meeting participants - around 10 million more each day before the coronavirus hit.
Case Study 2 - Coronavirus: The entrepreneurs who started businesses in lockdown
Despite the social and economic turmoil caused by the Coronavirus pandemic in 2019 - 2020, some entrepreneurs made the most of the business opportunities by setting up businesses. Opportunities for businesses to not only survive but to thrive included:
E-commerce businesses with well-developed online retail stores, such as Amazon and Taobao
Entertainment streaming service providers, such as Netflix and Disney+
Food delivery companies, such as Deliveroo, Delivery.com, DoorDash, Grab, Grubhub, Just Eat, Meituan Waimai, OLO, Postmates, Snapfinger and UberEats
Logistics and courier companies, such as DHL, FedEx, TNT, UPS, and the post office.
Supermarkets (as more people ordered online and/or ate at home instead of dining at restaurants)
Personal protective equipment (PPE) manufacturers of products such as surgical masks, hand sanitizing products, disinfectants, medical gowns, and gloves. An example is Camiko London. Also, see the BBC article referenced below.
Video conferencing technology firms, such as Adobe Connect, Google, Skype and Zoom (for online meetings, conference and online education).
Read the BBC article here to see how four women took the brave step to start their businesses during the lockdown period.
ATL Activity 1 (Research skills) - SWOT analysis
As part of this background research task, students are to prepare a full SWOT analysis for an organization of their choice. This will help them to be better prepared for questions that may require strategic analysis of an organization in the external exams.
Students should be encouraged to:
Compile a full SWOT analysis for the organization of their choice
Explain why a particular point is a strength, weakness, opportunity or threat (discourage them from just listing these as unexplained bullet points)
Include citation and referencing of their sources - this helps to substantiate their responses
Only refer to internal factors within the control of the organization as strengths and weaknesses
Only refer to external (STEEPLE) factors beyond the control of the organization as opportunities and threats
Conduct the SWOT analysis for the organization, rather than for a decision or situation the business faces.
Present their findings to the rest of the class. Prior to their presentation, students should also review their SWOT analysis as conditions may have changed; what was a strength at the time of the investigation may no longer be the case, for example.
Strategic Management Insight is a great website to get your students started with this task - which contains 30 SWOT analyses for different companies to choose from; just make sure they don't just copy/paste but are able to explain the various components in the context of their chosen organization.
ATL Activity 2 - Compiling a SWOT analysis
Watch this short video from MindTools before having a go at the tasks below. Make note of the questions presented in this video for each of the four components of a SWOT analysis.
1. In groups of three or four, prepare a SWOT analysis for an organization of your choice.
2. Swap your SWOT analysis with another group.
3. Check this other group’s SWOT analysis to make sure their points are correctly classified into each SWOT category, such as:
· Strengths are internal, positive factors affecting the business
· Weaknesses are internal, negative factors affecting the business
· Opportunities are external, positive factors affecting the business
· Threats are external, positive factors affecting the business
4. Swap your SWOT analysis with a third group. You are now the senior management team for this group’s business. Decide how this business should:
· Maximize its strengths
· Overcome its weaknesses
· Take advantage of the opportunities
· Mitigate (reduce) the impact of the threats
5. Provide feedback to the rest of the class (for Task 4).
The accompany notes for the video can be accessed here.
ATL Activity 3 (Thinking and Communication skills) - Marco's Craft Beer (MCB)
Marco’s Craft Beer (MCB)
Marco’s Craft Beer (MCB) is a microbrewery located in Poblacion, Manila, an old historic centre of Philippines capital’s wealthy neighbourhood. MCB produces a variety of craft beers, popular with beer enthusiasts. MCB also runs a bar called Marco’s Bar, located in an entertainment district, famous for jazz, clubs and bars. Marco’s Bar is a popular hangout place for young professionals. There is growing demand for good craft beers in Manila, and the brewery supplies its draft beers to many restaurants, including Marco’s Bar.
Three months ago, Marco’s Bar gained negative attention when the police raided its premises, accusing the bar of selling illegal drugs. Their sales plummeted for a brief period of time. MCB has also been facing intense competition from other local microbreweries. With the rising rent in Poblacion, MCB is finding it challenging to make Marco’s Bar profitable.
MCB has outsource some talented marketers from an agency who have focussed on aggressive marketing campaigns, to attract and retain loyal customers. With the growing number of people buying alcoholic drinks online, MCB is struggling as it was not able to establish its brand in the online market. Although the government of the Philippines provides financial support for small-scale businesses, the high sales tax and the volatility of the political situation in the country are of significant concerns for MCB.
Based on the above information, and working with another member of your class, create a full SWOT analysis of MCB.
Possible answers could include:
Strengths
MCB and Marco’s Bar are both located in one of most the popular and wealthy parts of the city.
Being located at the centre of the historic city, Marco’s Bar gets lots of passing trade from tourists, in additional to local customers.
MCB and Marco’s Bar have a loyal customer base.
MCB supplies draft beers to many restaurants. So also benefits from economies of scale.
Weaknesses
MCB is unable to establish an online presence.
Negative publicity due to accusations of Marco’s Bar selling illegal drugs; this can permanently damage its competitiveness.
Opportunities
There is growing appreciation of craft beers in Manila, so growth potential for MCB if it can attract more of these enthusiasts.
Government support for small-scale businesses might be able to help provide a vital source of finance for MCB.
The aggressive and focused marketing campaigns designed by the outsourced / talented marketers may help to increase MCB’s sales.
Threats
The craft beers market is getting more competitive, with intense competition.
Marco’s Bar is also located in an area with lots of direct competition from other bars and clubs.
The high sales tax could harm the future profits of MCB.
Rising rents add to MCB’s costs, threatening the firm’s profitability.
The political volatility / instability can negatively impact the economy and MCB’s sales and profitability.
This question has been reproduced with the kind permission of Level7 Education, © 2020
Top tip 3!
The real value of conducting any situational analysis, such as SWOT analysis, is to inform managers and decision-makers about what needs to be done:
Strengths - maintain, build, and leverage the strengths of the business or organization
Weaknesses - tackle and remedy any weaknesses, with the intention of turning these into areas of strength
Opportunities - prioritise and optimise opportunities in order to gain and maintain competitive advantages
Threats - counter these in order to minimize risks and to turn these into opportunities.
Thus, for the tool to be of real use to managers and decision makers, the findings from a SWOT analysis should be used to address questions associated with strategic analysis with the goal of leading to strategic choice and the implementation of a suitable corporate strategy.
To test your understanding of this topic, have a go at the following Flashcard revision tasks. There are 10 flashcards in this quiz - how many can you get right?
| (a) | Explain how SWOT analysis is used as a business planning tool by managers and decision makers in a business or organization | [4 marks] |
| (b) | Explain how the culture and ethics generate both opportunities and threats for a multinational company (MNC). | [6 marks] |
Answer
(a) Explain how SWOT analysis is used as a business planning tool by managers and decision makers in a business or organization. [4 marks]
Possible answers could include an explanation of:
SWOT analysis is a commonly used business management tool used as part of the process of strategic planning by examining internal and external factors that affect the organization.
It enables the business to consider strengths, weaknesses, opportunities, and threats before it develops an appropriate business strategy.
It involves exploring the current position of the organization in terms of its internal strengths and weaknesses, and to identify potential opportunities and threats in the external environment.
In particular, consideration of weaknesses and threats enables managers and decision makers to assess risks and to minimise the potential harm to the organization.
It can enable managers and decision makers to examine how weaknesses can be turned into strengths and threats turned into opportunities.
It is commonly included as part of a business plan.
Accept any other relevant reason why SWOT analysis might be used as a strategic planning tool.
Award [1 – 2 marks] for a limited response that shows some understanding of the demands of the question.
Award [3 – 4 marks] for a clear and accurate answer that shows good understanding of the demands of the question. There is appropriate use of terminology throughout the response.
(b) Explain how the culture and ethics generate both opportunities and threats for a multinational company (MNC). [6 marks]
Ethics are about what is deemed to be right and what is considered to be wrong, i.e., morality from society's point of view. Business ethics provide moral guidelines for the conduct of businesses and all aspects of their operations, such as finance and accounting, marketing, and human resource management. Examples of ethical objectives include: improving the overall wellbeing of workers, fair treatment of customers and suppliers, adopting green/clean technologies, pursuing sustainable growth, using socially responsible advertising, and corporate governance (such as financial integrity and transparency). These can provide opportunities/benefits as well as create limitations such as compliance costs.
Culture is about the norms and the 'way things are done' in the organization.The prevailing organizational culture provide the guiding principles of the attitudes and behaviour at work in the business, that have been established over a long period of time. Essentially, it describes the character or personality of the organization.
The concepts of culture and ethics generate both opportunities and threats for multinationals. This question gives huge scope for students to investigate a MNC of their choice to see how ethics have affected the company (e.g., the Volkswagen diesel emissions scandal or the many examples of ethical business behaviour during the Coronavirus pandemic of 2019 - 2020). Very importantly, students should also consider how the organizational culture of business affects its activities/operations, and whether the culture is conducive to change, progress and survival in an increasingly globalized world for the MNC.
Award [1 – 2 marks] for a response that shows limited understanding of the demands of the question. The answer is generalized and tends to be descriptive and/or lacks detail.
Award [3 – 4 marks] for an answer that shows some understanding of the demands of the question. At the top end of the mark band, there is an explanation of how culture and ethics generate opportunities and/or threats for a multinational company (MNC), but the explanation may lack some substance.
Award [5 – 6 marks] for an answer that shows good understanding of the demands of the question. The response clearly explains how culture and ethics generate both opportunities and threats for a multinational company (MNC). The explanation is appropriately sustantiated. Appropriate business management terminology is used throughout the answer, with relevant use of examples.
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