Posted by mbalectures | Posted in Strategic Management | 19,113 views | Posted on 26-01-2011 |
The strengths-weaknesses-opportunities-threats (SWOT) Matrix gives a set of strategies by analyzing internal capacity of the company and external environment of the industry. It is a matching tool for constructing four types of strategies which are: SO, WO, ST, and WT. Here it should be noted that there is no best set of matching external and internal factors due to which analysis becomes difficult to some extent. The explanation of SO, WO, ST, and WT strategies is given below:
Firms use such strategies to grab the external opportunities by using the internal strengths. For example, A firm has a strong financial position but it is loosing its market share; now with the help of strong financial position it can introduce innovative products by investing in research and development sector. Organizations always try to overcome major weaknesses and make them strengths. Similarly, organizations try to avoid threats and concentrate on opportunities.
These strategies are used for the purpose of improving internal weaknesses by using external opportunities. It is possible that a firm has good external opportunity but can not avail it due to internal weakness. For example, A firm may find an opportunity of increasing its production by introducing new technology but the firm may lack the skilled workers required for the production. In such case, a possible WO Strategies would be to hire and train people with the essential technical skills.
Such strategies are used by the organization for the purpose of reducing the impact of external threats by using its internal strengths. For example, a firm with strong legal department (strength) can avoid external threats such as copying ideas, innovations, and patented products. Similarly, an organization with strong line of quality products may face the threat of low priced products of rivals. In such case the organization can apply ST Strategy of mass production to reduce the unit cost of production.
WT Strategies are mainly used by those firms which are not in a good and stable position. Basically, these strategies are defensive because organizations try to reduce internal weaknesses while avoiding the external threats. For example, if an organization has weak financial position (weakness) and the demand for its products is reducing (threat) then the possible WT Strategies would be to retrench or merge.
Steps in the construction of SWOT Matrix
Following are some of the important steps involved in the construction of SWOT Matrix
List down the important strengths of the firm
List down the important weaknesses of the firm
List down the important threats of the firm
List down the important opportunities of the firm
Now match internal strength with external opportunity and type the appropriate SO strategy in the SO cell.
Similarly, match the internal weaknesses with external opportunities and type the appropriate WO strategy in WO cell.
Match internal strengths with external threats and type the appropriate ST strategy in ST cell.
Match internal weaknesses with external threats and type the appropriate WT strategy in WT cell.
TOWS or SWOT Matrix of Nokia Corporation
SWOT Matrix for Nokia Corporation is provided in the above figure. SWOT Matrix contains nine cells in which four are key factor cells, four strategy cells and one blank cell. First of all, the four key factor cells are completed which are labeled as: S, W, O, T then the four strategy cells will be constructed which are labeled as: SO, WO, ST, and WT.
It is important to note that not all the strategies developed in the SWOT Matrix will be selected for implementation. The matrix only points out the possible strategies which can be implemented. It does not help in determining the best strategies for implementation. While constructing SWOT matrix, one should include S1, O2 type notation after each strategy because notation reveals the rationale for each alternative strategy.
Limitations of SWOT/TOWS Matrix
SWOT matrix does not reveal the steps which need to be followed in order to achieve competitive advantage. The matrix does not show how to implement the strategies successfully.
Organizations always face changing competitive environment. Due to continuous improvements it becomes difficult for the organizations to reveal the dynamics of a competitive environment in a single matrix.
TWOS Matrix does not show interrelationships among the key internal and external factors. Organizations may overemphasize a single internal or external factor in formulating strategies. Whereas, interrelationships among the factors also impact the strategies.