SWOT analysis and its importance
SWOT analysis is a tool which is used by organisations across the globe. It is referred as an analytical tool which enables the parties to evaluate their strengths and weaknesses. It also assists them in identifying various opportunities and threats for the corporations based on which parties can form strategies to increase their profitability (Fallon, 2018). Based on this analysis, a company can survive both internal and external forces which affect its business. The internal elements of a company define its strengths and weaknesses such as human resource abilities, effective organisational policies, leadership skills and others. External factors define opportunities and threats of a corporation which include factors such as competition in the industry, change in government policies, change in customer behaviour and others (Yuan, 2013). By evaluating these factors, the corporations can develop policies which are based on their strengths and focused towards their future opportunities. Organisations use In order to understand this mode, an example of Zara can be evaluated which is a fast fashion retailer which has operations situated across all over the globe. The company is recognised throughout the world because it provides the latest brand clothes at relatively lower prices. One of the key strengths of the company is its ability to replace 75 percent of its merchandise in the display for a period of 3-4 weeks (TFL, 2016).
Other corporations took months to change their merchandises based on the latest fashion due to which Zara has a competitive advantage in the fashion industry based on its responsive supply chain (TradeGecko, 2018). The weaknesses of the corporation are that it did not invest in its marketing strategy. The marketing strategy of the company is relatively weak due to which it is unable to target a wider audience. Opportunities of the company include expansion of its business in overseas markets and launching a new category of products for new segment of customers (Gallien et al., 2015). Threats faced by the enterprise include economic downtime of various developing countries, imitation or copy of original products and high competition between fashion enterprises (Bailey, 2015).
This model was developed by Michael Porter which is used by corporations across the globe. The model focuses on evaluating various aspects of an industry which result in influencing its attractiveness and unattractiveness. Based on this framework, corporations can evaluate the competitive environment in an industry to select whether to enter such market or not (Dobbs, 2014). Evaluation of this information assists the enterprises in developing relevant strategies which are focused towards development of the organisation and its resources (Martin, 2017). The theory provides five forces which affect an industry which includes supplier power, buyer power, threat of substitute, competitive rivalry and threat of entry. Based on evaluation of these factors, the organisations can determine the competition level in the industry which enables them to develop appropriate business strategies. The bargaining power of suppliers and buyers is referred to their ability to drive the price of supplies and products of the company respectively (Investopedia, 2018). The threat of new entry is referred as the difficulty faced by competitors while entering the industry. The threat of substitute is referred to alternative products which are similar to the products of the company which customers can select.
Example of SWOT analysis: Zara
Lastly, the competitive rivalry is the intensity of competition in the industry between organisations. In order to understand this model, an example of Nestle can be evaluated in the report. The company operates in food processing industry, and it offers products such as coffee, tea, dairy products, frozen food, snacks, bottled water, baby food and other products globally (Bhasin, 2017). Firstly, the rivalry between customers in food processing industry is low since Nestle is a significant competitor that has gained a competitive advantage across the globe. It is difficult for its competitors to reach the level of the organisation. The buyer power is high in the industry because customers did not have to pay any switching costs. Moreover, supplier power is high as well because Nestle relies on its suppliers across the globe to ensure that they provide high-quality raw materials to the company (Hacklin and Wallnofer, 2012). The threat of new entrants is low because the cost of establishing the operations is relatively high (Koltrowitz, 2013). The threat of substitute products is high because there are a large number of similar products available in the market which are manufactured by both small and large manufacturers. Based on this analysis, the corporation is able to evaluate the factors which affect its operations in the industry which enables it to form business policies to sustain its growth in the food processing industry.
Organisations use this model to recognise various resources which they have that provides them a competitive advantage. Executives identify resources by using the VRIO framework which enables them to collect necessary information and compare it with others (Lin and Wu, 2014). VRIO stands for valuable, rare, inimitable and organised. The resources which have these traits provide a competitive advantage to the organisation. This model is under by top-level management while forming future business strategies for the organisation. They focus on effective resources to identify the ones which they have to focus on which benefit them in the long run.
In order to understand how this model works, an example of Honda can be evaluated which is one of the largest engine and car manufacturers in the world. By using RBV model, the corporation focuses on its business model which provides its competitive advantage by manufacturing petrol based engines (Charan, 2012). The company manufactures petrol based engines in its facilities situated throughout the globe. The company gained expertise in the engine manufacturing field since it started its business from clip-on engine for bicycles. Due to its expertise in the field, the company started making jet engines, car engines, generators, and marine-based engines which provides it a competitive advantage over other manufacturers (Honda, 2018). Furthermore, it also entered into car manufacturing field where it receives substantial success. By using RBV model, the company identified that it could manufacture high-quality engines which provides it a competitive advantage in the field.
Porter’s Five Forces and its significance
PESTLE analysis is used by corporations to identify various external factors which affect their profitability in the market. Evaluation of these factors is important since it provides crucial information to the management which assists them in developing business strategies. The external factors include political, economic, social, technological, environmental and legal. By analysing these factors, the corporations can track the environment in which they operate which assist them in keeping a bird-eye view on the factors which affects their operations (Zalengera et al., 2014). In order to understand this model, an example of Amazon can be evaluated.
Amazon operates across the globe due to which international political environment affects its operations. For example, ban on free trade activities by Trump Administration results in adversely affecting the business of Amazon. The main operation of the company is situated in the United States and economic stability in the country benefits the company (Madduri et al., 2014). The corporation has a positive image worldwide which assist in expanding its customer base. It uses technologies to improve its operations such as use of drones to deliver packages. It complies with various legal regulations while operating its business in international markets such as labour laws, employee security policies and others. It invests heavily in environmental policies in order to reduce its carbon footprint. For example, it has recently built a new offer in Seattle which uses green energy and has over 40,000 plants in the office space (Musaddique, 2018).
References
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