A SWOT analysis arranges a company’s top strengths, weaknesses, opportunities and threats into an organised list, and is generally presented in a simple two-by-two grid.
By Vidya Hattangadi
The Coca-Cola Company, Airbus and the biggest clothing company in the world Zara have something in common—these companies have used SWOT analysis to their benefit. The strengths, weaknesses, opportunities and threats (SWOT) study helps an organisation become aware of all the factors involved in making strategic decisions. Strengths and weaknesses belong to the internal environment, and organisations have some control over them. Examples include employees, values, culture, intellectual property, location advantage, etc. Opportunities and threats belong to the external environment—things that go on outside the company, in the larger market. Organisations can take advantage of opportunities and protect themselves against threats, but they can seldom change them. Examples include competitors, prices of raw materials, legal environment, taxation policies and customer behaviour.
A SWOT analysis arranges a company’s top strengths, weaknesses, opportunities and threats into an organised list, and is generally presented in a simple two-by-two grid. When organisations take the time to do a SWOT analysis, they are armed with a solid strategy for prioritising the pending work list necessary to grow their business.
Writing your own SWOT once a year is very helpful. You may think you already know everything that you need to succeed, but a SWOT analysis helps you look at yourself with a difference, giving you new directions.
A SWOT analysis is a proven management framework that enabled a brand like ITC Limited to benchmark its business and performance as compared to competitors in the industry. As of 2020, ITC Limited is one of the leading brands in the FMCG sector with a diversified product and services strategic business units, including fast-moving consumer goods, hotels business, paper and packaging, and agribusiness. It also has over 6,500 e-Choupal kiosks reaching over 4 million farmers (CSR activity and sustainability initiatives), and this has enhanced ITC’s brand image. One of its weaknesses is that in the hotels business it has not been able to create a large market share.
Who should do a SWOT analysis? For an effective SWOT analysis, company founders and top management team need to be deeply involved—this is not a task that can be delegated to others. They can do analysis with a group of people who have different perspectives on the company. Innovative companies even look outside their internal ranks when they perform a SWOT analysis and get inputs from customers, suppliers, competitors and industry analysts for getting candid views.
There is one truth attached to a SWOT analysis, i.e. things are constantly changing and, therefore, organisations constantly need to reassess their strategies.
The TOWS analysis is an extension of the SWOT analysis framework; it goes further by matching up strengths with opportunities and threats with weaknesses. In SWOT, we identify all the strengths, weaknesses, opportunities and threats in point form, from a singular perspective. But in the TOWS matrix we identify relationships between these factors and select strategies on this base. In the TOWS matrix, we create a chart to compare internal (strengths and weaknesses) intersecting with the external aspects (i.e. opportunities and threats).
Strengths and opportunities (SO): It allows firms to analyse how they can use their strengths to take advantage of opportunities. ITC has a large and competent management team. It has a clear brand image, outstanding goods, and a diversified range of products and services, including FMCG, hotels business, paper and packaging, and agribusiness.
Strengths and threats (ST): It allows firms to take advantage of their strengths to avoid real and potential threats. ITC has made continuous efforts to separate the FMCG sector from overdependence on tobacco products, and has been successful in doing so to an extent. Nonetheless, tobacco products remain the biggest source of revenue, contributing more than 60% to ITC’s overall revenue.
Weaknesses and opportunities (WO): It allows using opportunities to overcome weaknesses an organisation is experiencing. Association with tobacco products has an impact on the brand: ITC has made a great deal of effort to enhance its corporate image, but the fact that ITC has many tobacco products in its portfolio has an impact on its corporate image. Tobacco tax has an effect on its revenues: Due to the rise in tax on tobacco products, cigarette rates and, subsequently, profits are affected. There has been an increase in health awareness as well, which has resulted in a decrease in the demand for tobacco products in India.
Anti-smoking programmes throughout the country also have an effect on cigarette sales. However, the distribution channel created because of cigarettes is being used for FMCG products by ITC.
Weaknesses and threats (WT): It helps minimise weaknesses and avoid threats. ITC’s hotels business has not been able to build an enormous market share.
However, increased people’s buying power has allowed ITC to further investments in its hotel chains to increase market share. Every year, ITC invests around 6% of its operating profit and 9% of its profit-after-tax in hotels. Unlike its competitors Indian Hotels and Leela, ITC has an advantage. It does not have to borrow funds and relies on the cigarettes business to generate the cash needed for investment. The fact that this is a loss to shareholders who would have otherwise received bigger dividends instead of poor returns from investment in a struggling hospitality industry has somehow not been acknowledged. It is time for the ITC management to take a call on the hotels business.
Combining a SWOT analysis with TOWS strategies gives small and large businesses the foundation they need to build their companies and move frontward.
The author is a management thinker and blogger