In an earlier part of this section we outlined what was meant by a strategy. We now consider how a strategy may be formed. To determine what their strategy should be managers must consider the internal strengths and weaknesses of their organisation and compare these with the external opportunities and threats. This process is known as SWOT analysis. Strengths are internal factors that a firm may build on to develop a strategy. For example, they may include: • Marketing strengths e.g. a strong brand or access to a good distribution network • Financial strengths e.g. a high level of cash, access to loan capital if needed and a good credit rating • Operations strengths e.g. a high level of efficiency, flexible production systems and high quality levels • HRM strengths e.g. a well trained workforce, a creative and motivated workforce and good employer-ee relations Weaknesses are internal factors that a firm may need to protect itself against such as: • Marketing weaknesses such as limited distribution, a poor product range and ineffective promotion • Financial weaknesses such as high levels of borrowing and low rates of return • Operational weaknesses such as old, inefficient equipment and poor quality • HRM weaknesses such as a high rate of labour turnover and industrial disputes Managers must identify the specific strengths and weaknesses of their business and rate these according to how significant they are. They should then compare these with the external opportunities and threats identified by PESTEL analysis. This is SWOT analysis. [pic]
A strategy may be developed by using a firm's strengths to exploit the opportunities that exist. For example, a strong brand name may be used to extend a firm's products into new markets. It may also use these strengths to protect itself against threats; for example, a retailer may use its finance to acquire key locations to prevent a competitor buying them. A firm may also want...
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