Environment as we know: totality of all the factors which involve both internal and external conditions of business, commerce and industry. Environment is more relevant to external conditions.
The conditions are generally beyond the control of an individual business enterprise and its management. Environment factors also play an important role about the future conditions of business. A business firm cannot operate in an isolated manner; it is a part of the environment.
A business decision and its strategy have to take into account the constraints as well as the opportunities. Any decision has to follow a suitable strategy. The strategy includes entire process of determining major business activities, the future products and services, the market, target customer group, supply, financiers and the tactics to be adopted to challenge the competitors.
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It is also related to major outside interest groups and their stakes, expectations of inside stock holders, statistics and information for the projected performance and evaluation for the projected performance and evaluation of the environment and rationale behind the organisation.
All of these are necessary for formulation of organization’s purpose, mission, objectives goals, policies and strategies. Corporate strategy is a long term comprehensive plan for any organization. It indicates the path and direction through which long term objectives can be achieved.
Management experts have found certain techniques to analyse the situation and take decisions about the strategies for business. The decision making managers have to be conscious of opportunities those are available. They should know future trends, future weakness, and strengths in connection with present and likely future competitors. SWOT analysis enables the planners to make such a study.
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Swot analysis means analysis and arrangement of comparative strengths and weakness of a firm in relation to competitors; and environmental opportunities and threats that a company confronts.
SWOT analysis gives an opportunity to identify those aspects which increase and improve performance and reduces weakness and threats.
Strength:
Strength lies with the power, and excellence in the resources, skills and advantages in relation to its competitions. A strength is a distinct technical superiority with best technical know-how, financial resources and skill of the people in organization, goodwill and image in the market it enjoys, company’s discipline, labour morale and attitude are elements of strength. Thus strength lies in a company’s competitive advantage and its technical superiority over others.
Weakness:
Weakness is the incapacity, constraint, limitation; deficiency a firm suffers from its technical, human resources, skills, unsatisfactory brand image and distribution pattern, poor after-sales-services. These features reflect a company’s weakness.
Opportunities:
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These are external factors and forces in business environment. These are changing from time to time, with changes in government policy, fiscal and monetary policy, political situation, social conditions, global conditions and elements of competition etc.
The policy changes after 1991 have given rise to many opportunities to the Indian business sector. (There are also threat elements along with the opportunities). There has been a major change in trade policy, investment policy.
Now Indian corporate can access foreign capital, ADR, GDR Loans without many hazards. This has definitely given new opportunities to the Indian corporate sector. The WTO has also unleashed great opportunities in many respects such as offer of MFN status to trade partners.
Threat:
Threat is more or less a challenge which arises out of unavoidable development or out of an uncontrollable situation. Threat reflects in the form of slow market growth, recession in demand, stiff competition from competitors, change of a policy, technological bottle-necks etc. Threats always work to the disadvantage of the company.
SWOT analysis is an important tool for strategic decision making. This analysis requires a detailed data base, participation of key personalities in the company, functionaries from all departments. SWOT analysis should be carried out considering various alternative strategies to find out first among the best strategies after a careful consideration and analysis of all outcomes/possibilities.
TIMEX, A Case Study:
The Timex watch co is a brilliant example showing how strategic intent, external opportunities and threats and internal strengths as well as weaknesses mutually interacted to make sound strategic decisions. Historically Timex Watch Co. produced timing devices for explosives during Second World War.
Timex began to find opportunities to use its expertise to produce cheap mechanical watches. Wristwatches at that time were expensive, delicate items and were sold through jewellery stores. Timex now became competitor, for low end watch market (tried deliberately and strategically) to use the opportunity unleashed by watches being sold as luxury items. Now Timex’s effort became highly successful and at their heydays any one of three watches sold in this world was timex watch.
The threat loomed large from the competition of digital watches. Digital watches could not be a threat for mechanical watches as mechanical watches were built around mainstream and had a constant demand from certain segment of customer. The cost of digital technology gradually had gone down and mechanical watches sale suffered a setback. Timex’s position as a dominant global player came down.
They failed to take care of the weakness in their digital technology. Timex now began to develop their digital technology. They struggled a lot. They also took some strategic decisions in their marketing plans. They made a foray into personal computers segment.
They could not reap the perfect alignment among strategic intent, internal strengths and external opportunities that it once had in wristwatch market.