The Coca Cola Company, Airbus and the biggest clothing company in world Zara have something in common – these companies have used SWOT analysis for their benefit. Strengths, weaknesses, opportunities and threats (SWOT) study helps an organization to be aware of all the factors involved in making strategic decisions. Strengths and weaknesses belong to internal environment and organizations have some control to change them. Examples include employees, values, culture, intellectual property, location advantage etc. Opportunities and threats belong to external environment; things that are going on outside the company, in the larger market. Organizations 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 company’s top strengths, weaknesses, opportunities, and threats into an organized list and is generally presented in a simple two-by-two grid. When organizations take the time to do a SWOT analysis, they are armed with a solid strategy for prioritizing the pending work list necessary to grow their business.
Writing your own SWOT once a year is very helpful. You may think that you already know everything that you need to succeed, but a SWOT analysis helps you looking at yourself with a difference, giving you new directions.
SWOT Analysis is a proven management framework which enables a brand like ITC Limited to benchmark its business and performance as compared to the competitors in industry. As of 2020, ITC Limited is one of the leading brands in the FMCG sector with a diversified product and services SBUs which includes FMCG, Hotel chains, paper and packaging and agri-business. It also has over 6500 E-Choupal CSR activities and sustainability initiatives which has enhanced ITC’s brand image reaching over 4 million farmers. One of its weaknesses is that it’s diversification in hotel business has not been able to create a huge 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 own internal ranks when they perform a SWOT analysis and get input from customers, suppliers, competitors, industry analysts for getting candid views. There is one truth attached to SWOT analysis that is things are constantly changing and therefore organizations constantly need to reassess their strategies.
TOWS Analysis is an extension of the SWOT Analysis framework that identifies organization’s Strengths, Weaknesses, Opportunities and Threats but then goes further in looking to match up the Strengths with Opportunities and the Threats with Weaknesses. In SWOT we identify all the Strengths, Weaknesses, Opportunities, and Threats in point form, from a singular perspective. But, in TOWS matrix we identify the relationships between these factors and selecting strategies on their bases. In TOWS Matrix we create a chart to compare internal (Strengths and Weaknesses) intersecting with the external aspects (Opportunities and Threats).
Strengths and Opportunities (SO): allows firms to analyse how they can use their strengths to take advantage of the opportunities. ITC has a large and competent management team. Clear brand image, outstanding goods, diversified range of products and services, including FMCG, hotel chains, paper and packaging, and agribusiness.
Strengths and Threats (ST): 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 over-dependence on tobacco products and has been successful in doing so to some degree. Nonetheless, tobacco products remain the biggest source of revenue contributing more than 60 per cent to ITC’s overall revenue.
Weaknesses and Opportunities (WO): allows using opportunities to overcome the weaknesses an organization is experiencing. Tobacco Products Association has an impact on the cigarettes brands: 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. The increase in the Tobacco Tax has an effect on its revenue. Due to the rise in the tax on tobacco products, cigarettes rates and, subsequently, profits are affected. There has been an increase in health awareness, which has resulted in a decrease in the demand for tobacco products in India. Anti-smoking programs throughout the country also has an effect on cigarette sales. However, the distribution channel created due to cigarettes is being used for other FMCG products by ITC.
Weaknesses and Threats (WT): helps to minimize weaknesses and avoid threats. ITC hotels have 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 per cent of its operating profit and 9 per cent of its profit after tax in hotels. Unlike its peer competitors Indian Hotels and Leela Ventures, ITC has an advantage. It does not have to borrow funds and relies on the cigarette 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 call on the hotels business.
Both SWOT and TOWS helps organization to improved focus; this analysis puts everyone on the same page. It helps in identifying what core areas should an organization should be working towards in a given financial year. It helps in strategic alignment. With everyone working on the same goals, managers and employees can build better strategies together. And, it helps in identifying unknown aspects. Top management always wants to discover aspects of business they ignored or were not aware of. From unknown strengths to hidden threats, uncovering this information helps them move forward.
Combining a SWOT analysis with TOWS strategies gives small and large businesses the foundation they need to build their companies and move frontward.
