When determining a company s weaknesses, you should answer the following questions:

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1 SWOT stands for strengths, weaknesses, opportunities, and threats. A SWOT analysis is a summary of the internal and external environment scanning. The strengths and weakness are identified in the internal environment. When determining a company s strengths, you should answer the following questions: What are your advantages? What do you do well? Do you have a distinct competence? Do you have a good financial situation? Do you have good relations with clients? When determining a company s weaknesses, you should answer the following questions: What could be improved? Is your competitive position deteriorating? Are you missing any key skills? Are you vulnerable to competitive pressures? Opportunities and threats are identified in the external environment. When examining opportunities, you should ask the following questions: Could you serve additional customer groups? Could you diversify into related services? Could you broaden your services to meet more of your customers needs? When examining threats, you should ask the following questions: What is the competition doing? Is there slow market growth? Are you vulnerable to a recession? Are your clients tastes changing? Once you have completed the SWOT analysis, you are prepared to create a strategy. Business strategy focuses on improving the competitive position of a company s or business unit s products or services within the specific industry 1

2 or market segment that it serves. A strategic business unit is a division or product line that can be planned independently from the other business units of the firm. At the business unit level, strategic issues center on developing and sustaining a competitive advantage. Managers focus on positioning the business, anticipating changes, and influencing the nature of competition. There are two basic types of business strategies: competitive and cooperative. Companies that use competitive strategies fight against their competitors, and ones that use cooperative strategies work with their competitors. In the realm of competitive strategies, Michael Porter identified basic strategies that he called Porter s generic competitive strategies. They are the following: Lower cost Differentiation These strategies are considered generic because they can be applied to any firm in any industry. These two strategies are further refined by their scopes. If the lower cost strategy has a broad target, it is referred to as cost leadership. In this strategy, the company strives to have the lowest costs in the industry, and it offers its products to a broad market. In this strategy, there is a low level of differentiation, and the product is targeted to the average customer. When the cost leadership strategy has a narrow focus, the strategy is referred to as cost focus. When a differentiation strategy has a broad target, it is still considered differentiation. In this strategy, the firm tries to offer products or services with unique features that customers value. So this strategy focuses on uniqueness, product quality, and service. When differentiation has a narrow scope, it is called focused differentiation. According to Dartmouth professor Richard D Aveni, business has entered a new era of hypercompetition. In this new environment, advantages are continually being created and destroyed through strategic maneuvering. Because of this, it is difficult for a company to sustain a competitive advantage over the long term. The old way of dealing with competition 2

3 involves reducing the level of competition and avoiding competition whenever possible. In the hypercompetitive environment, successful companies are disrupting markets and ignoring boundaries to entry. The forces that drive hypercompetition are fragmenting customer tastes, rapid technological change, the globalization of markets, and significant financial resources among competitors. Although hypercompetition is a trend, cooperative strategies are also a fast-growing trend. Strategic alliances can range from informal business relationships to joint ventures. Strategic alliances allow companies to pool resources and advantages to work together on a common goal. Sometimes, this goal is profit, but other factors might serve the companies interests. For example, companies might be motivated to achieve some of the following goals: Realize advantages of scale and speed Improve market penetration Increase presence and influence in global markets Expand product development Corporate-level strategy is broader than business unit strategy. It is concerned with a company s business portfolio. The business portfolio consists of all of the business units in a company. There are several factors that can motivate corporate-level strategy, such as the overall goals of the corporation, the way businesses will be managed, allocation of staff, and compatibility with other businesses in its portfolio. A corporate strategy can go in one of the following three directions: Growth: The corporation can expand. Stability: The corporation can continue operations unchanged. Retrenchment: The corporation can cut back. When you choose to grow a business, you can focus on expanding your current product lines, or you can broaden your product lines by diversifying them. When you choose stability, you do not significantly change your current direction. You can either keep your strategy the same, you can stop what you are doing, or you can pause and take caution with your strategy. When you choose retrenchment, you might cut back your workforce and consolidate operations, sell off a business unit, or declare bankruptcy. 3

4 Obviously, trying to develop a corporate strategy is complex. Oftentimes, a Boston Consulting Group (BCG) growth share matrix is created and used to develop a corporate strategy. The BCG looks at two factors: the industry growth rate and relative market share. The growth rate examines whether a business growth rate is faster or slower than the economy as a whole. The relative market share compares the business market share to the market share held by its largest rival. From there, the company falls into one of the following four categories: Star: A star business is in the best position for excellent profit and growth. It has a high growth rate and high market share, is usually in the introduction or growth stage, and requires aggressive strategies. Cash cow: A cash cow business generates a substantial cash surplus over what is needed for reinvestment and growth. It has a high relative market share but low growth potential. It is an important part of a diversified company s business portfolio because it generates cash, and it requires a strategy that fortifies and defends the market position. Question mark: A question mark business is one that has inadequate cash flows to fully fund its needs for working capital and new investments. It has high industry growth rate but low market share and an uncertain future. If its market share improves, it will become a star, but if it drops, it will become a dog. It requires an aggressive investment strategy or divestiture. Dog: A dog business is the worst position of the matrix. It has a low market share and low market growth rate. Usually, it is a business that is in the decline stage. When you have a business in this position, you should harvest, divest, or liquidate. The functional level of strategy refers to the operating divisions and department levels. These strategic issues are related to business processes and the value chain. They involve research, marketing, human resources, finance, and operations. It is through a functional strategy that business unit strategies can be effectively executed. One of the central issues in a functional strategy is outsourcing. In other words, should a function be integrated within the organization or purchased from an outside contractor? When a firm has activities that are not part of its core competencies, it can use outsourcing as an alternative. When a company decides to outsource, it is seeking the greatest value. When a company evaluates its resources and capabilities, the organization must be careful not to outsource activities that 4

5 can create and capture value. 5