Strengths. A firm’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include:

– patents or certain expertise;

– strong brand names;

– good reputation among customers;

– cost advantages from proprietary know-how;

– exclusive access to high grade natural resources;

– favorable access to distribution networks.

Weaknesses. The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:

– lack of patent protection;

– a weak brand name;

– poor reputation among customers;

– high cost structure;

– lack of access to the best natural resources;

– lack of access to key distribution channels.

In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.

Opportunities. The external environmental analysis may reveal certain new opportunities for profit and growth. Examples of such opportunities include:

– an unfulfilled customer need;

– arrival of new technologies;

– loosening of regulations;

– removal of international trade barriers.

Threats. Changes in the external environment also may present threats to the firm. Examples of such threats include:

– shift in consumer tastes away from the firm’s products;

– emergence of substitute products;

– new regulations;

– increased trade barriers.

A firm should not necessarily pursue the most lucrative opportunities. Rather, it may have a better chance at developing a competitive edge by identifying a fit between the firm’s strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account SWOT profile, a matrix of these factors can be constructed.

SWOT Matrix

– S-O strategies pursue opportunities that are a good fit to the company’s strengths.

– W-O strategies overcome weaknesses to pursue opportunities.

– S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.

– W-T strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats.

Source: www.quickmba.com

To analyze the specific activities through which firms can create a competitive advantage, it is useful to model the firm as a chain of value-creating activities. Michael Porter identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain:

Inbound logistics > Operations > Outbound logistics > Marketing & Sales > Service

The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin.

– Inbound logistics include the receiving, warehousing, and inventory control of input materials.

– Operations are the value-creating activities that transform the inputs into the final product.

– Outbound logistics are the activities required to get the finished product to the customer, including warehousing, order fulfillment, etc.

– Marketing & Sales are those activities associated with getting buyers to purchase the product, including channel selection, advertising, pricing, etc.