What is Crisis ?

A sudden and unexpected event leading to major unrest amongst the individuals at the workplace is called as organization crisis. In other words, crisis is defined as any emergency situation which disturbs the employees as well as leads to instability in the organization. Crisis affects an individual, group, organization or society on the whole.

Characteristics of Crisis Crisis is a sequence of sudden disturbing events harming the organization. Crisis generally arises on a short notice. Crisis triggers a feeling of fear and threat amongst the individuals. Why Crisis ?
Crisis can arise in an organization due to any of the following reasons:

Technological failure and Breakdown of machines lead to crisis. Problems in internet, corruption in the
software, errors in passwords all result in crisis.

Crisis arises when employees do not agree to each other and fight amongst themselves. Crisis arises as
a result of boycott, strikes for indefinite periods, disputes and so on.

Violence, thefts and terrorism at the workplace result in organization crisis. Neglecting minor issues in the beginning can lead to major crisis and a situation of uncertainty at the
work place. The management must have complete control on its employees and should not adopt a casual attitude at work.

Illegal behaviors such as accepting bribes, frauds, data or information tampering all lead to organization
crisis.

Crisis arises when organization fails to pay its creditors and declares itself a bankrupt organization. Crisis Management
The art of dealing with sudden and unexpected events which disturbs the employees, organization as well as external clients refers to Crisis Management. The process of handling unexpected and sudden changes in organization culture is called as crisis management.

Need for Crisis Management Crisis Management prepares the individuals to face unexpected developments and adverse conditions in
the organization with courage and determination.

Employees adjust well to the sudden changes in the organization. Employees can understand and analyze the causes of crisis and cope with it in the best possible way. Crisis Management helps the managers to devise strategies to come out of uncertain conditions and also
decide on the future course of action.

Crisis Management helps the managers to feel the early signs of crisis, warn the employees against the
aftermaths and take necessary precautions for the same.

Essential Features of Crisis Management Crisis Management includes activities and processes which help the managers as well as employees to
analyze and understand events which might lead to crisis and uncertainty in the organization.

Crisis Management enables the managers and employees to respond effectively to changes in the
organization culture.

It consists of effective coordination amongst the departments to overcome emergency situations. Employees at the time of crisis must communicate effectively with each other and try their level best to
overcome tough times. Points to keep in mind during crisis

Dont panic or spread rumours around. Be patient. At the time of crisis the management should be in regular touch with the employees, external clients,
stake holders as well as media.

Avoid being too rigid. One should adapt well to changes and new situations.

Types of Crisis
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Crisis refers to sudden unplanned events which cause major disturbances in the organization and trigger a feeling of fear and threat amongst the employees. Following are the types of crisis:

1. Natural Crisis Disturbances in the environment and nature lead to natural crisis. Such events are generally beyond the control of human beings. Tornadoes, Earthquakes, Hurricanes, Landslides, Tsunamis, Flood, Drought all result in natural disaster. 2. Technological Crisis Technological crisis arises as a result of failure in technology. Problems in the overall systems
lead to technological crisis.

Breakdown of machine, corrupted software and so on give rise to technological crisis. 3. Confrontation Crisis Confrontation crises arise when employees fight amongst themselves. Individuals do not agree
to each other and eventually depend on non productive acts like boycotts, strikes for indefinite periods and so on.

In such a type of crisis, employees disobey superiors; give them ultimatums and force them to
accept their demands.

Internal disputes, ineffective communication and lack of coordination give rise to confrontation
crisis.

4. Crisis of Malevolence Organizations face crisis of malevolence when some notorious employees take the help of
criminal activities and extreme steps to fulfill their demands.

Acts like kidnapping companys officials, false rumours all lead to crisis of malevolence. 5. Crisis of Organizational Misdeeds Crises of organizational misdeeds arise when management takes certain decisions knowing the
harmful consequences of the same towards the stakeholders and external parties.

In such cases, superiors ignore the after effects of strategies and implement the same for quick
results. Crisis of organizational misdeeds can be further classified into following three types:

c.

Crisis of Skewed Management Values Crisis of Skewed Management Values arises when management supports short term
growth and ignores broader issues.

d.

Crisis of Deception Organizations face crisis of deception when management purposely tampers data and
information.

Management makes fake promises and wrong commitments to the customers.

Communicating wrong information about the organization and products lead to crisis of deception.

e.

Crisis of Management Misconduct

 Organizations face crisis of management misconduct when management indulges in

deliberate acts of illegality like accepting bribes, passing on confidential information and so on.

6. Crisis due to Workplace Violence Such a type of crisis arises when employees are indulged in violent acts such as beating
employees, superiors in the office premises itself.

7. Crisis Due to Rumours Spreading false rumours about the organization and brand lead to crisis. Employees must not
spread anything which would tarnish the image of their organization.

8. Bankruptcy A crisis also arises when organizations fail to pay its creditors and other parties. Lack of fund leads to crisis. 9. Crisis Due to Natural Factors Disturbances in environment and nature such as hurricanes, volcanoes, storms, flood; droughts,
earthquakes etc result in crisis.

10. Sudden Crisis As the name suggests, such situations arise all of a sudden and on an extremely short notice. Managers do not get warning signals and such a situation is in most cases beyond any ones
control.

11. Smoldering Crisis Neglecting minor issues in the beginning lead to smoldering crisis later. Managers often can foresee crisis but they should not ignore the same and wait for someone
else to take action.

Warn the employees immediately to avoid such a situation.

Crisis Management Model

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Crisis refer to unplanned events which cause harm to the organization and lead to disturbances and major unrest amongst the employees. Crisis gives rise to a feeling of fear and threat in the individuals who eventually lose interest and trust in the organization.

Crisis Management Model

Gonzalez-Herrero and Pratt proposed a Crisis Management Model which identified three different stages of crisis management According to Gonzalez-Herrero and Pratt, crisis management includes following three stages:

1. Diagnosis of Crisis

The first stage involves detecting the early indicators of crisis. It is for the leaders and managers to sense the warning signals o a crisis and prepare the employees to face the same with courage and determination. Superiors must review the performance of their subordinates from time to time to know what they are up to. The role of a manager is not just to sit in closed cabins and shout on his subordinates. He must know what is happening around him. Monitoring the performance of the employee regularly helps the managers to foresee crisis and warn the employees against the negative consequences of the same. One

should not ignore the alarming signals of crisis but take necessary actions to prevent it. Take initiative on your own. Dont wait for others.

2. Planning
Once a crisis is being detected, crisis management team must immediately jump into action. Ask the employees not to panic. Devise relevant strategies to avoid an emergency situation. Sit and discuss with the related members to come out with a solution which would work best at the times of crisis. It is essential to take quick decisions. One needs to be alert and most importantly patient. Make sure your facts and figures are correct. Dont rely on mere guess works and assumptions. It will cost you later.

3. Adjusting to Changes
Employees must adjust well to new situations and changes for effective functioning of organization in near future. It is important to analyze the causes which led to a crisis at the workplace. Mistakes should not be repeated and new plans and processes must be incorporated in the system.

Structural Functions Systems Theory

According to structural functions systems theory, communication plays a pivotal role in crisis management. Correct flow of information across all hierarchies is essential. Transparency must be maintained at all levels. Management must effectively communicate with employees and provide them the necessary information at the times of crisis. Ignoring people does not help, instead makes situations worse. Superiors must be in regular touch with subordinates. Leaders must take charge and ask the employees to give their best.

Diffusion of innovation Theory

Diffusion of innovation theory proposed by Everett Rogers, supports the sharing of information during emergency situations. As the name suggests during crisis each employee should think out of the box and come out with something innovative to overcome tough times. One should be ready with an alternate plan. Once an employee comes up with an innovative idea, he must not keep things to himself. Spread the idea amongst all employees and departments. Effective communication is essential to pass on ideas and information in its desired form.

Unequal Human Capital Theory

Unequal human capital theory was proposed by James. According to unequal human capital theory, inequality amongst employees leads to crisis at the workplace. Discrimation on the grounds of caste, job profile as well as salary lead to frustrated employees who eventually play with the brand name, spread baseless rumors and earn a bad name for the organization.

Crisis Management Plan

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Crisis refers to a sequence of unwanted events leading to major disturbances and uncertainty at the workplace. Crisis is an unexpected event which not only causes harm to the organization but also triggers a feeling of fear and insecurity amongst the individuals. Organizations must be prepared well to face inevitable threats and come out of tough times without much difficulty. Individuals must immediately jump into action; the moment crisis is being detected at the workplace.

What is a Crisis Management Plan ?

Individuals need to adopt a step by step approach during critical situations. Planning is essential. Getting hyper does not solve any problem, instead makes the situation worse. It is a crime to take impulsive and hasty decisions during crisis. It is essential to think rationally and devise strategies which would work best during emergency situations. Complaining and cribbing lead you nowhere. Crisis Management Plan refers to a detailed plan which describes the various actions which need to be taken during critical

situations or crisis. Any plan prepared by superiors, members of crisis management team and related employees to help organization overcome crisis in the best possible way is called crisis management plan.

Why Crisis Management Plan ? Crisis management plan helps the employees to adopt a focused approach during emergency
situations.

Crisis management Plan elaborates the actions to be taken by the management as well as the
employees to save organizations reputation and standing in the industry. It gives a detailed overview of the roles and responsibilities of employees during crisis.

Individuals representing the crisis management team formulate crisis management plan to reduce the
after effects of crisis at the workplace.

Crisis Management Plan helps the managers and superiors to take quick and relevant actions as per
the situation.

Crisis Management plan protects an organization from inevitable threats and also makes its future
secure.

Such plans reduce instability and uncertainty amongst the employees and help them concentrate on
their work.

Characteristics of Crisis Management Plan Crisis Management Plan should be made in the presence of all executives. Every member of crisis
management team should have a say in the plan. It is important for each one to give his / her valuable inputs and suggestions.

Crisis Management Plan should take into account all identified problem areas and suggest a possible
solution for all of them to help the organization come out of crisis as soon as possible.

Make sure the plans are realistic and solve the purpose of saving organizations reputation and name. How to make a crisis management plan ? Identify the problem areas and various factors which led to crisis at the workplace. Discuss issues and areas of concern amongst yourselves on an open forum for everyone to share their
opinion.

Make sure you have accurate information. Dont depend on guess works and assumptions. Double check
your information before submitting the final plan.

Crisis Management Plan should not only focus on ways to overcome crisis but also on making the
processes foolproof to avoid emergency situations in future.

Crisis Communication - Meaning, Need and its Process

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Crisis refers to sequence of unwanted events at the workplace which lead to disturbances and major unrest amongst the individuals. Crisis generally arises on a short notice and triggers a feeling of threat and fear in the employees. In simpler words crisis leads to uncertainty and causes major harm to the organization and its employees. It is essential for the employees to sense the early signs of crisis and warn the employees against the negative consequences of the same. Crisis not only affects the smooth functioning of the organization but also pose a threat to its brand name.

What is Crisis Communication ?

Crisis Communication refers to a special wing which deals with the reputation of the individuals as well as the organization. Crisis communication is an initiative which aims at protecting the reputation of the organization and maintaining its public image.

Various factors such as criminal attacks, government investigations, media enquiry can tarnish the image of an organization. Crisis Communication specialists fight against several challenges which tend to harm the reputation and image of the organization.

Need for Crisis Communication

Crisis can have a negative effect on brand image. Crisis Communication experts are employed to save an organizations reputation against various threats and unwanted challenges. Brand identity is one of the most valuable assets of an organization. The main purpose of Crisis Communication team is to protect the brand identity and maintain the organizations firm standing within the industry. Crisis Communication specialists strive hard to overcome tough situations and help the organization come out of difficult situations in the best possible and quickest way. Crisis Communication Process

Employees should not ignore any of the external parties and important clients Come out, meet
them and discuss the problem with them. There is nothing to be ashamed of. If needed, seek their help. Media must not be ignored. Answer their questions. Avoiding media makes situation all the more worse.

Dont criticize individuals. Show a feeling of care and concern for them. Share their feelings and
encourage them not to lose hope. Encourage them to deliver their level best. Put yourself in their place. Respect them and avoid playing blame games.

Effective communication must be encouraged at the workplace during emergency situations.

Employees should have an easy access to superiors cabins to discuss critical issues with them and reach to a mutually acceptable solution.

Information must flow across all departments in its desired form. One should not rely on mere
guess works or assumptions during crisis. Make sure the information you have is accurate.

Crisis communication specialists must learn to take quick decisions. Remember one needs to
respond quickly and effectively during unstable situations. Think out of the box and devise alternate plans for the smooth functioning of organization.

Make sure information is kept confidential. Serious action must be taken against employees sharing
information and data with external parties. Such things are considered highly unprofessional and unethical and spoil the reputation of the organization.

The superiors must evaluate performance of employees on a regular basis. Ask for feedbacks and
reports to know what they are up to. Conduct surprise audits to track performance of employees. Organizations hire crisis communication specialists to overcome tough times as well as to maintain their reputation and position in the market.

Crisis Management Team

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Sequence of sudden unwanted events leading to major disturbances at the workplace is called crisis. Crisis arises on an extremely shor notice and triggers a feeling of fear and uncertainty in the employees. It is essential for the superiors to sense the early signs of crisis and warn the employees against the same. Once a crisis is being detected, employees must quickly jump into action and take quick decisions.

What is a Crisis Management Team ?

A Crisis Management Team is formed to protect an organization against the adverse effects of crisis. Crisis Management team prepares

an organization for inevitable threats. Organizations form crisis management team to decide on future course of action and devise strategies to help organization come out of difficult times as soon as possible. Crisis Management Team is formed to respond immediately to warning signals of crisis and execute relevant plans to overcome emergency situations.

Role of Crisis Management Team

Crisis Management team primarily focuses on:

Detecting the early signs of crisis. Identifying the problem areas Sit with employees face to face and discuss on the identified areas of concern Prepare crisis management plan which works best during emergency situations Encourage the employees to face problems with courage, determination and smile. Motivate them not to lose hope and deliver their level best.

Help the organization come out of tough times and also prepare it for the future.
Crisis Management Team includes: Head of departments Chief executive officer and people closely associated with him Board of directors Media Advisors Human Resource Representatives The role of Crisis Management Team is to analyse the situation and formulate crisis management plan to save the organizations reputation and standing in the industry.

How does Crisis Management Team function ?

A Team Leader is appointed to take charge of the situation immediately and encourage the employees to work as a single unit. The first step is to understand the main areas of concern during emergency situations. Crisis Management Team then works on the various problems and shortcomings which led to crisis at the workplace. The team members must understand where things went wrong and how current processes can be improved and made better for smooth functioning of the organization. It is important to prioritize the issues. Rank the problems as per their effect on the employees as well as the organization. Know which problems must be resolved immediately and which all can be attended a little later. A single brain cannot take all decisions alone. Crisis Management Team should sit with rest of the employees on a common platform, discuss prevailing issues, take each others suggestions and reach to plans acceptable to all. One of the major roles of the Crisis management team is to stay in touch with external clients as well as media. The team must handle critical situations well. Develop alternate plans and strategies for the tough times. Make sure you have accurate information. Double check your information before finalizing the plan. Implement the plans immediately for results. Proper feedback must be taken from time to time. Crisis Management team helps the organization to take the right step at the right time and help the organization overcome critical situations.

Ways to Overcome Organizational Crisis

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Sequence of unwanted events leading to uncertainty at the workplace is called as crisis. Crisis leads to major disturbances at the workplace and creates unrest amongst the employees. Employees must not lose hope during crisis. It is important for them to face inevitable threats with courage, determination and smile. Let us go through various ways to overcome crisis:

Adopt a focused approach. Take initiative and find out where things went wrong. Identify the problem areas and devise
appropriate strategies to overcome the same.

Gather correct and relevant information. One should not depend on mere guess works and assumptions during
emergency situations. Double check your information before submitting reports.

Employees should change their perspective. One should always look at the brighter side of things. Remember life has its
own ups and downs. Unnecessary cribbing and complaining does not help at the workplace. Avoid making issues over petty things. Dont adopt a negative attitude; instead understand the situation and act accordingly.

Effective communication is essential to overcome crisis in the organization. Information must flow
across all departments in its desired form. Employees must be aware of what is happening around them. Individuals should have an easy access to their superiors cabin to discuss critical issues and seek their suggestions. Superiors must address employees on an open forum during critical situations.

Roles and responsibilities must be delegated as per the employees specialization. Make sure the
right person is doing the right job. Employees must be motivated to deliver their level best and focus on the organizations goals to overcome tough times in the best possible way.

It is essential to take quick decisions during critical situations. Learn how to take risks. The moment an
employee detects the early signs of crisis, it is important for him to act immediately. Escalate issues to your superiors and do inform your co workers as well. Dont wait for others to take action.

Be calm and patient. Dont panic and spread baseless rumours around. Taking unnecessary stress
makes situation all the more worse. Remember a calm individual can handle things better. Relax and then decide on the future course of action to overcome crisis. Dont lash out at others under pressure.

Discussions are essential during crisis. Sit with fellow workers and discuss issues amongst
yourselves to reach to mutually acceptable solutions which would work best at the times of crisis.

Be loyal to your organization even at the times of crisis. Stick to it during bad times. Dont just treat your
organization as a mere source of earning money. It is important to respect your workplace.

Review your performance regularly. Be your own critic. Strive hard to achieve your targets within the
desired time frame. Dont work only when your boss is around.

Avoid unnecessary conflicts and misunderstandings at the workplace. Treat your fellow workers as
members of your extended family. Help each other when needed. Employees should not ask for unjustified things. Think from the managements perspective as well. Avoid criticizing your colleagues.

Dont hide at the times of crisis. Come out; interact with external clients as well as media. Do not hesitate
to ask for help. Ignoring outsiders worsens the situations.

Managing Stress during Crisis

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Crisis refers to a sequence of unwanted events leading to major disturbances at the workplace. It triggers a feeling of insecurity and fear amongst the employees. Crisis causes major harm to the organization and poses a threat to its reputation and brand image. Let us go through various ways of managing stress during crisis:

Once a crisis is being detected, employees should immediately jump into action. Do not panic. Getting hyper and nervous
never lead to any solution; instead make the situation all the more worse.

It is essential for the individuals to stay calm at the times of crisis. One should not react over petty issues. Remember
a calm and composed individual can take better decisions than a stressed one.

Help your fellow workers during emergency situations. Dont lash out at others under pressure.
Criticizing others at the workplace is just not professional. Try to understand what the other person has to say. Employees find it difficult to think logically under stress.

One should always look at the brighter sides of things. Adopting a negative attitude goes a long way
in increasing stress among individuals. Dont take things to heart. It is best to ignore minor issues.

Job mismatch and overlapping of duties lead to stress during emergency situations. Roles and
responsibilities must be clearly defined as per the specialization of employees during crisis. Every one should be very clear as to what is expected out of him.

Make individuals work as a team. Individuals working alone are generally overburdened and eventually
more stressed out. Let them work together and share ideas on various topics. Speaking out and discussing issues reduce the stress level at the workplace.

It is absolutely okay to take short breaks at work even during emergency situations. Human beings
are not machines who can start and stop working just at the push of a button. They need time for themselves. Working at a stretch can lead to fatigue and eventually individuals lose interest in work. Short tea and snack breaks are necessary to reduce stress. During these breaks employees get time to interact with each other.

Make necessary arrangements for individuals working at night. It is important for them to feel
comfortable at the workplace. Make sure individuals get dinner on time for them to deliver their level best. There should be proper restrooms and places where employees can take a nap.

Light music also reduces stress to a large extent. Ensure the office is adequately lit. Dark cabins and
suffocated rooms increase stress and lead to a negative ambience at the workplace.

Encourage necessary motivation programs for the employees to make them face tough times with
determination and courage.

Make sure employees do not feel insecure during emergency situations. It is better to act
immediately as per the situation rather than complaining and cribbing. One should never lose hope even in the worst conditions.

Appreciating the hard work of employees motivates them to perform better every time. Each
employee should get his /her due credit. Employees should stay away from blame games and nasty politics. Such activities are considered highly unproductive and lower the morale and self confidence of the employees.

Employees should be heard. Ignoring individuals results in stress and affects their performance. Dont try to do all things together. Adopt a step by step approach. Plan your work well. Managing
time effectively also reduces stress.

Role of Leaders / Managers in Crisis Management

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A sequence of sudden, unplanned and unexpected events leading to instability in the organization and major unrest amongst the individuals is called as crisis. Crisis generally arises on a short notice and causes major disturbances at the workplace. Leaders and managers play an extremely important role during crisis.

One should lead from the front. Show confidence and steadiness. Take complete charge of the situation. Managers should have full control on the employees. They should know what is happening around. Any issue neglected
in the initial stage might be a major concern later. Problems must be attended immediately. One should not ignore even minor issues or wait for someone else to take the initiative. Any issue left unattended might lead to crisis and major unrest later.

One should be alert at the workplace. A leader should be able to feel the early signs of crisis and warn
the employees against the negative consequences of the same. It is his duty to take precautionary measures to avoid an emergency situation. A leader should be able to foresee crisis. Such a stage is also called as Signal Detection.

Leaders must try their level best to prevent crisis. Encourage effective communication at the
workplace. Let employees discuss issues amongst themselves and come to the best possible alternative to overcome crisis.

Ask the employees not to panic at the time of crisis. Encourage them to face the tough times with
courage, determination and smile. Make them work as a single unit. It is the duty of the leader to provide a sense of direction to the employees.

The leaders should interact with the employees more often. Let them feel that you are there for them.
Impart necessary crisis management trainings to the employees.

Planning is essential to avoid emergency situations. Learn to take quick decisions. Make sure
everyone at the workplace is well informed about emergency situations.

Identify the important processes and systems which should keep functioning for the smooth
running of the organization. Develop alternate plans with correct and accurate information.

Dont let negativity creep in the organization. Motivate the employees to believe in themselves and the
organization. It is essential to trust each other during such situations. Take strict action against those spreading rumours and trying to tarnish organizations image.

Dont avoid stakeholders, external parties and most importantly media. Come out, meet them and explain
the whole situation. Ignoring people makes things worse. Develop strong partnerships with external parties and ask for help.

Never lose hope. Be a strong pillar of support for your team members. They should be able to fall back
on you.

Leaders should strive hard to come out of tough times as soon as possible. Learn to take risks.
Clarify the roles and responsibilities of the individuals during this time.

Once the organization is out of crisis, it is the leaders duty to communicate the lessons learnt so that
employees do not commit same mistakes again. Work hard and relive your organizations image. Adapt well to changes and new situations.

Strategy - Definition and Features

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The word strategy is derived from the Greek word stratgos; stratus (meaning army) and ago (meaning leading/moving). Strategy is an action that managers take to attain one or more of the organizations goals. Strategy can also be defined as A general

direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process. A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives. While planning a strategy it is essential to consider that decisions are not taken in a vaccum and that any act taken by a firm is likely to be met by a reaction from those affected, competitors, customers, employees or suppliers. Strategy can also be defined as knowledge of the goals, the uncertainty of events

and the need to take into consideration the likely or actual behavior of others. Strategy is the blueprint of decisions in an organization tha shows its objectives and goals, reduces the key policies, and plans for achieving these goals, and defines the business the company is t carry on, the type of economic and human organization it wants to be, and the contribution it plans to make to its shareholders, customers and society at large.

Features of Strategy
1. 2. 3. Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment. Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future. Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an organization. The objective of a strategy is to maximize an organizations strengths and to minimize the strengths of the competitors. Strategy, in short, bridges the gap between where we are and where we want to be. FIGURE: Porters Five Forces model The five forces mentioned above are very significant from point of view of strategy formulation. The potential of these forces differs from industry to industry. These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry. Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry. Lets discuss the five factors of Porters model in detail: 1. Risk of entry by potential competitors: Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are-

Economies of scale Brand loyalty Government Regulation Customer Switching Costs Absolute Cost Advantage Ease in distribution Strong Capital base
2. Rivalry among current competitors: Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. The strength of rivalry among established firms within an industry is a function of following factors:

Extent of exit barriers

 Amount of fixed cost Competitive structure of industry Presence of global customers Absence of switching costs Growth Rate of industry Demand conditions
3. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the firms who distribute the industrys product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs( labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Suppliers products have a few substitutes. Strong suppliers products are unique. They have high switching cost. Their product is an important input to buyers product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat. Threat of Substitute products: Substitute products refer to the products having ability of satisfying customers needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal).

4.

5.

The power of Porters five forces varies from industry to industry. Whatever be the industry, these five forces influence the profitability as they affect the prices, the costs, and the capital investment essential for survival and competition in industry. This five forces model also help in making strategic decisions as it is used by the managers to determine industrys competitive structure. Porter ignored, however, a sixth significant factor- complementaries. This term refers to the reliance that develops between the companies whose products work is in combination with each other. Strong complementors might have a strong positive effect on the industry. Also, the five forces model overlooks the role of innovation as well as the significance of individual firm differences. It presents a stagnant view of competition.

What is Core Competency?

Core competency is a unique skill or technology that creates distinct customer value. For instance, core competency of Federal express (Fed Ex) is logistics management. The organizational unique capabilities are mainly personified in the collective knowledge of people as well as the organizational system that influences the way the employees interact. As an organization grows, develops and adjusts to the new environment, so do its core competencies also adjust and change. Thus, core competencies are flexible and developing with time. They do not remain rigid and fixed. The organization can make maximum utilization of the given resources and relate them to new opportunities thrown by the environment. Resources and capabilities are the building blocks upon which an organization create and execute value-adding strategy so that an organization can earn reasonable returns and achieve strategic competitiveness.

Figure: Core Competence Decision Resources are inputs to a firm in the production process. These can be human, financial, technological, physical or organizational. The more unique, valuable and firm specialized the resources are, the more possibly the firm will have core competency. Resources should be used to build on the strengths and remove the firms weaknesses. Capabilities refer to organizational skills at integrating its team of resources so that they can be used more efficiently and effectively. Organizational capabilities are generally a result of organizational system, processes and control mechanisms. These are intangible in nature. It might be that a firm has unique and valuable resources, but if it lacks the capability to utilize those resources productively and effectively, then the firm cannot create core competency. The organizational strategies may develop new resources and capabilities or it might make stronger the existing resources and capabilities, hence building the core competencies of the organization. Core competencies help an organization to distinguish its products from its rivals as well as to reduce its costs than its competitors and thereby attain a competitive advantage. It helps in creating customer value. Also, core competencies help in creating and developing new goods and services. Core competencies decide the future of the organization. These decide the features and structure of global competitive organization. Core competencies give way to innovations. Using core competencies, new technologies can be developed. They ensure delivery of quality products and services to the clients.

Definition
Competitive advantage is what enables a business organization to thrive. It is the objective of strategy. It is the combination of elements in the business model which enables a business to better satisfy the needs in its environment, earning economic rents in the process. Resource-based vs. positional view of advantage -In the realm of strategy, there are roughly two views of the basic source of competitive advantage, the resourcebased view and the positional view. The first sees the capabilities of the firm as its primary source of advantage while the latter contends that position within an industry is the source of advantage. Michael Porter is associated with the positional view. Gary Hamel and C. K. Prahalad are associated with the resource view. The resource based view has tended to dominate strategy since the late 1980s with the attention placed on capabilities, core competencies, distinctive competencies, dynamic capabilities, and organization evolution. As dominant companies also shape industries, there is the possibility that resources shape position as well. See positional view of strategy and resource view of strategy.

Advantage and sustained advantage (Barney, 1991) -A firm has a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. A firm has asustained advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy. A firm enjoying a sustained competitive advantage may experience these major shifts in the structure of competition, and may see its competitive advantages nullified by such changes. However, a sustained competitive advantage is notnullified through competing firms duplicating the benefits of that competitive advantage. To have the potential of sustained competitive advantage, a firm resource must have four attributes --

it must be valuable, in the sense that it exploit opportunities and/or neutralizes threats in a firm's environment it must be rare among a firm's current and potential competition it must be imperfectly imitable. This can be due to three reasons: 1) the ability of a firm to obtain a resource is dependent upon unique historical conditions, 2) the link between the resources possessed by a firme and a firm's sustained competitive advantage is causally ambiguous, or 3) the resource generating a firm's advantage is socially complex, such as cultural factors that enable a unique synergy amongst managers.

there cannot be strategically equivalent substitutes for this resource that are valuable but neither rare but neither rare or imperfectly imitable.

These attributes of firm resources can be thought of as empirical indicators of how heterogeneous and immobile a firm's resources are and thus how useful these resources are for generating sustained competitive advantages. Note that physical resources are not on the list. Physical technology, evne complex physical technology, is generally imitable. Finally, sustainable advantage most likely cannot arise from a formal planning process, but is due to emergent strategy.

Demand-based perspective of competitive advantage -Adner and Zemsky (2007) present an analysis of sustainable competitive advantage emphasizing the demand-side factors. In particular, the effects of decreasing marginal utility and consumer heterogeneity across market segments is shown to affect the sustainability of competitive advantage through shifts in consumer willingness to pay. Competitive advantage definition -- The authors define competitive advantage as superior value creation -- with the firm's ability to sustain competitive advantage equivalent to its ability to sustain added value. The demand-side drivers are 1) marginal utility from performance improvements, 2) consumer taste for quality, and 3) the extent of consumer heterogeneity. At the level of firm resources, competitive advantage erodes not only because imitation undermines the uniqueness of resources, but also because consumer valuation of firm differences declines due to effects of decreasing marginal utility. At the level of firm positions, strategic heterogeneity is shown

to be rooted not only in differences between firms' internal resources but also in the extent of consumer heterogeneity in the firms' demand environment.

The Principle of Competitive Advantage -Success is based on inventing an offering that addresses a real scarcity in the world, charging a price for it, and inventing a way of making it available that is cheap enough to leave a high margin. -- Kees van der Heijden, Back to basics: exploring the business idea, Strategy & Leadership, 29.3, 2001

Sources of Competitive Advantage -Differentiation that commands an attractive price or a structurally lower cost to produce a non-differentiated product. -- Porter

Specialization and capabilities (Kay, 2004) --

Specialization -- Specialization, with its division of labor, produces economies of scale. Specialization can overrun its usefulness, such as when seeking further scale becomes a disadvantage, as was the case for Ford in the first half of the 20th century. As firms have often reached and exceeded the limits of specialization in providing value, they have shifted to capabilities.

Capabilities -- Capabilities, intrinsic capabilities, or distinctive capabilities include secrets of value, established business networks, brands, general management skills, engineering competency, innovation which is not easily copied or ongoing innovation which is not easily caught up with. Unique capabilities provide an opportunity to provide unique value and receive the gains from providing that value.

Indicator of Competitive Advantage -A business organization with a competitive advantage is more profitable than its rivals while this profitability exceeds its cost of capital. Profits in excess of the cost of capital are called economic rent. Sustained economic rents are prima facie evidence of a competitive advantage.

Elements of Competitive Advantage --

Uniqueness - finding unique opportunities and solutions is about imagination, insight, foresight, and the courage to pursue it. Unique is new, different, but most important of all, untested and unproven. By the time a unique solution is validated as profitable, it is no longer unique for the next company. Also, if it is a unique business model or business capability, it is likely unapproachable, in the short-term, by competitors.

Strategic Focus - Strategic focus comes about from marrying distinctive competency and purpose to form a superior value proposition. Strategic focus is about developing a longer view of competitive advantage with a

combination of purpose, competency, and value proposition. This creates an internal environment that has the confidence and implicit support to continue to perfect and develop that focus through creating stronger competencies and further perfecting the value proposition.

Strategic Intent/Vision/BHAGs - Strategic intent challenges and guides the organization to achieve the unachievable by having a clear focus on outlandish objectives which require the development of new capabilities to achieve.

Innovation - Innovation is inventiveness put into profitable practice. In an evolving economy, the business organization must innovate at a rate that meets or exceeds its environment in order to sustain a competitive advantage.

Continual Innovation - Making innovation as an ongoing process on all fronts. Democratic Principles - Democratic principles are needed to fully engage the active participation of diverse thinkers from across the organization. Broad and diverse participation improves innovation. Strategic Management as a self-improving learning process - Strategic management must become, amongst other things, a learning and self-improvement process for the organization. Dynamic Capabilities - Sustainable competitive advantage is ultimately based on dynamic capabilities, the capability to produce and utilize new capabilities on a continuous basis.

John Kay; competitive vs. comparative advantage -Competitive advantage is an absolute advantage of a business organization to offer greater value to its customers. Businesses should seek to find their competitive advantage, as opposed to their comparative advantage. They should focus on what they can do better than any other business. This may be something different than what they are best at doing. This maximizes the value of a business's economic function.

Porter's framework for competitive advantage Environmental determinants of advantage (Porter, 1991) -Firms create and sustain competitive advantage because of the capacity to continuously improve, innovate, and upgrade their competitive advantages over time. Upgrading is the process of shifting advantages throughout the value chain to more sophisticated types, and employing higher levels of skill and technology. Successful firms are those that improve and innovate in ways that are valued not only at home but elsewhere. Competitive success is enhanced by moving early in each product or process generation, provided that the movement is along a path that reflects evolving technology and buyer need, and that early movers subsequently upgrade their positions rather than rest upon them. In this view, firms have considerable discretion in relaxing external and internal constraints. Four broad attributes of the proximate environment of a firm have the greatest influence on its ability to innovate and upgrade. These attributes shape the information firms have available to perceive opportunities, the pool of inputs, skills and knowledge they can draw upon, the goals that condition investment, and the pressures on the firm to act. The environment is important in providing the initial insight that underpins competitive advantage, the inputs needed to act on it, and to accumulate knowledge and skills over time, and the forces needed to keep progressing.

Factor conditions -- general, specialized, generic, local, global, natural resources, labor Firm strategy , structure, and rivalry -- intensity of competition, susceptibility to substitutes, actual rivalry, potential rivalry Demand conditions -- customer demands, sophistication, fickleness Related and supporting industries -- suppliers, customers, synergy, dependency

Early (1960s) answers to the determinants of a firm's success (Porter, 1991) --

internally consistent set of goals and functional policies that collectively define the business's position in the market this internally consistent set of goals and policies aligns the firm's strengths and weaknesses with the external (industry) opportunities and threats -- aligning the company with its environment a firm's strategy be centrally concerned with the creation and exploration of its so called distinctive competencies -- unique strengths a firm possesses.

Solving the cross-sectional problem of strategy, getting to an operational understanding of competitive advantage (Porter, 1991) -The cross-sectional problem refers to having the understanding of what underpins a competitively advantageous position in an industry. Success requires the choices of --

a relatively attractive position given industry structure the firm's circumstances the positions of competitors, and bringing all the firm's activities into consistency with the chosen position.

Competitive advantage grows out of discrete activities. A firm's strategy is manifested in the way it configures and links the many activities in its value chain relative to its competitors. Discrete activities are part of an interdependent system in which the cost and effectiveness of one activity can be affected by the ways others are performed. These interdependencies are called linkages. Knowing this still does not operationalize competitive advantage. For that, the competitive advantage drivers of the activities must be identified.

Drivers of competitive advantage in an activity --

scale cumulative learning in the activity

linkages between the activities and others the ability to share the activity with other business units the pattern of capital utilization in the activity over the relevant cycle the activity's location the timing of investment choices in the activity the extent of vertical integration in performing the activity institutional factors affecting how an activity is performed such as government regulations the firm's policy choices about how to configure the activity independent of other drivers

Solving the longitudinal problem of strategy, getting to an operational understanding of competitive advantage (Porter, 1991) -The cross-sectional solution solves the problem of achieving a desirable, competitively advantageous, position. That leaves the longitudinal problem of getting to advantage again and again, even initially. There are two factors at work here -- initial conditions and managerial choices. Since initial conditions have come about from past managerial choices, ultimately the longitudinal problem is solved only by managerial choices. This requires management that is competent to achieve a competitive advantage. Their strategic thinking, strategic management framework, and strategic management process execution are key factors of management's strategic management competency.

Rumelt's framework for competitive advantage See firm theory of for Rumelt's explanation of competitive advantage in the context of his strategic theory of the firm.

Competitive advantage factors -For an in depth list of competitive advantage factors to stimulate activity design, seecompetitive advantage factors.

Measuring Competitive Advantage -See enterprise value and the Barney reference there.

swot analysis

SWOT analysis method and examples, with free SWOT template

The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats. Information about the origins and inventors of SWOT analysis is below. The SWOT analysis headings provide a good framework for reviewing strategy, position and direction of a company or business proposition, or any other idea. Completing a SWOT analysis is very simple, and is a good subject for workshop sessions. SWOT analysis also works well in brainstorming meetings. Use SWOT analysis for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports. You can also use SWOT analysis exercises for team building games. Note that SWOT analysis is often interpreted and used as a SWOT Analysis 2x2 Matrix, especially in business and marketing planning. In addition to this 2x2 matrix method, SWOT analysis is also a widely recognized method for gathering, structuring, presenting and reviewing extensive planning data within a larger business or project planning process. See also PEST analysis, which measures a business's market and potential according to external factors; Political, Economic, Social and Technological. It is often helpful to complete a PEST analysis prior to a SWOT analysis. In other situations it may be more useful to complete a PEST analysis as part of, or after, a SWOT analysis. See also Porter's Five Forces model, which is used to analyse competitive position. Please note: If you use SWOT Analysis as a 2x2 matrix method , then technically Strengths andWeaknesses are internal factors (generally the case anyway), whereas Opportunities and Threats areexternal factors (this can be more difficult, since it requires you to ignore internal threats and opportunities). The SWOT 2x2 'internal/external' matrix method thus only considers external threats and opportunities.

As a more general guide, here is a free SWOT analysis template worksheet (doc file), and the same free SWOT analysis tool (pdf format). If you have difficulty opening the above doc file here are two other formats:

SWOT Analysis Template doc file using table format instead of textboxes (portrait layout) SWOT Analysis Template doc for Apple Mac (thanks U Weissbach)

A SWOT analysis measures a business unit, a proposition or idea; a PEST analysis measures a market. A SWOT analysis is a subjective assessment of data which is organized by the SWOT format into a logical order that helps understanding, presentation, discussion and decision-making. The four dimensions are a useful extension of a basic two heading list of pro's and con's (free pro's and con's template here). SWOT analysis can be used for all sorts of decision-making, and the SWOT template enables proactive thinking, rather than relying on habitual or instinctive reactions. The SWOT analysis template is normally presented as a grid, comprising four sections, one for each of the SWOT headings: Strengths, Weaknesses, Opportunities, and Threats. The free SWOT template below includes sample questions, whose answers are inserted into the relevant section of the SWOT grid. The questions are examples, or discussion points, and obviously can be altered depending on the subject of the SWOT analysis. Note that many of the SWOT questions are also talking points for other headings - use them as you find most helpful, and make up your own to suit the issue being analysed. It is important to clearly identify the subject of a SWOT analysis, because a SWOT analysis is a perspective of one thing, be it a company, a product, a proposition, and idea, a method, or option, etc. SWOT analysis is commonly presented and developed into a 2x2 matrix, which is shown and explained within the SWOT analysis matrixsection.

swot analysis matrix - in business/marketing - internal v external factors

Modern SWOT analysis in business and marketing situations is normally structured so that a 2x2 matrix grid can be produced, according to two pairs of dimensions. Strengths and Weaknesses, are 'mapped' or 'graphed' against Opportunities and Threats. To enable this to happen cleanly and clearly, and from a logical point of view anyway when completing a SWOT analysis in most business and marketing situations, Strengths and Weaknesses are regarded distinctly as internal factors, whereas Opportunities and Threats are regarded distinctly as external factors. Here is the explanation in more detail:
Strengths andWeaknesses situationinside the company
the internal environment - the for example, factors relating to products, pricing, costs, or organization profitability, performance, quality, people, skills, adaptability, brands, services, reputation, processes, infrastructure, etc. the external environment the situation outside the company or organization for example, factors relating to markets, sectors, audience, fashion, seasonality, trends, competition, economics, politics, society, culture, technology, environmental, media, law, etc. factors tend to be in the present

Opportunities andThreats

factors tend to be in the future

swot matrix (2x2 matrix using internal/external categories)

Here is a typical extension of the basic SWOT analysis grid into a useful 'action-based' 2x2 SWOT matrix. The SWOT analysis in this format acts as a quick decision-making tool, quite aside from the more detailed data that would typically be fed into business planning process for each of the SWOT factors. Here the 2x2 matrix model automatically suggests actions for issues arising from the SWOT analysis, according to four different categories: strengths (internal) weaknesses (internal)

strengths/opportunitie weaknesses/opportunitie s s
obvious natural priorities potentially attractive options

opportunitie Likely to be quickest and easiest to s implement. (external)

Probably justifying immediate action-planning or feasibility study. Executive question: "If we are not already looking at these areas and prioritising them, then why not?"

Likely to produce greatest ROI (Return On Investment)

Likely to produce good returns if capability and implementation are viable. Potentially more exciting and stimulating and rewarding than S/O due to change, challenge, surprise tactics, and benefits from addressing and achieving improvements. Executive questions: "What's actually stopping us doing these things, provided they truly fit strategically and are realistic and substantial?"

strengths/threats
threats (external)
easy to defend and counter

weaknesses/threats
potentially high risk

Only basic awareness, planning, and Assessment of risk crucial. implementation required to meet Where risk is low then we must ignore these challenges. these issues and not be distracted by Investment in these issues is

generally safe and necessary. Executive question: "Are we properly informed and organized to deal with these issues, and are we certain there are no hidden surprises?" - and - "Since we are strong here, can any of these threats be turned into opportunities?"

them. Where risk is high we must assess capability gaps and plan to defend/avert in very specific controlled ways. Executive question: "Have we accurately assessed the risks of these issues, and where the risks are high do we have specific controlled reliable plans to avoid/avert/defend?"

N.B. SWOT analysis is a very flexible tool. Its use is not restricted to business and marketing. Be mindful that when SWOT is used in situations outside of business and marketing, strict categorization of the SWOT dimensions (according to 'internal' and 'external' factors) can be limiting, and so a more open interpretation of the model can be helpful in such circumstances, especially when assessing Opportunities and Threats. Also be mindful that if using the SWOT analysis model only as a 2x2 matrix, which assumes the categorization of internal and external factors (and notably limiting the assessment of threats and opportunities to external factors only), that it is very easy then to miss certain threats and opportunities that can exist (internally) within the company/organization. Some internal threats and opportunities can be substantial, for example, opportunities such as: energysaving, process-improvement, training, advertising, or discontinuing lossmaking products, or threats such as: desertion or key staff, the loss of major contracts, to name just a couple of typically ever-present threats within large commercial corporations. Be mindful therefore that the 'simplified' SWOT 2x2 matrix 'internal/external' method is not a reliable tool alone for identifying all threats and opportunities within organizations, or indeed any other situation. You will note from the origins of SWOT analysis below that the methodology did not begin, and was not operated as the simple 2x2 'internal/external' matrix that we commonly see today. Particularly, the original application of the model did not restrict threats and opportunities to just external factors. Instead, six key aspects of the business in question (namely: product, process, customer, distribution, finance, admin) were each assessed using the SWOT model. Each aspect was considered according to all four SWOT elements. Thus today when we apply the SWOT model to an entire business,

if we disregard internal threats and opportunities, so the analysis can exclude some potentially serious issues.

swot analysis - different applications

SWOT analysis is a powerful model for many different situations. The SWOT tool is not just for business and marketing. Here are some examples of what a SWOT analysis can be used to assess:

a company (its position in the market, commercial viability, etc) a method of sales distribution a product or brand a business idea a strategic option, such as entering a new market or launching a new product a opportunity to make an acquisition a potential partnership changing a supplier outsourcing a service, activity or resource project planning and project management an investment opportunity personal financial planning personal career development - direction, choice, change, etc. education and qualifications planning and decision-making life-change - downshifting, relocation, relationships, perhaps even family planning?..

Whatever the application, be sure to describe the subject (or purpose or question) for the SWOT analysis clearly so you remain focused on the central issue. This is especially crucial when others are involved in the process. People contributing to the analysis and seeing the finished SWOT analysis must be able to understand properly the purpose of the SWOT assessment and the implications arising.

SWOT analysis template

Here is a larger illustration of SWOT analysis. Note that this format is not presented or proposed as a 2x2 'internal/external' matrix; it's a more open demonstration of the sorts of issues and questions which can be addressed when using the SWOT format as part of business planning and decision-making.

Subject of SWOT analysis: (define the subject of the analysis here)

strengths

weaknesses

Advantages of proposition? Capabilities? Competitive advantages? USP's (unique selling points)? Resources, Assets, People? Experience, knowledge, data? Financial reserves, likely returns? Marketing - reach, distribution, awareness? Innovative aspects? Location and geographical? Price, value, quality? Accreditations, qualifications, certifications? Processes, systems, IT, communications? Cultural, attitudinal, behavioural? Management cover, succession?

Disadvantages of proposition? Gaps in capabilities? Lack of competitive strength? Reputation, presence and reach? Financials? Own known vulnerabilities? Timescales, deadlines and pressures? Cashflow, start-up cash-drain? Continuity, supply chain robustness? Effects on core activities, distraction? Reliability of data, plan predictability? Morale, commitment, leadership? Accreditations, etc? Processes and systems, etc? Management cover, succession?

opportunities

threats

Market developments? Competitors' vulnerabilities? Industry or lifestyle trends? Technology development and innovation? Global influences? New markets, vertical, horizontal? Niche target markets? Geographical, export, import? Market need for new USP's? Market response to tactics, e.g., surprise? Major contracts, tenders? Business and product development? Information and research?

Political effects? Legislative effects? Environmental effects? IT developments? Competitor intentions - various? Market demand? New technologies, services, ideas? Vital contracts and partners? Obstacles faced? Insurmountable weaknesses? Employment market? Financial and credit pressures? Economy - home, abroad?

Partnerships, agencies, distribution? Market volume demand trends? Seasonal, weather, fashion influences?

Seasonality, weather effects?

free SWOT analysis template worksheet version (doc file)

swot analysis example

This SWOT analysis example is based on an imaginary situation. The scenario is based on a business-to-business manufacturing company, who historically rely on distributors to take their products to the end user market. The opportunity, and therefore the subject for the SWOT analysis, is for the manufacturer to create a new company of its own to distribute its products direct to certain end-user sectors, which are not being covered or developed by its normal distributors.

Subject of SWOT analysis example: the creation of own distributor company to access new end-user sectors not currently being developed.

strengths

End-user sales control and direction. Right products, quality and reliability. Superior product performance vs competitors. Better product life and durability. Spare manufacturing capacity. Some staff have experience of end-user sector. Have customer lists. Direct delivery capability. Product innovations ongoing. Can serve from existing sites. Products have required accreditations. Processes and IT should cope. Management is committed and confident.

weaknesses

Customer lists not tested. Some gaps in range for certain sectors. We would be a small player. No direct marketing experience. We cannot supply end-users abroad. Need more sales people. Limited budget. No pilot or trial done yet. Don't have a detailed plan yet. Delivery-staff need training. Customer service staff need training. Processes and systems, etc Management cover insufficient.

opportunities

threats

Could develop new products. Local competitors have poor products. Profit margins will be good. End-users respond to new ideas. Could extend to overseas. New specialist applications. Can surprise competitors. Support core business economies. Could seek better supplier deals.

Legislation could impact. Environmental effects would favour larger competitors. Existing core business distribution risk. Market demand very seasonal. Retention of key staff critical. Could distract from core business. Possible negative publicity. Vulnerable to reactive attack by major competitors.

See also the free PEST analysis template and method, which measures a business according to external factors; Political, Economic, Social and

Technological. It is often helpful to complete a PEST analysis prior to competing a SWOT analysis. See also Porter's Five Forces model.

more on the difference and relationship between PEST and SWOT

There is some overlap between PEST and SWOT. Similar factors appear in each. That said, PEST and SWOT are certainly two different perspectives: PEST tends to assess a market, including competitors, from the standpoint of a particular proposition or a business. SWOT in business and marketing tends to be an assessment of a business or a proposition, whether it is your own business or (less commonly) a competitor's business or proposition. Strategic planning is not a precise science - no tool is mandatory - it's a matter of pragmatic choice as to what helps best to identify and explain the issues. PEST analysis may useful before SWOT analysis where it helps to identify SWOT factors. Alternatively PEST analysis may be incorporated within a SWOT analysis, to achieve the same effect. PEST becomes more useful and relevant the larger and more complex the business or proposition, but even for a very small local businesses a PEST analysis can still throw up one or two very significant issues that might otherwise be missed. The four quadrants in PEST vary in significance depending on the type of business, for example, social factors are more obviously relevant to consumer businesses or a B2B (business-to-business) organization close to the consumer-end of the supply chain, whereas political factors are more obviously relevant to a global munitions supplier or aerosol propellant manufacturer. All businesses benefit from a SWOT analysis, and all businesses benefit from completing a SWOT analysis of their main competitors, which interestingly can then provide useful points back into the economic aspects of the PEST analysis.

swot analysis history - the origins of the SWOT analysis model

This remarkable piece of history as to the origins of SWOT analysis was provided by Albert S Humphrey, one of the founding fathers of what we know today as SWOT analysis. I am indebted to him for sharing this fascinating contribution. Albert Humphrey died on 31 October 2005. He was one of the good guys.

SWOT analysis came from the research conducted at Stanford Research Institute from 1960-1970. The background to SWOT stemmed from the need to find out why corporate planning failed. The research was funded by the fortune 500 companies to find out what could be done about this failure. The Research Team were Marion Dosher, Dr Otis Benepe, Albert Humphrey, Robert Stewart, Birger Lie. It all began with the corporate planning trend, which seemed to appear first at Du Pont in 1949. By 1960 every Fortune 500 company had a 'corporate planning manager' (or equivalent) and 'associations of long range corporate planners' had sprung up in both the USA and the UK. However a unanimous opinion developed in all of these companies that corporate planning in the shape of long range planning was not working, did not pay off, and was an expensive investment in futility. It was widely held that managing change and setting realistic objectives which carry the conviction of those responsible was difficult and often resulted in questionable compromises. The fact remained, despite the corporate and long range planners, that the one and only missing link was how to get the management team agreed and committed to a comprehensive set of action programmes. To create this link, starting in 1960, Robert F Stewart at SRI in Menlo Park California lead a research team to discover what was going wrong with corporate planning, and then to find some sort of solution, or to create a system for enabling management teams agreed and committed to development work, which today we call 'managing change'. The research carried on from 1960 through 1969. 1100 companies and organizations were interviewed and a 250-item questionnaire was designed

and completed by over 5,000 executives. Seven key findings lead to the conclusion that in corporations chief executive should be the chief planner and that his immediate functional directors should be the planning team. Dr Otis Benepe defined the 'Chain of Logic' which became the core of system designed to fix the link for obtaining agreement and commitment. 1. 2. 3. 4. 5. 6. 7. 8. Values Appraise Motivation Search Select Programme Act Monitor and repeat steps 1 2 and 3

We discovered that we could not change the values of the team nor set the objectives for the team so we started as the first step by asking the appraisal question, for example, what's good and bad about the operation. We began the system by asking what is good and bad about the present and the future. What is good in the present is Satisfactory, good in the future is an Opportunity; bad in the present is a Fault and bad in the future is a Threat. This was called the SOFT analysis. When this was presented to Urick and Orr in 1964 at the Seminar in Long Range Planning at the Dolder Grand in Zurich Switzerland they changed the F to a W and called it SWOT Analysis. SWOT was then promoted in Britain by Urick and Orr as an exercise in and of itself. As such it has no benefit. What was necessary was the sorting of the issues into the programme planning categories of: 1. 2. 3. 4. 5. 6. Product (what are we selling?) Process (how are we selling it?) Customer (to whom are we selling it?) Distribution (how does it reach them?) Finance (what are the prices, costs and investments?) Administration (and how do we manage all this?)

The second step then becomes 'what shall the team do' about the issues in each of these categories. The planning process was then designed through trial and error and resulted finally in a 17 step process beginning with

SOFT/SWOT with each issue recorded separately on a single page called a planning issue. The first prototype was tested and published in 1966 based on the work done at 'Erie Technological Corp' in Erie Pa. In 1970 the prototype was brought to the UK, under the sponsorship of W H Smith & Sons plc, and completed by 1973. The operational programme was used to merge the CWS milling and baking operations with those of J W French Ltd. The process has been used successfully ever since. By 2004, now, this system has been fully developed, and proven to cope with today's problems of setting and agreeing realistic annual objectives without depending on outside consultants or expensive staff resources.

the seven key research findings

The key findings were never published because it was felt they were too controversial. This is what was found: 1) A business was divided into two parts. The base business plus the development business. This was re-discovered by Dr Peter Senge at MIT in 1998 and published in his book the Fifth Discipline (not '5th Dimension' as previously stated here - thanks J Hoffman for this correction, 28 Jan 2011). The amount of development business which become operational is equal to or greater than that business on the books within a period of 5 to 7 years. This was a major surprise and urged the need for discovering a better method for planning and managing change. 2) Dr Hal Eyring published his findings on 'Distributive Justice' and pointed out that all people measure what they get from their work and divide it by what they give to the work and this ratio is compared to others. If it is not equal then the person first re-perceives and secondly slows down if added demands are not met. (See for interest Adams Equity Theory and the Equity Theory Diagram pdf) 3) The introduction of a corporate planner upset the sense of fair play at senior level, making the job of the corporate planner impossible. 4) The gap between what could be done by the organisation and what was actually done was about 35%.

5) The senior man will over-supervise the area he comes from. FinanceFinance, Engineering-Engineering etc. 6) There are 3 factors which separate excellence from mediocrity: a. Overt attention to purchasing b. Short-term written down departmental plans for improvement c. Continued education of the Senior Executive 7) Some form of formal documentation is required to obtain approval for development work. In short we could not solve the problem by stopping planning.

in conclusion
By sorting the SWOT issues into the 6 planning categories one can obtain a system which presents a practical way of assimilating the internal and external information about the business unit, delineating short and long term priorities, and allowing an easy way to build the management team which can achieve the objectives of profit growth. This approach captures the collective agreement and commitment of those who will ultimately have to do the work of meeting or exceeding the objectives finally set. It permits the team leader to define and develop coordinated, goal-directed actions, which underpin the overall agreed objectives between levels of the business hierarchy. Albert S Humphrey August 2004

translating SWOT issues into actions under the six categories

Albert Humphrey advocated that the six categories: 1. Product (what are we selling?) 2. Process (how are we selling it?) 3. Customer (to whom are we selling it?)

4. Distribution (how does it reach them?) 5. Finance (what are the prices, costs and investments?) 6. Administration (and how do we manage all this?) provide a framework by which SWOT issues can be developed into actions and managed using teams. This can be something of a 'leap', and so the stage warrants further explanation. Translating the SWOT issues into actions, are best sorted into (or if necessary broken down into) the six categories, because in the context of the way that business and organizations work, this makes them more quantifiable and measurable, responsible teams more accountable, and therefore the activities more manageable. The other pivotal part in the process is of course achieving the commitment from the team(s) involved, which is partly explained in the item summarising Humphrey's TAM model and process. As far as identifying actions from SWOT issues is concerned, it all very much depends on your reasons and aims for using SWOT, and also your authority/ability to manage others, whom by implication of SWOT's breadth and depth, are likely to be involved in the agreement and delivery of actions. Depending on pretext and situation, a SWOT analysis can produce issues which very readily translate into (one of the six) category actions, or a SWOT analysis can produce issues which overlay a number of categories. Or a mixture. Whatever, SWOT essentially tells you what is good and bad about a business or a particular proposition. If it's a business, and the aim is to improve it, then work on translating: strengths (maintain, build and leverage), opportunities (prioritise and optimise), weaknesses (remedy or exit), threats (counter) into actions (each within one of the six categories) that can be agreed and owned by a team or number of teams. If the SWOT analysis is being used to assess a proposition, then it could be that the analysis shows that the proposition is too weak (especially if compared with other SWOT's for alternative propositions) to warrant further investment, in which case further action planning, other than exit, is not required.

If the proposition is clearly strong (presumably you will have indicated this using other methods as well), then proceed as for a business, and translate issues into category actions with suitable ownership by team(s). This is my understanding of Albert Humphrey's theory relating to developing SWOT issues into organizational change actions and accountabilities. (I'm pleased to say that Albert kindly confirmed that this is indeed correct.) There are other ways of applying SWOT of course, depending on your circumstances and aims, for instance if concentrating on a department rather than a whole business, then it could make sense to revise the six categories to reflect the functional parts of the department, or whatever will enable the issues to be translatable into manageable, accountable and owned aims.