Business Discussion

Chapter 5

Conducting the SWOT analysis

1. Introduction....................................................................................132

2. The purpose of the SWOT analysis .............................................132

3. Analyzing strengths and weaknesses..........................................134

4. Spotting external opportunities and threats ..............................138

5. The SWOT analysis .......................................................................141

6. Summary ........................................................................................143

T H O R O G O O D

P R O F E S S I O N A L

I N S I G H T S

132 T H O R O G O O D P R O F E S S I O N A L I N S I G H T S

Chapter 5

Conducting the SWOT analysis

1. Introduction

Review of many account plans suggests that there are few tools used as often

as the SWOT analysis that are so poorly applied. Observation indicates that a

SWOT analysis tends to consist of a long list that seems to have little to do with

any of the analysis that preceded it or with the proposed account objectives and

strategies that succeed it. For the most part it is completed because the partic-

ular plan format being used requires it to be done. This is unfortunate because

the SWOT analysis is the bridge that links the detailed analysis described in the

preceding two chapters with the account objectives, strategies and tactics

discussed in subsequent ones.

2. The purpose of the SWOT analysis

The SWOT analysis serves two main purposes.

1. Provides a one page summary of the most important outputs from the

analysis stages

2. Allows the strategic focus for the account to be identified

The one page summary is valuable because it helps to focus attention on what

is most important in the complex situation between the supplier and the customer.

The number of entries into the SWOT should be not be too large. There is no

merit and no point in having long lists.

This chapter covers:

• The purpose of the SWOT analysis

• Identifying real strengths and weaknesses

• Spotting external opportunities and threats

• The SWOT analysis

The second purpose for the SWOT, and its most important, is to provide strategic

focus, as shown in figure 5.1. Once completed, it reveals the possibility of a supplier

using, or leveraging a strength to capitalize on a customer opportunity. If this

is possible then the supplier will be able to implement an attack strategy that

leverages a core competence (strength) to deliver a better, more attractive relation-

ship to the customer than competitors. Conversely, if there is a threat that will

undermine the supplier’s position because it impacts on a weakness, then a

defence strategy will need to be implemented to block its impact.

Figure 5.1 – The strategic application of the SWOT analysis

Sometimes it may not be possible to use a strength to take advantage of an oppor-

tunity because it is being undermined by a threat. If this is the case, the strength

must be reinforced to block the threat. If this cannot be done, then the strength

cannot be leveraged to capitalize on an opportunity. For example, a supplier

may have a strength such as a patent on a product that is particularly impor-

tant to a vital customer application. However, the customer may be developing

a replacement process that does not require the particular application – a threat.

On other occasions it may be that a weakness makes it difficult to capitalize on

an opportunity, despite the existence of a strength that can be leveraged. In this

Weaknesses

(Internal)

Threats

(External)

Need to eliminate

weaknesses

to block threat

Strengths

(Internal)

Opportunities

(External)

Scope to leverage

strength to capitalize

on opportunity

Will threats undermine

strengths?

Will weaknesses

prohibit opportunity

being capitalized on?

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case, the weakness needs to neutralized if the opportunity is to be made the most

of. For example, the supplier may have a very low share of the customer’s business

– a weakness. In addition, it has a very good market research department that

is very knowledgeable about the customer’s potential markets – a strength. The

customer wishes to expand into new markets – an opportunity. However, the

supplier will find it difficult to utilize its research strength because its position

is weak.

3. Analyzing strengths and weaknesses

Real strengths and weaknesses

Strengths and weaknesses are related to the position of the supplier within the

customer. They are internal to the supplier and its trading relationship with the

customer.

For a strength to be a genuine one, three tests need to be applied, each of which

must be positive.

1. Is it important to the customer?

Unless the strength possessed by the supplier is important to the particular

customer then it cannot be a real strength. General strengths possessed by the

supplier, such as technically highly trained sales engineers, may or may not be

relevant to a particular customer depending on their own application and devel-

opment requirement.

2. Are we better that the competitor(s)?

Even if the strength is relevant to the customer, it still may not be a genuine

strength because the competitor(s) has a similar strength that is of equal or

superior quality.

3. Is it difficult for the competitor to emulate?

Even if the competitor is not as good, the strength may not be a real one, if it

is possible for the competitor(s) to catch up relatively easily. If they do so, then

test 2 becomes negative.

Very similar sets of tests are applied to assess weaknesses.

1. Is it important to the customer?

This is the same as for strengths

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2. Are we worse that the competitor(s)?

Our position is inferior to that of the competitor(s)

3. Is it difficult for us to emulate?

It will require significant resources and time to catch up with the competitor.

By applying these three tests many supposed strengths and weaknesses will fall

by the wayside, and long lists can rapidly be reduced to a few core strengths.

One way of doing this systematically is to give each positive answer to the three

tests a score of 1 and negative answers 0. Only those strengths/weaknesses that

score a total of 3 points are genuine.

3.2 Sources of strengths and weaknesses

The analysis in chapters 3 and 4 provides the inputs to the SWOT analysis. Figure

5.2 shows the sources of the inputs, referencing the relevant figures in chapters

3 and 4. Inevitably, there is some overlap between some of the information

provided by some of these sources. For example, some of the factors reviewed

in the Activity Analysis (Figure 3.9) such as ‘joint planning’ may also show in

the bonding audit (Figure 4.18). However, as they are considered from different

perspectives, they are complementary rather than merely repetitive.

Figure 5.2 – Sources of strengths and weaknesses

Computer

telephony

integration

Business

analysis

and decision

support

Internet

Intranet

Search

engines/

data-mining

STRENGTHS AND

WEAKNESSES

Cost and

profit

analysis

Figure 3.9

Bonding

audit

Figure 4.19

Sales

analysis

Figures

3.2 & 3.3

Customer

satisfaction

Figure 3.10

Activity

analysis

Figure 3.8

Buying

process

analysis

Figure 3.7

Competitive

position factors

Figure 4.10

Relationship

analysis

Figure 4.15

Customer

health check

Figure 4.17

Customer

contact

matrix

Figure 3.5

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135T H O R O G O O D P R O F E S S I O N A L I N S I G H T S

A good starting point for the SWOT analysis is the ‘customer base map’ because

one of the dimensions that it incorporates is ‘competitive position’; that is, the

strength of the supplier in the customer, relative to its competitors. The main

factors that impact on the supplier’s competitive position in the customer have

been discussed in section 2.2 of chapter 4.

To show the process of assessing whether a factor is a real strength or weakness,

‘share of the customer’s purchases’, which is nearly always a key dimension,

will be used as an example. If the supplier’s relative share is significantly greater

than 1 (at least 1.3) then this is usually a strength. (A relative share above 1.3

means the supplier’s share is a minimum of a third larger than its biggest

competitor). It therefore would get a positive answer to test 2 for strengths (are

we better than competitors?) and also for test 3 (is it difficult for competitors to

emulate us?).

However, a supplier with a relative share of between 1 and 1.3 is probably not

far enough ahead of its main competitor to make it difficult for them to catch

up. Hence the answer to question 3 would be negative in this case. Conversely,

once a supplier’s relative share reduces below 0.75 is it likely that its share is a

weakness, since the largest competitor is at least one third larger than it is. It

would therefore get positive answers on tests 2 (are we worse than competi-

tors?) and 3 (is it difficult for us to emulate?) for weaknesses.

However, relative share on its own is not sufficient. Question 1 (is it important

to the customer?) also needs to be addressed. To do so it is necessary to look at

actual share, since this will indicate importance to customer. If there are many

suppliers, and none have a share of the customer’s purchases in the category

above 20%, then none is likely to be important to the customer. The answer then

to question 1 is negative. Hence share, irrespective of the supplier’s relative share

is neither a strength nor a weakness. Once share exceed 20% then the supplier

or competitor becomes more important to the customer. The answer to question

1 is therefore positive and share of customer category purchases could become

a source of strength or weakness. Using each of the tests and scoring 1 for a

positive answer and zero for a negative answer and adding the result will give

a score of 3 to indicate a real strength or weakness.

Relative share

Your company’s share of the customer’s

category purchases divided by that of

the largest, for example:

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Your Largest Relative

company’s competitor market

share share share

10% 40% 0.25

30% 30% 1

60% 20% 3

Figure 5.3 provides a format for identifying real strengths and weaknesses. From

the analysis described in Chapters 3 and 4, each factor is listed and an initial

subjective assessment made on whether it is a strength or weakness. The three

appropriate tests are applied and the results added. Only those scoring 3 are

entered as real strengths or weaknesses in the final column.

Some may feel that this approach may exclude some moderately strong strengths

which, in the absence of really powerful ones, need to be capitalized on. This can

be accommodated by allocating a half point if the factor partially meets the test.

For example, rather than score zero if the share of the customer’s business is les

than 20%, a half point may be allocated if it is between 10% and 20%.

Strengths scoring 2.5 or even 2 can then also be included, provided that it is

realized that a strategy based on them involves a higher degree of risk.

Figure 5.3 – Strength and weakness analysis

Factors that could be

strengths/weaknesses

Identify as a possible

strength or weakness

Total

score

Specify as a real

strength or weakness

Competitive position

Sales analysis

Cost/profit analysis

Customer satisfaction

Activity analysis

Customer contact matrix

Buying process analysis

Relationship analysis

Customer health check

Bonding audit

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4. Spotting external opportunities and threats

Real opportunities and threats

In some ways the use of the word opportunity can be misleading. It is often inter-

preted as a potential action the supplier could take. For example, if it is due to

launch a new product, then it may define as an opportunity the possibility of

selling the product to the key customer. Alternatively, an opportunity might be

perceived as the chance to eliminate a weakness. These are not helpful ways of

looking at opportunities.

Rather, opportunities should be viewed as events over which the supplier has

no, or minimal influence or control. They are external to their organization.

Opportunities are concerned with the customer or their environment. Actions,

what the supplier might do, are not opportunities. Indeed actions have no part

to play in the SWOT analysis. Deciding action (strategy) happens after the SWOT

is completed. Whether an opportunity is exploited or not is a decision taken

subsequently.

Opportunities, if they happen, could be beneficial to the supplying organiza-

tion. It may benefit through increasing share of the customer’s purchases,

obtaining the patents for a new product, learning new/special skills, improving

its image and so on.

Threats are generally far easier to identify. They are also external to the supplying

company and could, if they materialize, do harm to the supplier. This harm may

manifest itself in any number of ways, including losing customer share, having

to redevelop an offer, needing to reduce price, having to apply more resources,

receiving negative publicity and so on.

Both opportunities and threats therefore are external to the supplier organiza-

tion and its trading with the customer. They are to do with the customer itself,

the supplier’s competitors, the customer’s competitors, the customer’s customers

and the environment. Also, opportunities and threats are concerned with what

might happen. There is no absolute certainty that the impact of an opportunity

or threat will ever actually materialize. For example, proposed legislation may

be a threat but there is no guarantee that it will be enacted.

Strengths and weaknesses, in contrast, are internal to the supplying company

and its trading with the customer, and are concerned with what is, not what

might be.

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138 T H O R O G O O D P R O F E S S I O N A L I N S I G H T S

4.2 Sources of opportunities and threats

One of the most significant sources of opportunities or threats is change. Anything

that is changing creates a new set of circumstances that need to be dealt with.

New legislation, technology or operating methods all have an impact and may

open up opportunities or pose threats. Markets change, they grow or decline;

customer needs and requirements evolve; ways of doing business together

advance; reputations flourish or founder. Since many things are changing most

of the time, the challenge is to spot the important changes that are likely to have

a significant effect on the customer.

Competitors are often a significant source of opportunity or threat. New entrants

may reduce the available market for an incumbent supplier, whilst a withdrawal

will have the opposite effect. Competitors can exert pressure through pricing,

new product introductions, reaching agreements with customers and so on, all

of which can be threats.

Also, the customers themselves are continually changing, reorganizing, imple-

menting new strategies and priorities, embarking on new initiatives and

abandoning existing ones, all creating possible opportunities and threats.

The main sources of opportunities and threats are shown in figure 5.4, with the

relevant references to the figures from the analysis conducted in chapters 3 and

4 also shown. Each possible opportunity and threat must be examined and

assessed against three tests:

a) Is it external to the supplier?

b) Will it benefit or harm the supplier if it continues/materializes?

c) Will its actual/potential impact be of significance?

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Figure 5.4 – Sources of opportunities and threats

A similar scoring system could be adopted as for assessing strengths and

weaknesses with a positive answer to each question scoring 1 point and a negative

scoring 0 points. Only those factors scoring a total of 3 points are real oppor-

tunities or threats. Figure 5.5 shows a format for distilling the opportunities and

threats.

Computer

telephony

integration

Business

analysis

and decision

supportExtranet

Intranet

Search

engines/

data-mining

Work tracking

and work-flow

management

Customer potential and

trends Figure 3.2

Customer value

chain analysis Figure 3.1

OPPORTUNITIES

AND THREATS Customer

priority assessment Figure 3.12

Competitor performance

scorecard Figure 3.13

Customer market analysis

Figure 3.17

Competitor activity tracking

Figure 3.16

Business environment

analysis Figure 3.19

Customer competitor

analysis Figure 3.20

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Figure 5.5 – Opportunities and threats analysis

5. The SWOT analysis

The outputs from tables 5.3 and 5.5 are the constituents of the SWOT. This is

usually presented in the form of a matrix as shown in Figure 5.6

Figure 5.6 – The SWOT analysis

Strengths Weaknesses

Opportunities Threats

Factors that could be

opportunities/threats

Identify as a possible

opportunity or threat

Total

score

Specify as a real

opportunity or threat

Customer potential/trends

Customer value chain analysis

Customer priority assessment

Competitor performance

scorecard

Competitor activity tracking

Customer market analysis

Business environment analysis

Customer competitor analysis

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142 T H O R O G O O D P R O F E S S I O N A L I N S I G H T S

The number of entries in each cell will probably be less than ten. If they exceed

fifteen, then they should be carefully re-examined as it is likely that there will

be entries that are not true strengths, weaknesses, opportunities or threats.

It is also helpful and insightful to complete an additional SWOT analyses from

the perspective of the customer, considering its strengths and weaknesses and

the opportunities and threats it faces in its market. This will give insight into

the strategy being adopted by the customer, or the strategy it is likely to adopt

given an objective analysis of its situation. This provides the supplier with two

additional leverage points:

1. The customer’s weaknesses and opportunities can indicate

opportunities in the supplier’s SWOT

2. Understanding the customer’s strategy helps the supplier to better align

their total offering in a way that adds customer value.

The analyses structure already discussed can be used. To it should be added one

additional dimension – suppliers. That is, consideration from the customer’s

perspective of their strengths and weaknesses with regard to their suppliers,

and any opportunities or threats inherent in the situation. This is achieved by

looking at the relationship between supplier and customer (already discussed)

from the other end of the telescope.

Example

From the customer’s perspective having one supplier in a particular category

supplying them with over 70% of their total requirement was a weakness. As this

supplier was also a major supplier to their larger competitors this was a threat, as

the dominant supplier could favour their competitors at its expense. Potentially, a

weaker supplier to this customer might offer an advantageous agreement, giving

them additional benefits not enjoyed by their competitors.

Example

From performing a SWOT analysis from a customer’s perspective, an account

manager reasoned that they would be using a strength that they had in a particular

technology to enter a new market. This became an opportunity in the SWOT analysis

from the supplier’s perspective, which fortunately they could take advantage of by

leveraging a strength they had in terms of knowledge and experience of the new

market.

6. Summary

In this chapter we have considered the following:

1. The purpose of the SWOT analysis

• Provides a one page summary of the most important outputs from

the analysis

• Allows the strategic focus for the account to be identified

2. Identifying real strengths and weaknesses

• Applying the three tests

• Sources of strengths and weaknesses

3. Spotting external opportunities and threats

• Applying the three tests

• Sources of real opportunities and threats

4. The SWOT analysis

• The SWOT matrix

• Conducting the SWOT from the supplier’s and the customer’s

perspectives

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Read each statement below and tick the column that

most reflects the extent of your agreement

Always Usually Occasio-

nally

Rarely

/never

1. The SWOT is a key constituent of the key account plan

2. The SWOT is completed from the perspective of your

company in the particular customer

3. The SWOT analysis uses all the outputs from the

analysis

4. Robust tests are applied to assess real strengths and

weaknesses

5. Robust tests are applied to assess real opportunities

and threats

6. The SWOT is also completed from the customer

perspective

7. The number of entries in each cell of the SWOT is

less than ten

8. The SWOT is the key tool that links the account

analysis to the formulation of the account strategy

For each tick score 4 3 2 1

TOTAL

GRAND TOTAL

SCORING

27 – 32 POINTS

Your Company’s processes for SWOT analysis is leading edge

21 – 25 POINTS

Your Company’s SWOT analysis processes are well formed and should be maintained. Although

further improvement is possible, the same effort applied to other parts of the Key Account

Planning process will probably yield higher returns

15 – 20 POINTS

There are significant deficiencies in the SWOT analysis process. Focus on those elements that

have the lowest score

14 OR LESS POINTS

The SWOT analysis process is not working well and requires fundamental review and

restructuring