Week 3 - The strategic framework

Source / Reference:

1) Sullivan, "Systems Planning in the Information Age," Sloan Business Review, 1985
2) http://www.ownway.eu/academy/marketing/marketing-methods/swot-analysis/

 Subject:
The strategy development by applying PEST analysis and SWOT analysis

 Response:

PEST analysis and SWOT analysis are techniques that help to formulate the strategy.

PEST analysis mainly used to analyze the external environmental factors. It analyzes the external environment through 4 aspects, namely, political factors, economic factors, social factors, technical factors.

1.      Political factors include government regulations, policies and laws.

2.      Economic factors include the inflation, change of economic environment and the purchasing power of customers.

3.      Social factors mean the change of social activities that affecting the needs of customers. For example, ageing change the age distribution.

4.      Technological factors include the technological change and automation.

Strategy cannot be created by only using PEST analysis since it illustrates only the macro-environment. By emerging with SWOT analysis, the situation can be analyzed and a complete strategy can be developed.

SWOT analysis may analyze both internal and external business environment. Strengths and weaknesses contribute to the internal analysis while opportunities and threats are attributes of the external analysis.

  

1.      Strengths mean the merits of a firm that may help the business growth.

2.      Weaknesses mean the potential shortcomings of a firm that may badly affect the business activities.

3.      Opportunities denote the potential chances from external conditions that may help the business.

4.      Threats are the potential dangers from the external environment that may be the barriers of achieving the business goals.

By using SWOT analysis, the current state of company can be known. There are several strategies with respect to different state of the firm. The basic concept is shown below:

 

If a firm has more strengths than weaknesses and chances more than risks, MAX-MAX strategy can be used. It means to strengthen the merits of the firm and to get more opportunities in order to achieve the objective.

If there are many weaknesses but quite a lot of opportunities, MIN-MAX strategy should be used. This strategy is to reduce the weaknesses and to increase the chances to make the business run more smoothly.

If a firm has numerous strengths with many potential threats, MAX-MIN strategy could be applied. Enhancing the strengths and minimize the threats is the strategy that should be implemented.

In order to survive in the competitive market, a firm with many weaknesses and potential threats should execute MIN-MIN strategy. Correcting firms’ flaws and minimize the threats is the way to survive.