Value chain and SWOT analysis

VALUE CHAIN AND SWOT ANALYSIS

VALUE CHAIN ANALYSIS

It is undertaken to evaluate a company’s value chain elements.

Value chain analysis helps only in identifying the strengths and weaknesses of each elements of firm’s value chain.

It can not be used to identify external opportunities and threats.

SWOT ANALYSIS

It is a situation analysis of the organization. It is a groundwork for matching the strategy

both to the external market and internal resources.

It is away to analyze a firm’s internal and external situations.

VALUE CHAIN ANALYSIS

It has been popularized by Michael Porter. The value chain provides a disaggregated

view of a firm. It is a systematic way of viewing the series of

activities a firm performs to provide a product to its customer.

A value chain consists of a firm’s primary and support activities.

PRIMARY AND SUPPORT ACTIVITIES

The primary activities are involved with the- Physical creation of the product Its distribution and marketing The after sales service

In another way, primary activities include- Inbound logistics Operations/production Outbound logistics Marketing and service


Inbound logistics include-Receiving inputsStoring inputsHandling inputs

In another way, this includes-Material handlingStoring of products in warehouseScheduling of vehicles for transport of products/materials

Return to supplier


Operations include-MachiningPackagingAssemblyTestingEquipmentMaintenanceAnd other activities transforming input into the final products


Marketing includes-AdvertisingSales promotionPublic relationsPersonal sellingSales forceSelection of distribution channelPricing of products etc


Service includes-Repair of machinesInstallation of machineryTraining to customers (dealers)Supply of partsPrompt response to customer query etc.


The support activities are necessary for supporting the primary activities to take place.

They include-Firm’s infrastructureHuman resource managementTechnological developmentProcurement of resourcesFinanceInventory etc.

USEFULNESS OF VALUE CHAIN ANALYSIS

To evaluate the internal cost structure To evaluate the strengths and weaknesses It is a powerful managerial tool for identifying

which activities in the chain have competitive advantage potential.

It reveals the cost position of the firm against the competitors

Manager can learn about the sources of cost advantage and cost disadvantage.

TYPES OF VALUE CHAIN

Supplier-related value chains: activities, costs and margins of suppliers

Company value chains: Internally performed activities, costs and margins

Forward channel value chains: activities, costs and margins of intermediaries and Buyer or end-user value chains

MEANING OF SWOT

SWOT stands for strengths, weaknesses, opportunities and threats.

Strengths and weaknesses are internal factors.

Opportunities and threats are external factors.

MEANING OF SWOT: THE DATA FRAMEWORK STRUCTURE

Data sources Positive factors Negative factors

Internal data Strengths Weaknesses

External data Opportunities Threats

STRENGTH:

Strength is a distinctive competence of an organization that enables it to achieve special advantage in the marketplace.

It is something that a company is good at doing.

Anything that gives an organization enhanced competitiveness is strength.

WEAKNESS:

Weakness is something an organization lacks or does poorly or a condition that puts the organization at a disadvantage.

It indicates a deficiency or limitation or constraint.

Any weakness affects an organization’s performance adversely.

OPPORTUNITY:

An opportunity is something that an organization may grab for growth and profitability.

Opportunity arises when a firm can take the advantage of condition in it’s external environment.

It offers important avenues for profitable growth.

THREAT:

Threat is something that a firm may be exposed to in the external environment.

It is an unfavorable trend in the external environment.

Threat arises when conditions in the external environment endanger the integrity and profitability of a firm’s business.

IMPORTANCE OF SWOT ANALYSIS:

SWOT analysis evaluates strengths, weaknesses, opportunities and threats of the company and helps in drawing conclusions about the attractiveness of its situation.

It points out the need for strategic action. The strengths identified through SWOT

analysis can be used as the cornerstones of strategy and the basis on which to build competitive advantage.

IMPORTANCE OF SWOT ANALYSIS:

It enables the company to build its strategy around what the company does best on the basis of the strengths and should avoid strategies whose success depends heavily on areas where the company is weak.

The results of swot analysis are helpful in correcting competitive weaknesses that make the company vulnerable.

Based on the opportunities identified through SWOT analysis, managers can aim their strategies at pursuing opportunities well suited to the company’s capabilities and provide a defense against external threats.

SOURCES OF DATA FOR SWOT ANALYSIS

Internal sources: Such sources of data remain within the organization.

External sources: Such sources of data remain outside of the organization.


External sources of data: Internet Trade associations like chamber of commerce

and industry Export promotion bureau Trade fairs and exhibitions Foreign trade missions/consulates


External sources of data:Board of investmentConcerned ministriesResearch organizationsConsulting firmsMarket survey firmsIndependent think tanks like Center for Policy Dialogue(CPD)


Internal sources of data: Personal files of employees Production records Sales records Inventory registers Marketing information Accounting information Management Information Systems (MIS) Various financial statements Annual reports

SWOT: A STEP-BY-STEP PROCEDURES FOR ANALYSIS

Analyze the external environment Analyze the industry and competition Identify the external opportunities and

threats Analyze the internal environment and

internal strengths and weaknesses Assess the attractiveness of the

organization’s situations and draw conclusions regarding the need for strategic action


Step -1: External environmental analysis Identify the key forces that affect the

organization Monitor the information Select the methods to be used in forecasting

these factors Forecast the trends in these forces Identify the market opportunities on the

basis of the forecast Identifying the threats to the organizations

future profitability


Step-2: Industry and competitive analysis Analyze the industry structure Analyze the nature of competition Identify and analyze individual competitors Identify the key industry-related

opportunities and threats


Step-3: Identification of opportunities and threats External analysis will provide the information

for identification of threats and opportunities.

Manager will summarized the information. One method of performing an opportunity

and threat analysis is simply to categorize the environmental factors in terms of opportunity potential and threat potential.


A sample opportunity and threat analysis for Comilla Foundry (producer of tube wells) is presented in the following table:

Environmental factors

Opportunities Threats

General environment1. Decreasing disposable income of customers2. Customers are more comfortable with the cheaper tube-walls

Operating environment1. TARA pump has introduced new good quality product


Step-4: (a) Internal environmental analysis Identify the areas for analysis Analyze each of the selected areas Identifying organization’s internal strengths

and resource capabilities Identifying organization’s internal

weaknesses and resources deficiencies Evaluate the strengths and weaknesses for

their strategy making implications


Step-4: (b): Identification of internal strengths and weaknesses :

List the enablers as strengthsList not enablers as weaknesses


A sample format for identification of strengths and weaknesses

Internal environmental factors

Strengths Weaknesses

1. Comilla Foundry is hiring more professional sales executives and managers2. Comilla Foundry has high employee turnover3. The firm often suffers form working capital deficiency


Step-6: Concluding SWOT analysis and drawing conclusions

Asses the attractiveness of organization's situation on the basis of identified strengths, weaknesses, opportunities and threats.

Draw conclusions regarding the need for strategic action

USE OF SWOT RESULTS FOR THE CHOICE OF STRATEGY

Strategy makers can use the results of SWOT analysis for the choice of strategy.

SWOT provides a dynamic framework for choosing a strategy.

USE OF SWOT RESULTS FOR THE CHOICE OF STRATEGY

The results of the analysis provides clues to the strategists /mangers in a business-firm need to:

Undertake actions to protect/improve the firm’s strengths

Initiate efforts to overcome the weaknesses

Pursue market opportunities matched with resource capabilities and

Take actions to defend against external threats to the firm’s business

WHAT NEXT TO SWOT ANALYSIS?

Based on the information and their understanding of the environment, managers should:

Develop short term objectivesLong term objectivesDevelop competitive strategies

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