SWOT ANAYSIS AND ARGENTI SYSTEM OF STRATEGIC PLANNING

SWOT ANAYSIS AND ARGENTI SYSTEM OF STRATEGIC PLANNING SWOT analysis is used to consolidate the results from the external and internal business environment analysis. SWOT stands for: Strengths-will aid the development of the organization Weaknesses– will undermine the development of the Organization. Opportunities– available to be grasped by the organization Threats– presenting potential problems for the organization Strengths the internal positive capabilities of the organization, for example financial resources, motivated staff or good market reputation; Weaknesses the internal negative aspects of the organization that will diminish the chances of success, for example out-of-date equipment and systems, unskilled staff or poor management information; Opportunities the external factors that present opportunities for success ,for example social changes that increase demand for the organization’s services, or the development of technology to provide new service delivery channels; Threats the external factors that have the potential to harm the organization, for example a technological development that could enable new competitors to enter the market, or economic difficulties leading to a reduction in market demand. SWOT is used to summarize and consolidate the key issues identified when analyzing an organization and its business environment. It follows the use of techniques such as PESTLE (external) and Resource Audit (internal). Once the SWOT has been developed it is then used as a means of evaluating the organization’s business situation and identifying potential strategies for the future. A standard approach is: . Identify the business issues that may arise from the threats defined in the SWOT. Consider the actions required to grasp the opportunities and address the threats. Identify the areas of strength that will enable the organization to carry out these actions. Identify the areas of weakness that could undermine any action taken. Develop and evaluate strategic options for delivering success based on the previous steps. SWOT analysis is often employed in workshops, where techniques such as brainstorming are used to identify the elements in each of the four areas. However, this approach is not rigorous and can be too informal to produce a comprehensive SWOT. There is the risk of missing significant factors, such as a looming threat or a major area of organizational weakness. A better approach is to use formal techniques to derive the SWOT, which helps to ensure that all relevant areas are considered and the key issues identified. Using techniques such as PESTLE, Porter’s Five Forces and Resource Audit will provide a more analytical basis for this work and will produce an enhanced SWOT with clear sources and derivation. Once the SWOT has been produced it is important to distinguish the key issues since there may be a large set of entries some of which are likely to yield more than minor changes. It is the key SWOT issues that should be examined in detail. These should form the basis for the strategy definition. USE OF SWOT ANALYSIS IN STRATEGIC PLANNING Ezenwa(2012) posits that Argenti’s opening assertion is that in all planning systems one has to go through a process, or sequence of stages, in order to produce a plan. In the Argenti System there are 10 stages, as outlined below: Stage 1 - Preparation: to start the process and to select a planning assistant. Stage 2 - Objective and targets: to define the aim and ambitions of the organization. Stage 3- Forecasts and gaps: to calculate the size of the strategic task. Stage4- Strengths and weaknesses: to decide what the organization is especially good at and bad at. Stage5 - Threats and opportunities: to identify what major changes the future may hold for the organization. Stage 6 - Alternative strategies: to list all the alternative strategies available to the organization Stage 7 - Selecting the strategies: To decide which set of strategies is the most suitable. Stage 8 - Evaluation: to determine whether this set is good enough Stage 9 - Action Plans: to draw up detailed plans and budgets Stage 10 - Monitoring: to continuously study progress over the years. Argenti adds that these 10 stages are the same for all types and size of organization. All planning teams should move through the stages exactly as they are presented in their manuals. Stages 1 to 8 are usually termed the formulation stage and stages 9 and 10 the implementation stage. Formulation Stage 1 envisages the selection of a strategic planning team from within the organization together with the appointment of a strategic planner to manage the process. At stage 2 objectives are quantified in the form of targets and compared at stage 3 with forecasts of future performance based on the extrapolation of existing strategies. Argenti explains: ‘A target is what you want to achieve; a forecast is what you expect to achieve. The difference between targets and forecasts identified the gaps which any proposed strategies must fill. The SWOT analysis (strengths, weaknesses, opportunities, Threats) It is widely recognized that the heart of the whole strategic planning system is stages 4 and 5, often called the SWOT analysis, which identifies the strengths and weaknesses of the organization for comparison with the opportunities and threats in the future environment. It is at this point in the process that many of the writers on strategic planning, including Ansoff, Steiner and Porter, produce comprehensive checklists to enable this process to be carried out systematically. Argenti produced his own checklist for assessing the strengths and weaknesses of the organization s follows: Finance and legal Facilities Purchasing Products and services Research and development Marketing Distribution Employees Management Position in the industry Each of these is defined with examples and participants in the planning process are asked to rate their own organization against these criteria Participants are then asked to attempt to rank the strengths and weaknesses in order of strategic significance. A simple ABC classification is suggested where: A means that the item is of critical strategic importance and absolutely must be accounted for in the strategies of the company. Without this item in the strategies they would be valueless. B means that the item is of strategic importance and should be in the corporate strategies if possible; if not it must be attended to elsewhere by the planning team. C means that the item is not of corporate significance but may be of department or sectional importance and should be dealt with by a relevant senior executive. Argenti concludes that this stage (Stage 4) is probably the most importance for most organization A similar checklist is proposed by Argenti to analysize the threats and opportunities facing the organization. Political changes Economic changes Social changes Technological changes Changes in your own industry Other changes Again definitions and examples are provided and participants are expected to insert entries in the checklist against each criterion for their own organization. As with strengths and weaknesses, participants are again asked to rank these threats and opportunities in order of significance for their organization. The ranking system suggested for opportunities and threats classifies each item by probability and by impact. That is, they are ranked according to the chances of the threat or opportunity actually taking place and by the impact it would have on the organization if it did. Trends or events are classified on these two dimensions using a High, Medium or Low classification (H, M, L). Using this procedure generates the following categories: HH (High high). This is obviously an enormously important threat or opportunity because it is both very likely to occur and will have a great impact on the organization. Plainly it is something or such outstanding importance that the strategies which are devised in Stage 7 must, absolutely take it into account. Without-this item the strategies would be useless. HM or MH. Also important because it is either highly probable to occur but it is believed would have a most severe impact it if did. So while this may not have to be included in the main strategies, something must be done about it – perhaps there is a need to devise a ‘disaster plan’ or contingency plan’. HL, LM, ML, MM. if these can be included in the main strategies then they should be; but they are probably not significantly important to need further very serious consideration in the strategic planning exercise and might be better dealt with on an ad hoc basis by the organization’s other senior executives. LL. not worthy of further consideration in the strategies planning exercise. Total strategic summary At stage 6 all this information is collected together into a chart called the Total Strategic Summary. This chart displays the targets and forecast in graphical format, extracts the major strengths and weaknesses, opportunities and threats from the SWOT analysis, and summaries them in the form of what Argenti calls a cruciform chart. An example of a cruciform chart for a UK building products manufacturer is shown in Figure 6. Figure 4 cruciform chart Strengths weakness Marketing A High overheads A Merchants B New product development A Opportunities Dying products B International HM International B New Product Home HM Threats Declining home market HM Over Capacity HM Foreign competition HM The chart shows that the company is strong in marketing and has access to a wide range of builders’ growing obsolesces of its existing product range, and its lack of a presence in overseas markets. The firm recognizes opportunities in the international market for its existing products and also in the UK market for new products. However, this has to be set in the context of a shrinking home market with many competitors and the possibility of entry into the UK by foreign competitors. The cruciform chart summaries and displays the result of the SWOT analysis in such a way that the strategic situation of the organization can be seen at a glance. The chart can now be ‘read’ to identify the key issues that proposed strategies must address. The reading of the cruciform chart will reveal the balance of strategies must have with weaknesses and opportunities and threats in terms of both number and weighting. If, for example, strengths outweigh weaknesses, then the organization may be justified in adopting a bold and aggressive set of strategies. Further analysis may be conducted by noting whether the same factor appears more than once in a cruciform chart which will identify it as a factor at the central core of the organization’s strategy. In the example shown, ‘international’ occurs in two quadrants, with the related factor of ‘foreign competition’ also reinforcing the need for an overseas strategy. Equally, the relationships between factors in various quadrants may reveals key issues and possible strategies. The weakness of the company in terms of new products and the opportunity for new products and the opportunity for new products in the home market, coupled with the firm’s excellence in marketing, are an obvious direction for a strategy of new product development. What other cluster of factors indicate new directions for strategy? The SWOT analysis conducted using the cruciform chart will identify a number of key issues which any strategies must address. The conclusion of this alternative strategies stage of the process tends to generate a number of possible strategies for each of the key issues.