Strategic Business Analysis: SWOT, PEST, Ansoff, and Boston Matrix
SWOT Analysis
SWOT analysis originated from research conducted at the Stanford Research Institute between 1960 and 1970. This research, funded by Fortune 500 companies, aimed to understand and address the failures in corporate planning. SWOT, an acronym for Strengths, Weaknesses, Opportunities, and Threats, is a valuable tool for decision-making in various business situations.
SWOT analysis provides a framework for reviewing strategy, position, and direction. It is useful in brainstorming meetings and is applied in business planning, strategic planning, competitor evaluation, marketing, product development, and research reports. While SWOT assesses a business unit or idea, PEST analysis evaluates a market.
A SWOT analysis is a subjective assessment presented in a grid format, with sections for Strengths, Weaknesses, Opportunities, and Threats.
Examples of SWOT analysis applications:
- Assessing a company’s market position and viability
- Evaluating a sales distribution method
- Analyzing a product or brand
- Examining a business idea
Strengths
Strengths are the positive attributes of a business and its employees.
Possible strengths include:
- Advantages of the proposition
- Capabilities
- Competitive advantages
- Unique selling points (USPs)
- Resources, assets, people
Weaknesses
Weaknesses are areas where a business performs poorly or has a negative reputation. They include factors causing losses, disputes, grievances, and complaints.
Possible weaknesses include:
- Disadvantages of the proposition
- Gaps in capabilities
- Lack of competitive strength
- Reputation, presence, and reach
- Financial issues
Opportunities
Opportunities are future directions a business could profitably pursue, leveraging its strengths or addressing its weaknesses. This requires a broad and creative consideration of the business environment.
Possible opportunities include:
- Market developments
- Competitors’ vulnerabilities
- Industry or lifestyle trends
- Technology development and innovation
- Global influences
Threats
Threats arise from competitors’ actions, failure to capitalize on opportunities, or internal issues like complacency and rising costs.
Possible threats include:
- Political effects
- Legislative effects
- Environmental effects
- IT developments
- Competitor intentions
PEST Analysis
PEST Analysis is a widely used tool for understanding the broader Political, Economic, Socio-Cultural, and Technological environment. Business leaders use it to shape their future vision.
PEST analysis is important because:
- It aligns your actions with powerful forces of change.
- It helps avoid actions doomed to fail due to external factors.
- It facilitates adaptation to new environments when expanding internationally.
PEST stands for Political, Economic, Socio-Cultural, and Technological.
To use PEST analysis:
- Brainstorm relevant factors.
- Identify information related to these factors.
Political
Political factors concern how political developments affect business strategy.
These may include:
- Government type and stability
- Freedom of the press, rule of law, bureaucracy, and corruption levels
- Regulation and deregulation trends
- Social and employment legislation
- Tax policy, trade, and tariff controls
Economic
Economic factors involve analyzing various economic conditions and their impact on business.
These may include:
- Stage of the business cycle
- Current and projected economic growth, inflation, and interest rates
- Unemployment and labor supply
- Labor costs
- Levels of disposable income and income distribution
- Impact of globalization
Socio-Cultural
Socio-Cultural factors explore how social changes can create a competitive advantage.
These changes could be:
- Population growth rate and age profile
- Population health, education, social mobility, and attitudes toward these
- Population employment patterns, job market freedom, and attitudes toward work
- Press attitudes, public opinion, social attitudes, and social taboos
- Lifestyle choices and attitudes toward these
Technological
Technological factors require organizations to review the impact of new technologies. Products and production methods can quickly become outdated.
Firms must consider:
- Technological environment
- Impact of emerging technologies
- Impact of the Internet, reduced communication costs, and increased remote working
- Research and development activity
Boston Matrix
The Boston Matrix, developed by the Boston Consulting Group, is a product portfolio analysis tool that relates market growth to market share, addressing challenges in identifying a product’s life cycle stage.
The Boston Matrix aligns with the product life cycle. Starting with “Problem Children” (newly launched products), we move counterclockwise. These products, also called “Question Marks,” may become “Stars” and “Cash Cows” with financial support. “Stars” are in the growth stage, providing high returns and requiring substantial investment. They offer a natural cash flow and strong future prospects.
Ansoff Matrix
The Ansoff Growth Matrix is a marketing planning tool that helps businesses determine product and market growth strategies. It suggests that growth depends on whether a business markets new or existing products in new or existing markets. The matrix outputs growth strategies that guide business strategy.
Market Penetration
Market Penetration focuses on selling existing products in existing markets.
Objectives include:
- Maintain or increase market share through competitive pricing, advertising, sales promotion, and personal selling.
- Secure dominance in growth markets.
- Restructure mature markets by driving out competitors with aggressive promotion and pricing.
- Increase usage by existing customers through loyalty schemes.
Market penetration is a “business as usual” strategy, focusing on familiar markets and products with good information on competitors and customer needs. It typically requires minimal new market research.
Market Development
Market Development involves selling existing products in new markets.
Approaches include:
- New geographical markets (e.g., exporting).
- New product dimensions or packaging.
- New distribution channels (e.g., e-commerce).
- Different pricing policies for new customer segments.
Market development is riskier than market penetration due to targeting new markets.
Product Development
Product Development introduces new products into existing markets. This may require new competencies and modified products appealing to existing markets.
A successful product development strategy emphasizes:
- Research and development, and innovation.
- Detailed insights into customer needs.
- Being first to market.
This strategy suits businesses needing product differentiation for competitiveness.
Diversification
Diversification involves marketing new products in new markets. It is the riskiest strategy as it enters markets with little or no experience.
Businesses adopting diversification must have a clear understanding of expected gains and an honest assessment of risks. With the right balance, diversification can be highly rewarding.