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How relevant is a SWOT ANALYSIS in today’s market?



By John C. Botdorf


SWOT ANALYSIS-A proper SWOT Report is an analysis of your product’s competitive position within the market. This business analysis model is widely taught in most business schools albeit many scholars point out the flaws in this model. Then again, there are flaws in every business tool if the truth is told. The SWOT model involves looking into four major criteria, strengths, weaknesses, opportunities, and threats. Today’s more savvy management  scholars may point out that  the  SWOT analysis is  outdated and point out that a SOAR model is what is needed to close the gap on a SWOT model. 


Our own analysis does not believe that any one  business tool is not without its faults. A SOAR model that focuses on Strengths, Opportunities, Aspirations, and Results is simply taking the data in a SWOT Report and just putting the results into actionable steps to address the issues. In other words, understanding your competitive landscape is key to any business, and whatever acronym one wishes to use is  secondary to the main point, how to defend and improve market share. We therefore welcome whatever term one wants to use because the issue that matters is how to use your business data to optimize and protect the bottom line by understanding your strengths and weaknesses. 


How does your  product line measure up against the competition? What are your core strengths at play to gain market share? Are your core strengths under pressure from the marketplace? What can you do to shore up your marketing and product roadmaps to increase or maintain your strengths against the competition? Your strengths come from a combination of intellectual capital, product uniqueness which may or may not be patent protected, and the value your product offers to the consumer. Like most companies, your core strengths are measured across a wide variety of attributes ranging from talent, production efficiencies, intellectual capital and, specific protection in the form of Intellectual Property. 


Like many financial tools, the output value is only as good as the effort to uncover relevant input data. While a SWOT report provides a fresh look at protecting sales and increasing operating margins, the key is to avoid wasting time on a SWOT report that does not provide specific and practical solutions. We believe a SWOT report provides real value when specific and practical solutions are the end result. It is also important to be honest with Company A’s top product versus the competitive landscape. Over time, static products may fall victim to a better mousetrap or your product matrix (Platinum, Gold, Silver versions of your product) may be out of alignment. In other words your “A” product may end up being a competitor's “B” or even “C” level product, amounting to  nothing more than their version of your product, with better features at a lower price point. This can occur at the product functionality level, or even at the packaging and size level where new competition takes your market share by offering better product features for less. It sure works for Walmart.

The challenge in producing and benefitting from a great SWOT report is to know how to optimize the time spent on creating the data input. We start by interviewing the CEO and the CFO to gather data on the financials. We then look at the marketing team to provide input on pricing and ascertain what are the main customer objectives as they relate to purchase orders. In other words let your customer define your value prop because they are the one buying your product. We often find different answers from what the customer finds as important in terms of features sets and value, from what the company believes. Understanding this disconnect is key to staying on an upward trend, or getting back to one.

We then review the quarterly reports over the past eight quarters and build consensus on where the company is headed. Then we want to look at the production process and see if we can ascertain if the per unit cost can be improved. We also review your Cap Ex investments or lack thereof, so we can gather relevant data versus your peer group(s). This information then leads us where to start looking under the hood. This requires communicating with the engineers, architects and in the case of software, understanding the code limitations and feature sets, particularly those that drive your value proposition. Are you solving problems for your customers or are you solving problems the architects wanted as a feature set? How do you know?


Once the above steps are taken, we can take the data and convert into actionable steps. For some companies, it will require a better production and delivery model. Some will need to take a fresh look at the next generation designs and functionality of the same product. Some may want to restrategize their product mix to mitigate product cannibalization or price up or down within their own matrix, usually by adding or subtracting feature sets.  


Defining your Strengths

Is your product considered “Best in Class”? If not, why not? You found a niche sub-market where the market is willing to pay less for a scaled down version of the best product. This is why companies often sell a cheaper version of their own product. People will often pay a small premium for a product that is better. Your strengths are a proxy for how long your product will remain relevant. It is essential as your product ascends into the market that companies maintain their competitive advantage. 

This is best done by knowing what new products are coming into the market and where competing market share has the potential to take your market share. A deep understanding of how new materials and designs are relevant that can lead  to someone else remaking your product better is essential to protecting your long term  market share. The takeaway here is that understanding your product’s strength’s means more than just how great your product is the day you ship out an order. Your true strength is measured by understanding the competitive matrix that surrounds your product. It is your cash flow. Take the time to study how best to protect it.


This is usually the sweet spot for the company. How fast is your tier one product growing? Many companies score decent marks on their operating strengths but over time competition and operating margins can begin to impact operating reports. It is easy to focus on the areas where improvements are needed and often put less focus on your products that are growing in line or above expectations. It is easy to find strengths in any company. 


We believe just reviewing your best products with a strategic checkup is the best way to ascertain if the company is going to be able to defend market share over the next three to five years. What is needed to make this happen? 


How costly are your Weaknesses?

No Company wants to admit there are weaknesses in their product performance. In some cases a weakness may not yet be showing up in the P&L. It may be lying under the surface. Examples of what we have seen are key employees planning to leave or maintenance expenditures that are not really solving the long term problem. A lack of patent strategy could be an easy target for a competitor to take market share away from you. Can your product or software be remodeled around your patents or from lack thereof ? Are you growing in the most logical markets? 


 As a former CEO/Chairman  in both software and hard goods models, our team looks at uncovering a weakness as the best way to improve cash flow. We also look at whether a recommendation provides quick paybacks without the need to commit more capital than the solution returns to the company. Is it easy to find the most obvious weakness in a  company? The real value comes from seeing what is happening that is not so obvious. It takes all departments rowing in the same direction to optimize profits and become “best of breed” for your category. We specialize in seeing what may not be that obvious. The key is to put a forward lens on each of your line items within your internal analysis and deciding are foreign or existing markets both endorsing your product over the competitive landscape.


Opportunities-REAL OR IMAGINED?

Higher Margin, Higher Margin, Higher Margin. The two most valuable words in any business model. Many companies believe if they spend more on marketing or look at an acquisition, they can increase profits. In some cases that is true but it is more the exception than the rule if your product may already be in decline. The key is to really know your customer, where is your market headed, and are you ahead of the innovation curve or behind it? Acquisitions always look great on paper but most of them do not provide real shareholder wealth gains. We provide many examples and stats in our book, “Mastering Your Company.” 

In fact, while a bump in sales will hit the P&L, acquisitions can cost money that is not apparent on the Sales Reports,  but shows up later in General and Administrative cost. A 22% rise in sales may be more than offset by a 12% rise in G&A cost resulting in destroying more shareholder wealth than if the acquisition had not been made. A well structured acquisition should increase profits and sales, and result in a reduction in General & Admin cost in most cases. These are the golden acquisitions, the ones buried well below the surface. Accretive acquisitions are the most risky way to drive earnings and the most rewarding when they work out.


Many times profits decline  because of product cannibalization, competitors lowering prices to maintain market share in wake of your acquisition, production redundancies, and integration issues. Surprisingly high on the list is the integration of legacy systems of the target company integrating into the host company. Get those figured out and an acquisition can make a dramatic difference. We also look across the spectrum from packaging, branding, unit cost, new markets, new products, real estate strategies, as well as new partnerships, joint ventures and equity and debt solutions to maximize your company’s best opportunities. Sometimes the best opportunities are what you do not spend acquiring a company but what you save by an internal restructuring.


Threats KNOW NO BOUNDS

Threats can come from any direction. They may be internal or external or a combination of each one. They might be hidden in a number of small problems like rising utility or cooling costs combined with any number of other smaller issues that together are eroding margins. These are the threats that are silent and may not necessarily show up in the financials right away. We also look at the larger external issues like what is your competition planning to do or is your product’s value prop increasing or decreasing? Is that offer you got from a competitor a clue they are coming after your product if you do not sell to them? 

This is often a clue that they have deeper plans than just buying your company. I experienced that with a company I had in Canada that had 80% Gross Operating Margins from renting an old warehouse at $2.00 a year. Our competitors wanted into our Booster Pac business, essentially  a clever battery used to jumpstart a car or boat battery. When we refused to sell to our competitors, they entered the “Jump Start” battery market. When they were entering the market, we sold our company at the top of the market because it was clear to many competitors that they were coming into the market, competitors with much bigger balance sheets. Within  three years our profit margins went from $80 a battery charger to $12 a battery charger. Markets can change fast when your product wakes up the competition. 


We outgrew them because of the patents we had baked into our product. It was safer, better designed, and easy for women to use, a market niche more concerned about breaking down on the road than men. We had plenty of demand from the male customer, but providing peace of mind helped grow across all customers.  The lesson learned was to think about how your competition views the customer landscape. Are they missing something or are you missing something?


SWOT CONCLUSIONS

A SWOT Report is like many business tools. They are only as useful and valuable as the effort that goes into creating the right input data. Whether one uses this tool or another, or some type of hybrid business model, the important thing is to understand your data. Data is widely becoming the “new gold” to quote the latest marketing commercials. It is the essence of why A.I. is valuable but it remains important how and what data is captured and is that data capable of importing into any model trying to use it. Even A.I. does not know what it does not know. It will not know about a garage start up in another country that just rendered your product irrelevant. It will be known at some point, but the best analysis is a combination of human effort, data mining, and paying attention to all of the details that make your product great, or even better, what will it take to make your product stand the test of time.  


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