Business Management Prepared by: Jamal Chapter 6

SWOT ANALYSIS & GAP ANALYSIS

SWOT Analysis: SWOT analysis or corporate appraisal is a quantitative & qualitative assessment of the strength &weakness, opportunities & threats, in relation to the internal and environmental factors affecting the entity, in order to establish its condition prior to the preparation of the long term plan. S&W: Internal appraisal seeks to identify the following. Short coming in the companys present skills and resources Strength which company should seek to exploit Appraisal should give particular attention to following: Identify S & W by comparing ratios with other firm Product position and product market portfolio Cash and financial structure to fulfill the expansion need Cost structure and management ability: Objective measurement should be sought Role of Management Accountant: Supply relevant information Improve result can take following form Cost effectiveness programs: Improvement to labour utilization Reduction in system cost and delay Implementation of value analysis programs Product Analysis: Analysis of competitive product to copy features Marketing appeal of competitive product to see if improved product can be developed cost effectively Analysis of customer requirement and whether they can fulfill cheaply or not Product Attitude Survey: Customers opinion about product Sales staff opinion Brands image in comparison with competitors Areas of Weakness - Examples Credit risk, liquidity risk Investment in stocks, bonds etc Interest rate on current loan Earning interest on cash in hand, interest burden and gearing level Tax liability Under utilized assets Opportunities & Threats; They exist in the environment. External appraisal required to identify opportunities which can be exploit by strength also identify threats.
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Business Management Prepared by: Jamal Chapter 6

For Opportunity decide following: What opportunity exist in the business environment Capability profile of competitors to exploit these opportunities Companys competitive performance For Threats: Identify threats to business environment and to the company How they affect market and company

Combining the Element of SWOT Analysis: Strategies should be developed to convert weakness into strength and remove weakness Developed strength to exploit opportunities only possible when strength matches with opportunities Major weakness & threats should be countered or contingency strategy or corrective strategy developed Weirichs TOWS Theory: He gives following strategies options. SO strategies employ strength to seize opportunities (Short term) ST strategies employ strength to counter threat (Medium term) WO strategies address weakness to exploit opportunities (Long term) WT strategies are defensive aiming to avoid threats and impact of weaknesses (Medium term) See also exercise on page 120. GAP ANALYSIS: Gap analysis is a comparison b/w entitys ultimate objectives & the expected performance of projects both planned & underway. Differences are classified in such a way that aids the understanding of performance and facilitate the improvement. Gap analysis quantifies the size of the gap b/w the objectives for the planning period and the forecast based on the extrapolation of the current situation and current prospects. The planning gap is not the gap b/w the current position and desire future position, rather it is the gap b/w the position forecast from continuing with current activities and the desire future position. Gap analysis based on the two questions. What are orgs targets for achievement over the planning period? What would the org be expected to achieve if it did nothing- ie did not develop any new strategies, but simply carried out the current way. The difference is the gap. New strategies will then have to developed which will close the gap. So that the org can expect to achieve its target over the planning period A Forecast based on existing performance. Forecast of companys future result assuming that it does nothing. Stages: Review past result and analyze a) revenue into unit sale & price, b) cost into variable, fixed & semi variable Projection into the future for each major item of revenue & cost through out the planning period Consider any other factor like PEST or internal factors.
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Business Management Prepared by: Jamal Chapter 6

The forecast is than finalized.

The purpose of forecast & gap analysis is to determine the size of the task facing the company if it wishes to achieve its target profit. But a forecast cannot be expected to guarantee and there must be inevitably be some latitude for error The Profit Gap: It is the diff b/w the target profit and the profit on the forecast. Firstly firm can estimate the effects on gap of any project or strategies in the pipe line. Some of the gap might be filled by a new project. Than if the gap remains, new strategies have to be considered to close the gap. Problems: The financial proposition may be susceptible to inflation Higher return can equate to higher risk to develop strategies to give a higher return the risk profile may increase. Continuous GAP Analysis: It can be used as a mean of strategic control. So it must be regularly updated Forecasting is a prediction of future events and their quantification for planning purpose. Projection is an expected future trend pattern obtained by extrapolation Extrapolation is the technique of determining a projection by statistical means like NPV method, Value tree, decision tree, Modeling and sensitivity analysis, regression analysis, Econometrics etd Individual Forecasting: One the basis of one or more executives, it is very cheap and suitable for simple cases but swayed most heavily by most recent experience. Genius Forecasting: Panel of experts give advises. Jury forecasting & Delphi method Modeling: A model is anything used to represent something else Descriptive: Describing real world processing eg. Value chain, BCG Analysis, Buyer behavior etc Predictive: Attempting to predict future events eg Product life cycle, cost volume profit analysis Control: How action can be taken Scenario Planning: A scenario is an internally consistent view of what the future might turn out to be Macro Scenario: Use macro economic or political factors creating alternative views or the future environment Steps in Scenario Planning; Decide on the drive for change like oil prices etc Brings drivers together into available framework Produce seven to nine mini scenarios Group mini scenario into 2 or 3 large scenarios Write the scenario Identify issues arising Industry Scenario: It is an internally consistent view of an industrys future structure. Than using scenarios to formulate competitive strategies.
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