by Merlin Hernandez

Many consultants swear by the SWOT analysis and often develop a strategic focus on that basis. I share the notion that the SWOT remains fundamental to building strategy but by itself, it is incomplete. Strategy should be multi-perspectival using different tools for broad-based analytics that leverage risks across the business profile. A SWOT analysis is a conceptual approach to strategy formation that can overemphasize internal strengths and ignore the fact that a strength that does not directly impact the opportunities and threats in the external environment may not necessarily be a source of competitive advantage. Furthermore, SWOT analysis does not usually factor changing environmental threats.

Strategic analysis should integrate the strengths and weaknesses of the SWOT with the necessary activities for creating value for the customer through Value Chain Analysis (VCA). VCA examines activities throughout the supply chain, production processes, and distribution networks that add value to the product. Each step or link in the process adds value to the product along the way.  Best practices which are repeatable and can be further used for on-going product improvement or new product development, can be extracted from the VCA as a template for quality delivery.

The SWOT analysis is also enhanced by Resource-Based Analysis to determine the degree to which available resources can become the basis of sustained competitive advantage. Resource capabilities that support organizational strengths and reduce the impact of weaknesses should be shown to mitigate threats to customer and supplier relationships, delay competitive entry and rivalry, and retard the threat of substitute or alternative products in the market.

Resource capabilities can be analyzed through the value, rarity, inimitability, and organization (VRIO) framework for the strategic process. VRIO is part of internal analysis that can be used to audit all resources and capabilities of the firm to evaluate the competitive potential and sustainability of a venture. As a complement to the SWOT analysis, VRIO poses four questions about the value of resource capabilities in exploiting opportunities and mitigating threats; the rarity or uniqueness of resource capabilities in sustaining competitive advantage; the difficulty to imitate or duplicate the resource base on the part of a competitor (due to significant cost or other disadvantages), and organizational readiness to exploit available resources to advantage.

VRIO ANALYSIS
 Strength

(1 – 5)

Value Rarity Inimitability Organizational

Readiness

Market

Advantage

Organic Food

5

4

4

5

4.5

Total Customer

Service

5

4

3

5

4.25

Exotic Cuisine

5

4

4

5

4.5

 

Elegant Setting

5

3

3

5

4

 

Customization

5

5

5

5

5

 

Nutritional Value

5

4

4

5

4.5

Supplier Relationship

5

4

3

5

4.25

Expansion Capability

5

4

5

5

4.75

AGGREGATE SCORES

5

4

3.88

5

4.47

Market Advantage

4.47

Fig. 1    The VRIO analysis is linked to market advantage based on criteria that offer growth opportunities in value creation. It is a way of defining the market space to determine the strategy map. The venture scored high on market advantage, driven by high scores for value creation and organizational readiness. But the median score for inimitability is an indication of some competitive pressure.

In the above scenario, decision-making would be enhanced by considering the imitability factor. If the new product is no more than a clever amalgam of available methods and technologies, then no wall of patents could stop opponents from getting in on the opportunity. Recognizing this vulnerability, an entrepreneur might want to think more carefully about the length of the expected entry lag between insertion and meaningful competition. This critical period allows the business to build some market power through brand identification before the entry of direct competition (expectational advantage).

An appropriate response might be more aggressive advertising, publicity and/or customer incentives. There may also be some possible advantage due to firm-specific learning or asset mass efficiencies i.e. the years of accumulating those efficiencies in the knowledge base – recipe building, skills mastery, specialized talent  – or the cost and availability of specialized equipment. Additionally, it might help the business to utilize the expectational lag to take advantage of gains for enhanced contingency planning. 

The business that offers a well-differentiated, inimitable product might consider trying to use this head start to build other cospecialized resources that are less available e.g. customization or a reputation for service on a new technology. The general point is that by analyzing the value chain the business would be able to evaluate the maturity of the business idea as well as its readiness to exploit the opportunity. An analysis of the resource position would give a clearer indication of whether the situation meets necessary conditions for a sustainable advantage.  Approaching the feasibility of the business idea from several angles means that fewer strategic mistakes would be made. This combination of resources and strategies can satisfy VRIO questions and Value Chain Analysis for sustained competitive advantage, and only begins with a SWOT Analysis.

Related articles on this blog

Decision Making

Developing the Business Idea

Focusing the Business

Resource Planning and Costing Systems

Strategic Capacity Planning

Supply Chain Management 

Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. For more information on this and other topics, please send enquiries to businesssolutions1168@gmail.com