SWOT: Assess the strengths, weaknesses, opportunities and threats of your business with SWOT Analysis

How far is my company away from failure? The question itself sounds like an admission of inadequacy. The confident manager surely doesn't walk around waiting for nemesis to strike. Rather, confident people strut the stage like a colossus, with all the certainty, say, of Bill Gates. The question, though, was inspired by Gates, who observed that 'Microsoft is always just two years away from failure.' This wasn't self-deprecation, but sober analysis.

One of management's trustiest tools is the SWOT analysis. You take a calm, cool look at the organisation's Strengths, Weaknesses, Opportunities and Threats. Then you seek to capitalise on the Strengths, Eliminate the Weaknesses, seize the best Opportunities and counter the Threats. Could the magnificent success of Microsoft, with its 90% gross margin and $9 billion of cash, really be threatened? In a brilliant study in Worldlink magazine, Howard Anderson has shown that the answer is Yes - a dozen times over. Although the threats are specific to the software industry, they are also generic.

Try them on your own firm:

1. Could newcomers (including breakaways from your own company) create damaging competition?
2. Is there an equally powerful force in the market which could muscle into your territory?
3. Is there a rival technology or other differentiator which could come out on top?
4. Are you weak compared to the competition in a key market segment?
5. Is the market developing in ways that favour competitors more than you?
6. Could your customers takes major sources of revenue away?
7. Is there a major area in the market where you lag rather than lead?
8. Does a competitor have a stronger hold on your biggest customers?
9. Is there a growing market where you are being left behind?
10. Are there environmental/regulatory threats?
11. Could unsuspected challenge arrive from outside the existing industry?
12. Is your market too broad for all threats to be safely covered?

AN INTIMIDATING LIST

The thirteenth question, of course, is whether, if any of the dozen apply to your business, you are doing anything effective to counter the Threat or, better still, to convert Threat into true Opportunity. It's an intimidating list, even for mighty Microsoft, especially when you see the names of its leading enemies: Sun Microsystems, the big banks, Cisco, Compaq, Netscape, Oracle, SAP and IBM. The latter giant provides Anderson with his starting point. Could what happened to IBM afflict Microsoft? His company, The Yankee Group, had been deeply impressed by the Strengths deployed by IBM in 1982 - and not surprisingly.

IBM led in every important market of the time: mainframes, communications, mainframe storage, mincomputers, and personal computers. It earned more profit than the next nine computer firms generated in total sales, spending more on R&D than they made in earnings. The Yankee Group concluded that IBM was therefore invulnerable - yet the giant was about to embark on a prolonged slide that, amazingly, leaves its market value lagging behind both Microsoft and Intel, and by no small margin, either. IBM's $86 billion of mid-1997 market capitalisation compares to $149 billion for Microsoft and $124 billion for Intel: IBM should plainly have held on to its old strategic investment in the latter. How could the Yankee Group's assessment be so spectacularly wrong?

In the first place, never concentrate just on your own or anybody else's Strengths. That's highly dangerous, partly because they can so easily turn into Weaknesses. Thus IBM's domination of mainframes, and dependence on them for the bulk of its profits, became an incubus as the market moved away to the PCs from which Intel and Microsoft drew their super-growth. The latter's similar domination and dependence in PC operating systems almost moved from Strength to Weakness as the Internet took off - and Gates was much nearer than his 'two years away from failure' when, with a mighty effort, he reversed engines and poured billions into Net, software probably just in time.

Second, market share and leadership by size are not strongpoints in themselves. In PCs, Compaq was able to exploit a world share of around 3% far more effectively than IBM, which had three times the market. The issue is how the market share, whether leading or not, has been achieved and sustained. Is the product or service perceived as superior? Is it cheaper? Is the distribution more effective? Is the cost level lower? Is speed-to-market faster? Are customer requirements met more accurately?

REACTION IN CRISIS

In the case of Compaq v IBM, curiously enough, the answers were all negative. Compaq had no significant advantage in product, distribution, costs, price, speed-to-market or customer satisfaction. But in the money-losing crisis into which Compaq suddenly plunged, it reacted radically on every point to create a stronger platform than its rival. The cost ratio, for instance, came down from 31% to 12.5% - an astonishing performance - as new products were launched at high speed, and the premium price policy was abandoned in favour of leading price levels downwards.

The key Strengths at Compaq were therefore intangibles, as were the Weaknesses at IBM. The smaller company was able to react and reform at speed; the larger could only react slowly and reluctantly. So the Yankee Group's second error was to concentrate on static Strengths, which are the results of past performance, rather than analysing the factors which will govern performance in the future. Even IBM's massively higher R&D spending was irrelevant in this context - the quantum of expenditure was less important than the uses to which its results were being put. The Yankee research consequently missed the low rate of conversion of R&D into saleable products - clearly shown, for example, by the strange RISC saga.

IBM's discovery of Reduced Instruction Set Computing, primarily the work of a technologist named John Cooke, was potentially a big winner, since it much enhances the performance of smaller computers. IBM, though, didn't use its own discovery in a work-station until 1990 - three years after Sun Microsystems and twice as long after RISC's availability. How could such absurdity be allowed? The explanation is that RISC was resisted by people who were dedicated to extending the 360-370 mainframe architecture. That's a perfect (or imperfect) example of how Strength turns into Weakness. Exactly the same mindset also allowed Compaq to seize the advantage, and a market share of nearly one third. in client-servers, powerful PCs which serve networks.

The resilience which IBM's rivals have shown, compared to their opponent's fateful conservatism, rests on people. In any industry today, the brighest and best employees are aware that their own SWOT analysis could lead to breakaway. They could stay with the company and develop their ideas within its embrace. But fragmented markets and booming stock prices, coupled with increasingly plentiful venture capital, offer a constant temptation.

Keeping people one by one, buying them off, so to speak, is no solution. The company has to create a culture that's so attractive, so hard to leave, that the retention rate will remain very high. In other words, Putting People First has to be the base strategy. An unhappy workforce is both a Weakness and a Threat - as British Airways has recently found. Its resurgence was founded on a programme actually called Putting People First - but, after a pilots' strike threat last year, in late June cabin crew and ground staff were equally alienated.

Look at what Fortune magazine calls the 'four-pronged approach' adopted by chief executive Bob Ayling, and the missing element is immediately obvious:

1. Develop a marketing plan with universal appeal
2. Help employees understand the company's global vision
3. Benchmark off mistakes that others have made in the past
4. Select the right partners for joint ventures overseas.

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Microsoft Management

Bill Gates and the management of Microsoft are synonymous. Gates founded the corporation and the Microsoft management philosophy that he implemented, as well as the Microsoft corporate strategy, helped the company become the the global leader in personal computer software and systems.

The Microsoft business structure is vast and over 71,000 people are employed in 103 countries and regions. The Microsoft leadership style was established by Gates himself and CEO Steve Ballmer, and both have been responsible for Microsoft planning strategy.

Microsoft's Mission

To enable people and businesses throughout the world to realize their full potential.

Microsoft's Vision

Empowering people through great software — any time, any place, and on any device.

Delivering Microsoft Mission

The tenets central to accomplishing Microsoft mission include :

Broad Customer Connection
Connecting with customers, understanding their needs and how they use technology, and providing value through information and support to help them realize their potential.

A Global, Inclusive Approach
Thinking and acting globally, enabling a multicultural workforce that generates innovative decision-making for a diverse universe of customers and partners, innovating to lower the costs of technology, and showing leadership in supporting the communities in which we work and live.

Excellence
In everything we do.

Trustworthy Computing
Deepening customer trust through the quality of our products and services, our responsiveness and accountability, and our predictability in everything we do.

Innovative and Responsible Platform Leadership
Expanding platform innovation, benefits, and opportunities for customers and partners; openness in discussing our future directions; getting feedback; and working with others to ensure that their products and our platforms work well together.

Enabling People to Do New Things
Broadening choices for customers by identifying new areas of business; incubating new products; integrating new customer scenarios into existing businesses; exploring acquisitions of key talent and experience; and integrating more deeply with new and existing partners.

To read more about Microsoft's corporate strategy and Microsoft quality management, click on the articles listed below.

1. SWOT: Assess the strengths, weaknesses, opportunities and threats of your business with SWOT Analysis
   
2. Information Technology : New Business Opportunities

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Business Management Style

Even severe critics of Arnold Weinstock (and they were plentiful) must grieve at the circumstances of his passing - with a once-great fortune decimated by the near-destruction of his once-great company. It's a Greek tragedy of management: and as in all Greek tragedy, its negative elements carry powerful, positive morals.

The positive side of Weinstock's legacy extends far beyond the old GEC money machine which became the new Marconi bottomless pit. The young Weinstock was first of all young: he showed that new and radically-minded people were capable of shaking up the mausoleums of British management. He also showed how: by replacing wasteful overheads with tight controls that forced the managers of intelligently separated businesses to manage effectively.

The basic Weinstock methods have become all but universal, though often honoured as much in the breach as the observance. At the start his ideas were revolutionary (in Britain, though not the US). He gathered all cash into the centre: budgets became key growth mechanisms, testing managers harshly, not by improvement over past performance, but against their forecasts of future deeds. GEC budget meetings became famous (or infamous, according to taste) for the caustic inquisitions with which Weinstock withered the unfortunate.

The first critics, especially in the management mausoleums, regarded this new-fangled pressure as positively un-British. The gainsayers were swamped by the results: to immense City approval, Weinstock showed that ruthless, cost-averse management, holding managers to tough targets and key financial ratios, delivered in bucketfuls what is now known as 'shareholder value'. Alas: hindsight shows that the seeds of later decline were already being sown in that wonderful early success.

First, too much came to revolve round the central figure. Weinstock's first finance director, Sir Kenneth Bond, was an important partner. But the central apparat at GEC's relatively Spartan, small HQ took on the nature of a court. Weinstock's inquisitions and equally abrasive phone calls only strengthened this monarchical aspect. Managers often ran scared, and Weinstock's emergence, after two vast takeovers, as the emperor of all UK electrical engineering crowned his eminence.

The dilemma is general to chief executives, even those (which means most of them) weaker in mind and personality than the brilliant Weinstock. His theory of management hinged rightly on decentralization, leaving managers fully and freely responsible for delivering the goods and the goodies. But the big boss inevitably sets the style. The greater the success, the more potent this unseen but powerfully pervasive top-down influence. Awaiting those sharp phone calls from Stanhope Gate, allegedly deskbound GEC managers buckled down to making their numbers - and that, too, eventually undermined the Weinstock magic.

Back in the 1960s, defending himself against charges of over-emphasising profits, Weinstock averred that profit was not an objective, but a result - the result of doing things properly. This telling aphorisim is unarguable. So in the 1990s I was disconcerted to hear him declare that profit was all that mattered. The distance between Weinstock I and Weinstock II helps explain the changing reputation of GEC and its creator. His companies did many things properly: but were they the truly important things?

A tough financial regime, geared to profits, and applied through merciless inquisition, discourages risk. It's no sin to be risk-averse: the great manager, of course, seeks dead certs. The sin, though, is to miss opportunity. Weinstock's empire straddled the technologies and markets of latter century super-growth. Where companies like Nokia, Intel and Dell flourished, GEC had footholds, beachheads and even (as in telephony) large occupied territories. But its managers, whether or not they perceived these golden opportunities, seemingly lacked the appropriate motivation. The various financial targets were met, the cash mountain piled up, but the chances were all lost.

What you measure in management, by and large, is what you get. The financial conservatism that gave GEC so much strength could have been a platform for risk-taking opportunism. Companies badly need both virtues. But as negative forces worked through, GEC entered a new and troubling zone. Andy Grove, the chairman of Intel, has tellingly described the 'strategic inflection point' when revolutionary technologies (like his own microprocessors) radically change an entire industry. Miss that point, and the company dies. But that's only one way in which corporations can pass a point of no return.

The old GEC was a classic diversified conglomerate. Here financial controls link unrelated businesses whose preferred characteristics are established and protected markets, captive customers, cost-plus contracts, stable technologies and high margins. Even the similar ABB, with a far more dynamic record than GEC, has run into the same roadblock. Markets, customers and technologies are up for grabs in a fiercely competitive world where cost-plus plums and fat margins are dreams of yesteryear. Weinstock's successors were thus right on one vital matter: GEC needed reinvention.

Unfortunately, they moved from Safety First to something perilously close to Safety Last. Weinstock's defence and other babies were thrown out with the bathwater. But Weinstock wasn't blameless. He hung on too long. Super-bosses should be held to the same statutory retirement as anybody else. Supposedly, Weinstock was partly motivated by a wish (not shared by all others) for his son Simon to succeed. The latter's tragic death removed that possibility. But the whole approach offended against another golden management rule: never let powerful bosses have the decisive voice in appointing the succession.

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Strategic Planning - The Present and The Future

Any managements which don’t find the present day challenging must be either very lucky or completely comatose. It doesn’t matter whether the business is a long-term, high-tech growth star, like Finland’s Nokia, or a solid, stolid retail empire, like Britain’s Marks & Spencer. Get your present-day strategy wrong, and retribution, as in those and many other cases, is swift to follow. The marketplace, the media, and the financial markets turn on former heroes with a vengeance – and this reaction, of course, only intensifies the pressure on those who have lost their way.

Note that these observations apply to present-day strategy - how companies are managing in the here and now, and never mind the problematical future. But if managements are unable to meet the challenges that surround them now, tangible and visible, they can’t offer much hope of surmounting the much harder challenges of the future. The future, remember, cannot be known. You can make intelligent predictions. But you don’t know whether they really are intelligent until much later - which will often be too late to avert catastrophe.


NOWHERE TO HIDE

Thus Nokia can’t be excused for missing the threat posed by the union of Sony and Siemens in mobile phones, or the possibility of a resurgence of its major Scandinavian rival, Ericsson. Nor can M&S hide from its culpability in missing the challenge created by its customers and competitors as the former responded to faster-moving fashions and more stimulating formats - the creations of newer and fresher minds and eyes that the old champion could deploy.

Yet both companies can be forgiven in theory (they won’t be forgiven in practice) if their vision of the year 2014 proves to be hopelessly wrong. The decisive phenomenon of the present-day is the revolution in information and communications technology (ICT). The digital onrush has created an entire new economy which impacts on the old economy at every turn. But the significance of the World Wide Web couldn’t be surmised until it existed, and even then the correct response to this marvel was evidently difficult to devise. The dot.com bust wasn’t a failure of the technology or the systems, but a result of profound misunderstanding and crass mismanagement.

The challenge for managers is therefore to manage the present better - much better - as preparation for the unforeseeable. Companies have no option but to live by the old Boy Scout maxim, Be Prepared. And that is what ties present and future together.

After correctly recognising and interpreting what is happening now, inside and outside the firm, you can at least ensure that the present nature and standards of management are appropriate and effective.

That’s the foundation on which you build the future - not on forecasts of the future as a whole, but on ideas strong enough to create your very own future. Nokia, as it happens, is a rightly famous example of doing precisely that - throwing away the entire contents of a ragbag of businesses to concentrate on the one market where it had the chance of developing real competitive edge. Its continuous stream of innovations both stimulated and satisfied demand. In doing both, Nokia closed the gap between the dreary present it knew and the golden future which it wished to achieve.

CREATING YOUR FUTURE

Closing the gap, however, applies to other key aspects of today’s management challenge. To create your own future, you have to close the gap between generating ideas and achieving results: and that also means closing the large gap between the typical organisation’s current behaviours and those that foster ideation. And that is something that the typical manager finds difficult - and shouldn’t.

Here, for example, are what I diagnosed as ten prime attributes of a critical Nokia supplier: ARM, designer of 75% of the silicon chips used in mobile phones. ARM’s attributes offer further penetrating insights into the 21st century ‘Ideas Company’.

1. Get the business model right – and keep it that way
2. Make the customers into real and treasured partners in the business
3. Honour and reward the innovators
4. Foster - and never lose - a desire to survive and succeed
5. Develop new ideas to attack new markets
6. Give R&D its own special place in the organisation
7. Ensure a proper balance between current development and future research
8. Make sure that there’s a place and hearing for whacky and far-out thinking
9. Create closely knit teams of people at all levels of the company
10. Regard challenges as the source of the best opportunities - and take them.

Are any of those policies ones which would strain your organisation? Do you consider any of them wrong-headed, or dangerous? On the contrary, the ten are not only practical and beneficial; they constitute part of the template for the Ideas Company, the one that can create its own future.
But there’s another question: how many of the ten actually feature in the management of your workplace?

My educated and experienced guess is that very few established companies practise more than a handful of these behaviours. They may have a business model, but it will be much the same as that of the competition, providing no useful edge, let alone a transcendent one.

GROWN-UP START-UP

True, ARM is a grown-up, high-tech start-up that doesn’t have the historical lumber or organisational deadweight that hamper businesses of greater age and slower-moving technology and markets. But weren’t the gee-whiz digital growth stars supposed to become the models for the 21st century company? Of course, many stars were nothing like what they were cracked up to be. But their speed of reaction and innovation was and is real enough. And that speed is in itself armour against the unexpected: i.e., the future

For a complete contrast, I visited a company that is about as far from ARM as you could find. It is old-established (1876), sells a very traditional product (English ale), and is largely confined to one area, the East of England(whose Development Agency commissioned my three studies). ARM is a public company that has been riding the high-tech seesaw. The brewer, Charles Wells, is private and family owned. As for the future, not long ago it didn’t seem to have one: giants were mopping up the independents.

So what behaviours had kept the company thriving and growing?

1. Base new development on a foundation of lasting and relevant virtues.
2. Make continuous improvement over time the basis for radical change.
3. Build the brand – manage both the corporate brand and the products.
4. Be old-fashioned about good financial house-keeping and strategic prudence
5. Be innovatory about everything else, with new projects at all levels and in all activities.
6. Don’t insist on being first – but insist on being best.
7. Be very patient but extremely determined in breaking new ground.
8. Keep close to the customers and develop new ideas around satisfying their needs.
9. Involve staff fully in the company’s strategy and its progress.
10. Have a unifying and bold ambition to which everybody can respond.

The difference in flavour between ARM and Wells is evident - as you would expect, given the differences in their markets, products, ownership and history. That expectation is in itself an important point. My recent book, The Fusion Manager, made this point most emphatically - that there is no one right answer, only the best answer you can produce at the right time.

Neither of these two companies is run by theorists, but both are essentially pragmatic. They follow the philosophy of a stock market professional I once knew: he never acted on predictions, but only followed ‘money on the table’ - the amount of cash investors were actually placing on their bets.

THE PERFECT COMPANY

That doesn’t sound very clever, but it made him exceedingly rich. Yet there is a valuable place for theory and experiment. At HFL, my third subject, the astonishing aim is to create ‘The Perfect Company’.

This is, of course, impossible, since perfection is not given to man. But the pursuit of perfection is eminently feasible, hard to better as an animating, driving force.

The bedrock of HFL’s business is bio analysis, primarily testing racehorse and greyhound samples to check that no illegal substances have been used to enhance the animal’s performance. Since scientific perfection is within reach, the work is a good match for HFL’s ceaseless and many-sided search for perfect corporate performance. The ten key principles I found there are vigorous and vital.

1. Set all targets and ambitions at the highest feasible pitch.
2. Use every available channel of communication, and invent ones of your own.
3. Make voluntary activity a critical element of the ideas organisation.
4. Use IT as a positive means of storing and exchanging ideas.
5. Lead from the top, but to animate and facilitate rather than command and control.
6. Relate all innovatory activities to the strategy and the economic performance of the business.
7. Look for new ideas in management and people policies, not only in products and processes.
8. Use informal methods to reinforce the formal elements of the organisation
9. Never be shy about ‘creative swiping’
10. Invest in people’s personal as well as their professional development.



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