Planning and Strategic Management: Skill-Building Exercise

Exercise Overview

Decision-making skills refer to the ability to recognize and define problems and opportunities correctly and then select an appropriate course of action for solving problems or capitalizing on opportunities. As noted in this chapter, many organizations use SWOT analysis as part of the strategy-formulation process. This exercise will help you better understand both how managers obtain the information they need to perform such an analysis and how they use it as a framework for making decisions.

Exercise Background

The idea behind SWOT is that a good strategy exploits or builds on an organization’s opportunities and strengths while neutralizing or minimizing threats and avoiding, correcting, or overcoming weaknesses.

You’ve just been hired to run a medium-sized company that manufactures electric motors, circuit breakers, and similar electronic components for industrial use. Most of your products are sold to larger manufacturers. In recent years, the firm’s financial performance has gradually eroded, and your job is to turn things around.

At one time, the firm was successful in part because it was able to charge premium prices for top-quality products. In recent years, however, management has tried cutting costs as a means of bringing prices in line with those of new competitors in the market. Unfortunately, the strategy hasn’t worked very well -- cost cutting has caused a decline in product quality. Convinced that a new strategy is called for, you’ve decided to begin with a SWOT analysis.

Use your knowledge of SWOT analysis to answer the following questions.

Assume that your SWOT analysis reveals that even though your firm’s product quality has slipped, the market actually still sees the firm as a high-quality producer. Does this finding reflect a strength, a weakness, an opportunity, or a threat?

Threat

Opportunity

Strength

Weakness

Based on your SWOT analysis, which of the following is likely to be a reasonable strategic option? Check all that apply.

You decide to cut costs further but spend more money on advertising and promotion so you can pursue a cost leadership strategy.

You decide to reinvest in higher quality by restoring previous cuts so you can pursue a differentiation strategy.

You decide to diversify into other markets by starting to make and sell chocolate, software, and men’s clothing.

Your SWOT analysis reveals no obvious options for growth with your current product lines. So you decide to use some retained earnings the firm has been saving and launch new product lines. After careful analysis you decide to launch two new product lines, one centered on plastic bags (such as trash bags and sandwich bags), the other a line of automobile-care products (such as soaps and waxes). Which corporate-level strategy are you pursuing?

Unrelated diversification

Single-product strategy

Related diversification

Differentiation

Cost leadership