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Southwest SWOT Analysis / Matrix
Essays, Term Papers & Research Papers
SWOT analysis is a strategic planning tool that can be used by Southwest managers to do a situational analysis of the organization . It is a handy technique to understand the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) Southwest is facing in its current business environment.
The Southwest is one of the leading companies in its industry. Southwest maintains its dominant position in market by critically analyzing and reviewing the SWOT analysis. SWOT analysis an immensenly interactive process and requires effective coordination among various departments within the company such as – marketing, finance, operations, management information systems and strategic planning.
The SWOT Analysis framework facilitates an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix enables the managers of the Southwest to develop four types of strategies:
- SO (strengths-opportunities) Strategies
- WO (weaknesses-opportunities) Strategies
- ST (strengths-threats) Strategies
- WT (weaknesses-threats) Strategies
SWOT Matrix Strategies Objective
The central purpose of SWOT matrix is to identify the strategies that a company can use to exploit external opportunities, counter threats, and build on & protect Southwest strengths, and eradicate its weaknesses.
Step by Step Guide to Southwest SWOT Analysis
Strengths of Southwest – Internal Strategic Factors
As one of the leading firms in its industry, Southwest has numerous strengths that enable it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of Southwest are –
- Strong Free Cash Flow – Southwest has strong free cash flows that provide resources in the hand of the company to expand into new projects.
- Superb Performance in New Markets – Southwest has built expertise at entering new markets and making success of them. The expansion has helped the organization to build new revenue stream and diversify the economic cycle risk in the markets it operates in.
- Successful track record of developing new products – product innovation.
- Strong distribution network – Over the years Southwest has built a reliable distribution network that can reach majority of its potential market.
- Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
- Automation of activities brought consistency of quality to Southwest products and has enabled the company to scale up and scale down based on the demand conditions in the market.
- Good Returns on Capital Expenditure – Southwest is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
- Successful track record of integrating complimentary firms through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain.
Weakness of Southwest – Internal Strategic Factors
Weakness are the areas where Southwest can improve upon. Strategy is about making choices and weakness are the areas where a company can improve using SWOT analysis and build on its competitive advantage and strategic positioning.
- Financial planning is not done properly and efficiently. The current asset ratio and liquid asset ratios suggest that the company can use the cash more efficiently than what it is doing at present.
- There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.
- Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors. One of the reason why the days inventory is high compare to its competitors is that Southwest is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel.
- Limited success outside core business – Even though Southwest is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
- Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.
- Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of Southwest
- Investment in Research and Development is below the fastest growing players in the industry. Even though Southwest is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.
Opportunities for Southwest – External Strategic Factors
- Organization’s core competencies can be a success in similar other products field. A comparative example could be - GE healthcare research helped it in developing better Oil drilling machines.
- New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represent a great opportunity for Southwest to drive home its advantage in new technology and gain market share in the new product category.
- The market development will lead to dilution of competitor’s advantage and enable Southwest to increase its competitiveness compare to the other competitors.
- The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as Southwest to increase its profitability.
- Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Southwest’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
- New trends in the consumer behavior can open up new market for the Southwest . It provides a great opportunity for the organization to build new revenue streams and diversify into new product categories too.
- Government green drive also opens an opportunity for procurement of Southwest products by the state as well as federal government contractors.
- The new technology provides an opportunity to Southwest to practices differentiated pricing strategy in the new market. It will enable the firm to maintain its loyal customers with great service and lure new customers through other value oriented propositions.
Threats Southwest Facing - External Strategic Factors
- Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.
- The company can face lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets.
- Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
- No regular supply of innovative products – Over the years the company has developed numerous products but those are often response to the development by other players. Secondly the supply of new products is not regular thus leading to high and low swings in the sales number over period of time.
- As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world.
- Rising raw material can pose a threat to the Southwest profitability.
- New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories .
- Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Southwest in those markets.
Limitations of SWOT Analysis for Southwest
Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.
- Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
- SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
- The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of Southwest
- SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
- SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.
Weighted SWOT Analysis of Southwest
In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.
This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis Southwest managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.
Limitation of Weighted SWOT analysis of Southwest
This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.
Example of Weighted SWOT Analysis
You can email us to get an example document of Weighted SWOT analysis.
SWOT Worksheet & Template
If you like to do your own SWOT analysis or want to make your own Weighted SWOT SWOT matrix then feel free to download Fern Fort University SWOT Analysis Template.
References / Citations & Bibliography
- M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
- A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
- O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
- L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
- R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)