Assessing the market SWOT analysis

 Assessing the market

- As you begin your strategic planning process, it's important to assess the market you're competing in. A classic tool for doing so is Porter's five forces. Dr. Michael Porter, who's a professor of strategy, came up with this set of five forces to evaluate all the different dynamics that can affect your organization. 

First, look at competitive rivalry, how many competitors are in the marketplace? How do they behave? How are they distributed by market share? How do they go to market, what are their core competencies? Second, look at the threats of new entry. So there's the existing set of competitors or there are new competitors who will enter the market. Evaluate how much does it take to get into the market? Will I have to build huge factories or can I just launch a website to compete against you? So understanding those threats of new entry. Next, look at the threat of substitution. You have your products, what other products could meet that need for your customers? Understand what customers are buying, not necessarily what you're selling. Then you have to evaluate buyer power. So these are your customers buying from you. Are you the big player in the market or are your customers? 

For my firm, there's a great deal of buyer power. I sell to large companies and I'm a small training firm. So there's a lot more buyer power that I have to deal with. Next, you need to look at supplier power. The people who are providing raw materials and inputs to your business. Are they big, are they small, how much power do they have from a pricing standpoint? And by looking at all five of these dynamics, you'll be able to identify where are the major threats, where are the opportunities that we can pursue? And it can generate some interesting insights when you're rigorous about going through this process. 

When I worked at Scotts Miracle-Gro, we were going through our strategic planning process. And as we were looking at the threats of substitution, our CEO came up with a very interesting insight. We were in the lawn and garden industry and we sold lawn and garden products to consumers. When we looked at the threat of substitution, the entire team was saying well the substitutes are our competitor's lawn and garden products. Our CEO said no actually, Google and YouTube are the threats of substitutes. 

We all scratched our heads and said what do you mean? He said what we're really competing for is the consumer's time. And is that consumer going to spend their discretionary time in their garden working on their trees and shrubs and lawn or are they going to spend their time on YouTube and Google and the internet? And it was a very clear picture of where the threat came from, and it led us to approach our business very differently. So by doing this assessment of Porter's five forces across your entire market and your organization, you'll be able to identify where the major threats and opportunities are that your organization faces.

Conducting a SWOT analysis

- Another tool you can use to assess the environment you're competing in is called the SWOT analysis. And SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. And typically, it's drawn on a grid. For strengths and weaknesses, those are typically within your own organization, capabilities you have or don't have. 

As far as opportunities and threats, they can either be internal or external market-facing opportunities and threats. So let me walk through an example. As you build a SWOT analysis, you'll want to have the team together and have people throw out their ideas. And it's generally a brainstorming session. So perhaps we start our SWOT analysis and we look at our strengths. And our strengths consist of the brands we have, how efficient our supply chain is, the strength of our sales force and how well they sell our products, safety within our manufacturing plants, our recruiting information technology, and maybe our financial position. 

And as I've laid out the strengths, notice they're all internally-facing capabilities of the company. Then I look at weaknesses and ask people where are our gaps. And we may have gaps in our expense reporting process, our information technology desktop support for our laptops, our digital marketing program, our intern program, and our acquisition integration skills. Because we've done acquisitions before and they really haven't gone that well. Now we start looking outside the organization at our opportunities and threats that we face. 

Opportunities might be the growth of social media and how we can take advantage of it, the bankruptcy of Acme, one of our main competitors, our ability to sell third-party products through our supply chain, and an opportunity to do couponing of our products at retail. And then last, we look at the threats that we face within the market, as well as internally. 

We may have threats of our customers are going to push us on pricing, our competitors may be poaching our talent or thinking about it, the weather in Ohio where we have some of our operations may be a threat, Acme being bought by one of our competitors could be a threat, and also, economic trends that we face, because our products are a consumable and they're discretionary by consumers. So if the economy worsens, our sales could go down. And once I've looked at that total picture, I'll have a better sense for the strategic environment that I'm going to be building my strategic plan in.