Business Strategy: "This Is a Football", Part 3

This series of articles seek to discuss the actions necessary prior to developing a business strategy. The launch point was Vince Lombardi's quote "This is a football" made to his Green Bay Packer team that serves as a call to return to the fundamentals. The first article examined the fundamental of creating a mission statement with values and core beliefs that governs every action of the company. The second article looked at developing an honest internal view of the firm by finding the strengths and weaknesses of the firm. This article discusses the external part of the SWOT analysis: opportunities and threats.

Pearce and Robinson define opportunity as "a major favorable situation in a firm's environment."¹ This broad definition includes everything from weaknesses in competitor firms to a product that no one is producing to a favorable government policy change. The concept here is to look at the complete environment with which the firm operates and find "pockets" or niches that are not being served adequately. The next paragraphs cite a couple of examples.

Wal-Mart is the heavy weight in the retail market and in the grocery market and competing with Wal-Mart on an equal basis would be foolish. But Wal-Mart cannot stock every conceivable item. This fact creates an opportunity for small retailers or grocers. For example, there has been a rise in the last few years for specialty grocery stores. Ethnic grocery stores such as Asian and Spanish have popped up because there is a demand for these types of food that Wal-Mart is not meeting. Hence, there was an opportunity in the market for these stores.

Twenty-five years ago, if a person were going to get an MBA degree, that person would have to attend school during regular semesters, spending about three to four years getting the degree. However, schools started to see that prospective students wanted to get that degree as quickly as possible and so the one-year MBA program was born. There was demand for a product that no one was producing, so at that point there was a huge opportunity to meet the demand.

A threat is defined by Pearce and Robinson as "a major unfavorable situation in a firm's environment."¹ Threats can include anything from a decline in demand for a product or service to new competitors entering the market to governmental regulation. In contrast to opportunities, threats are niches that are being served too well or penalized because of service. A firm would want to consider minimizing their presence in these niches or even exiting them altogether. A couple of example are needed here.

There have been many stories about Wal-Mart entering a local market. Whenever this happens, it is a major threat to local and regional retailers and grocers. From Wal-Mart's perspective, this is an opportunity. But the local merchants view Wal-Mart's presence as a threat. Because of this, there are huge battles in council meetings whether to allow Wal-Mart to come into the area. Unfortunately, many businesses view this type of threat as an end to their existence rather than a need to refocus their strategy.

A major threat currently exists to the gun manufacturing and retailing firms. These firms are faced with the possibility that public opinion could change and governmental bodies could enact legislation that would effectively put the gun market completely out of business. This is a huge threat that gun firms need to consider on an ongoing basis.

For a firm to complete the SWOT analysis, that firm must examine the opportunities and threats in the marketplace. This allows the firm to choose a wise strategy by taking advantage of the opportunities and avoiding the threats. While this article is only looking at doing a SWOT analysis for the purpose of developing a strategy, the analysis should be done on a regular basis since markets change continually. Firms need to focus on the possibilities and avoid the pitfalls.

¹Pearce, John & Robinson, Richard (1991), Formulation, Implementation, and Control of Competitive Strategy (4th ed). Irwin: Boston.