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SWOT AnalysisIf you've ever listened to Warren Buffett talk about investing, you've heard him mention the idea of a company's moat. The moat is a simple way of describing a company's competitive advantage. A strong competitive advantage, or a wide moat, gives a company sustainability, which, as investors, we're highly interested in. In this article, we review a popular tool for evaluating competitive advantage, called SWOT analysis. SWOT analysis should be done on every company we're thinking of making an investment in. SWOT stands for: Strengths Analyzing these four factors will help you make better investment decisions. It's a brainstorming exercise, so take your time. A good SWOT analysis takes effort, but the more you put into SWOT analysis the better you will understand the company. Let's look at each factor in turn. Strengths First, we look at the company's strengths. What does the company do well? What makes it better than others? What does the company have, or do, that sets it apart from its competition? These are important questions, and should include aspects of the company that made you consider it for investment in the first place. Look at branding, image, pricing power, size, market share, financial position (balance sheet strength), etc. Here are some strengths to look for:
Weaknesses Now that you've determined how wonderful the company is, it's time to look for the weaknesses. The same questions should be asked when looking for weaknesses. What does the company do poorly, or not so well? What are other companies doing better? What is keeping the company from greater success. It's important that you don't gloss over this section. SWOT analysis is a brainstorming effort, so don't discount anything that comes to mind. If you perceive a weakness, list it. The weakness you fail to list today could be why your investment turns out poorly next year. Some weaknesses to look for:
Opportunities We shift our focus to external factors when we look at opportunities. Here we try to identify areas of business we think the company is looking to enter, or should be looking to enter. We also look for opportunities to gain market share from competitors, or grow the company's market to new customers. But there are more than just external opportunities. There are opportunities within a company that should be considered. Can the company combine product lines to increase sales? Maybe the company has duplicate costs that can be streamlined. Companies can always find ways to do things better. Some opportunities to look for:
Threats Finally, we need to consider threats to the company. Again, threats can be internal as well as external. In fact, I've found that internal threats usually come first, which opens the door to external threats. Therefore, it's important to do a good threat analysis. Internal threats aren't usually classified as such, which I think is a mistake. Any internal problem is a threat to the company's well-being and should be evaluated alongside the external threats. For example, a company that relies on developing innovative products, such as Microsoft or Intel, faces the threat of losing engineering talent every day. This is an internal threat that could easily pave the way for external threats. Some possible threats are:
SWOT analysis is a brainstorming activity, and you should learn from it. Focus on the weaknesses and the threats when doing SWOT, because that's what will turn around and bite you after you make your investment. I'm not saying you should look only for the negatives, and ignore the company's potential. But you should analyze the risks with as much, or more, scrutiny then the opportunities. Opportunities don't always show up, but somehow risks always do. Other articles by this author »
About Chris Mallon
Chris Mallon is the editor and publisher of the Undervalued Weekly, a financial analysis newsletter. Chris holds a Master of Science in Finance and is the leading analyst for the Dynamic Investors partnership. He is available at chrismallon@dynamicinvestors.net or the through the website at www.dynamicinvestors.net/index7.html. Related
And here is another random article you might be interested in... Public Relations: Why it WorksPlease feel free to publish this article and resource box in your ezine, newsletter, offline publication or website. A copy would be appreciated at bobkelly@TNI.net. Word count is 570 including guidelines and resource box. Robert A. Kelly © 2003. Public Relations: Why it Works The short answer is, it works best when its fundamental premise is the guide, which insures that the primary focus of your public relations program is the behaviors of your most important outside audiences. Not less urgent matters like personalities, communi- cations tactics or administrative concerns. PR strives to effectively manage the perceptions and behaviors of your outside audiences with the goal of helping you achieve your organizational objectives. Pretty important stuff. But not difficult or complex. Particularly when you get started on the right foot. Namely, do an inventory and identify those groups of people whose behaviors have a clear impact on your organization. Because how those folks think about you and your organization usually leads to those helpful/hurtful behaviors, job #1 is, find out how they perceive you right now. You and your colleagues must monitor those perceptions, interact with those target audience individuals and pose lots of questions. What do you think of us? Have you ever had a problem with our service? But remain alert to signs of negativity like hesitant or evasive responses, misconceptions, rumors or inaccuracies. With those responses in hand, you establish your public relations goal. For example, correct a specific inaccuracy, clear up that misconception, or neutralize a damaging rumor. Next question: how do I get from here to there? You need a strategy. But in dealing with opinion change, you have just three possibilities. Create opinion/perception where there may be none, change existing opinion, or reinforce it. What you say to members of your target audience is really important. After all, you're trying to change perceptions, and that requires a message that is not only crystal-clear, but persuasive and believable. So, when you say the misconception, inaccuracy or rumor should be corrected, be sure your facts are rock-solid, credible and, hopefully, compelling. Run the message by your colleagues to test its chances of altering perception, then fine tune it. Your delivery system for moving your message to members of your target audience is the communications tactic. And there are scores of them available to you. From newspaper interviews, radio talk shows, emails, speeches and brochures to op-eds, community briefings, newsletters, personal contacts and many others. How will you know if you are making progress? Once your communications tactics have had six or seven weeks to make an impact on your target audience, go back out among audience members and ask the same questions all over again. The big difference the second time around is, you are now looking for signs that opinion has been altered with regard to the problem perception. And watch especially for altered perceptions that include the corrective elements of your message. As you continue monitoring key audience opinion/perceptions, positive changes should begin appearing and, inevitably, lead to the behavior changes you want. In public relations, it doesn't get much better than that. end Other articles by this author »
About Robert A. Kelly
Bob Kelly counsels, writes and speaks about the fundamental premise of public relations. He has been DPR, Pepsi-Cola Co.; AGM-PR, Texaco Inc.; VP-PR, Olin Corp.; VP-PR, Newport News Shipbuilding & Drydock Co.; director of communications, U.S. Department of the Interior, and deputy assistant press secretary, The White House. mailto:bobkelly@TNI.net. Visit: http://www.prcommentary.com. Related
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