SWOT Analysis in the software

industry
Submitted to:- Prof. Vijayraj K

Submitted by:Name - Punit Kumar

Reg no.- 13BEE0236
Slot- F1+TF1

SWOT Analysis in the software industry

I. Introduction
In the past twenty to thirty years many changes and developments have taken place
in the software industry which started off during the 60s mainly in the United
States of America and experienced a revolutionary boom since the 1980s
(Steinmueller, 1995).
There are many different ways and methods of developing software and planning
the strategy of a software development company and as it is shown in many recent
research projects.
Most of these projects are usually concerned with the way that software is
developed and not the way that the strategy of the company as a whole is planned
(Cusumano, MacCormack, Kemerer, & Crandall, 2003). Another important factor
is which techniques and methods are used to analyze companys environment and
how the strategy is formulated and implemented.
In this paper we will try to analyze in detail a very popular method for strategic
planning which has been mostly used for product portfolio planning and/or
strategic planning on an abstract level (Houben, Lenie, & Vanhoof, 1999).
We will focus our interest in the software industry and base our research on the
case study of the Austrian software industry as it is presented in (Bernroider, 2002).
Additionally, we will try to present certain guidelines, in order to carry out a
successful SWOT Analysis for any software development company.
This is the method of SWOT Analysis, which was developed from Albert
Humphrey during the 1960s, as part of a research project for Stanford University.
In the following sections we will try to elaborate on SWOT analysis in Section II,
show an example for a software development company in Section III and finally
present the background of the method and related literature in Section IV.

SWOT Analysis in the software industry

II.

SWOT Analysis: method description

The initials SWOT stand for Strengths, Weaknesses, Opportunities and Threats.
These are the basic elements SWOT analysis which is usually presented as a
matrix with four main blocks; one for each element of the SWOT analysis.

Figure 1: A basic SWOT Analysis matrix

As it is quite visible in Figure 1 we also have some other categorizations within
matrix of SWOT Analysis;
elements concerning the organization itself which are called Internal
(Strengths and Weaknesses ),
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SWOT Analysis in the software industry

elements which are about the company and its relationship with its
environment, named External (Opportunities and Threats),
elements which are Helpful for the organization (Strengths and
Opportunities) and
elements which are Harmful for the organization (Weaknesses and Threats).
First of all we have to define the four main building blocks of our diagram;
Strengths: The strengths of an organization are the core competencies of the
company, the key factors which enable it to excel in certain aspects and gain all
kinds of profit, whether that is purely economical, organizational or other.
Weaknesses: As weaknesses we define the flaws that an organization has,
something which means that these weaknesses might lead to serious problems
in the companys strategic planning and might even lead to worse situations,
such as becoming a serious threat for the organizations existence.
Opportunities: These are certain steps which will help a company to perform
better, generate more profits etc. The opportunities can be of many different
perspectives, such as entering a new market, or in creating a new business unit
and etc.
Threats: As threats we name the potential reasons which might harm a
company, such as a new entrant in the main market of operation, a big
economical recession and other reasons which might threaten the current
position of an organization.
Having defined the main blocks of the SWOT analysis matrix, we can continue and
try to dig deeper into these elements and try to link them with certain aspects of an
organization.
The two main aspects of this effort were already mentioned above and two most
important ones are the Internal and the External aspect of an organization.
As it is mentioned in Chapter 2 of (Ward & Peppard, 2008), an important step in
formulating a business strategy is the so called Situation Analysis, which if put
into words answers to the question Where are we now ?.
This is where the Internal and External analysis of an organization really come into
play and help managers realize the different dimensions of their business
Internal analysis: The internal part of an organization can vary, depending on the
size, but the main principles on which we focus our interest remain the same and
according to (Bernroider, 2002) these are the following;
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SWOT Analysis in the software industry

Resources, meaning the available resources which are enabling the company
to develop and deliver the software which it sets out to provide to its
customers.
Capabilities, that is the critical success factors which the company possesses
and that give it a competitive advantage.
Quality, which is quite clear as a term, referring to the quality of the
products / services provided by the company and to the quality of the
internal organization of the company, such as the quality of the business
processes.
Efficiency, meaning how efficient the company is having a solid structure
where all different departments, units and processes are properly organized
and communicate well, in order to have a smooth operation of the company.
Customer responsiveness, which is not only referring to the obvious, that is
how many customers does a company have, but also to how extensive is the
diversification of a companys products, what different price levels exist and
how satisfied are those customers.
Innovation, which is about the level of a companys desire to invest in new
technologies, follow technological breakthroughs, keep up with the
emerging business trends and in which extend is part of the profits re-invest
in research & development.
External analysis: The external analysis of an enterprise is a task which is a bit
more complicated (see Background and related literature), but it mainly is an
analysis of the current competition and of the market in which the company
operates.
In order to give an example of external analysis factors we will mention some
external barriers and drivers as they are mentioned in (Bernroider, 2002):
Marketing / distribution in foreign countries
Culture, which refers to certain restrictions or difficulties in communication
that might arise due to different languages and other cultural aspects.
Trade / commerce law issues, which are sometimes different from country to
country and might cause problems when trying to enter new markets.
EU regulations that might be rather complicated and restrictive in the
standards of quality that must be followed in order to market a software
product in the EU
Market size
Currency conversion (to )
Steps and Deliverables
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SWOT Analysis in the software industry

If we were to describe how a generalized process of carrying out a successful

strategy planning procedure for a software development company, one should go
through the following steps, which include SWOT Analysis (Bernroider, 2002);
Step Deliverable
1.

Define current situation, create a

mission statement and abstract
business goals.

2.

Analysis of the organizations

external competitive environment

Pre SWOT

SWOT
Analysis

(Define Opportunities and

Threats)
3.

SWOT
Analysis

Analysis of the organizations

internal operating environment
(Define Strengths and
Weaknesses)

4.

Selection of strategies

5.

Implementation of strategies

Pro SWOT
Pro SWOT
Table 1: The steps that have to be followed in order to carry out a successful
SWOT Analysis.
III.

SWOT Analysis: example

Since we have explained the SWOT analysis principles, how it should be carried
out and how it is linked to the environment of a company, it is time to actually
describe an example for this method.
For our example we will try to carry out a SWOT Analysis of Microsoft, a famous
and international company which creates software (such as the Microsoft Windows
Vista operating system and others) and other kinds of technology equipment and
gadgets.
Step 1.
First of all we need to define the mission of Microsoft:
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SWOT Analysis in the software industry

As it is mentioned in Microsofts website the companys mission is defined as

follows
At Microsoft, our mission and values are to help people and businesses through
the world realize their full potential
Source: http://www.microsoft.com/about/default.mspx#values
Step 2. and Step 3.

Figure 2: SWOT Analysis for Microsoft (see Error: Reference source not found
for larger version)
In the next two steps (4&5) certain decisions have to be taken and implemented,
about the strategy of Microsoft, for example whether more money will be invested
in the Online office emerging market or will Microsoft just try to fight Google,
since it seems that is the main competitor.

SWOT Analysis in the software industry

IV.

Background and related literature

In order to gain some more insight in the creation of the SWOT Analysis method, it
would be useful to know some more details about its origin; this is where we come
to a paradox, since very little is actually known on how the method was developed.
There actually are no papers that first present the method, since it was created
during a research project funded by a large number of companies making it rather
confidential.
As it is mentioned in an article of www.businessball.com about SWOT Analysis
and its origin,
SWOT analysis came from the research conducted at Stanford Research Institute
from 1960-1970. The background to SWOT stemmed from the need to find out why
corporate planning failed. The research was funded by the fortune 500 companies
to find out what could be done about this failure. The Research Team were Marion
Dosher, Dr Otis Benepe, Albert Humphrey, Robert Stewart, Birger Lie.
As it is quite easy to understand, SWOT Analysis can be used in many different
areas of management, since it is a method which gives managers the opportunity to
analyze a certain problem and put to paper the pros and cons of a situation, a
company etc.
Thus it helps them to begin their research in the certain problem and provides the
basic concepts in order to decide what the next move will be.
For example it is also used for Marketing management, in order to define whether
it is profitable to enter new markets of create new products etc. (Wilson &
Gilligan, 2005).
Another interesting quote from this article would be the following;
A SWOT analysis measures a business unit, a proposition or idea; a PEST
analysis measures a market.
This brings us back to the external aspect of the SWOT Analysis method is the way
that the External environment is perceived by a company and how it is analyzed.
Being more specific, software companies have to pay really close attention to their
external environment, since competition and market status play a huge role in the
success of a software company.
As mentioned in (Bernroider, 2002), many companies tend to use another,
complementary, method in order to analyze their external environment and in
continuum to define certain Opportunities and Threats.

SWOT Analysis in the software industry

The two most commonly used method are PEST and the 5 Forces model by Porter
(Porter, 1998) , (Grundy, 2006).
PEST stands for Political, Economical, Social and Technological and it revolves
around these dimensions of the external environment of an organization, in order to
define potential threats and/or opportunities.
The 5 forces model by Porter is a rather known model, which consists of the five
main elements of a companys environment; (Existing) Competitors, (Bargaining
power of) Suppliers, (Bargaining power of) Buyers, (Threat of possible)
Substitutes and (Threat of possible) New Entrants.
To sum up, SWOT Analysis is a very useful tool for decision making and for
organizing ones thinking about a certain situation or idea, whether that is a
companys current situation, a certain problem within a companys process etc.
It should be combined with other analyzing techniques, in order to achieve a high
level of analysis of a company, so as to succeed and make the most rewarding and
efficient choices, since the final result of SWOT Analysis is to formulate a general
plan for a new strategy and ways to implement it