SWOT analysis (or SWOT matrix) is an acronym for strengths, weaknesses, opportunities, and threats and is a structured planning

method that evaluates those four elements of an organization, project or business venture. A SWOT analysis can be carried out for a
company, product, place, industry, or person. It involves specifying the objectives of the business venture or project and identifying
the internal and external factors that are favorable and unfavorable to achieve that objective. Some authors credit SWOT to Albert
Humphrey, who led a convention at the Stanford Research Institute (now SRI International) in the 1960s and 1970s using data
from Fortune 500 companies.[1][2] However, Humphrey himself did not claim the creation of SWOT, and the origins remain obscure.
The degree to which the internal environment of the firm matches with the external environment is expressed by the concept
of strategic fit.

 Strengths: characteristics of the business or project that give it an advantage over others
 Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others
 Opportunities: elements in the environment that the business or project could exploit to its advantage
 Threats: elements in the environment that could cause trouble for the business or project
Identification of SWOTs is important because they can inform later steps in planning to achieve the objective. First, decision-
makers should consider whether the objective is attainable, given the SWOTs. If the objective is not attainable, they must select a
different objective and repeat the process.
Users of SWOT analysis must ask and answer questions that generate meaningful information for each category (strengths,
weaknesses, opportunities, and threats) to make the analysis useful and find their competitive advantage.

PEST analysis (political, economic, socio-cultural and technological) describes a framework of macro-environmental factors used in
the environmental scanning component of strategic management. It is part of an external analysis when conducting a strategic
analysis or doing market research, and gives an overview of the different macro-environmental factors to be taken into
consideration.

PEST analysis (political, economic, socio-cultural and technological) describes a framework of macro-environmental factors used in
the environmental scanning component of strategic management. ...PESTEL or PESTLE, which adds legal and environmental factors.

The purpose of a PESTLE analysis is to identify all of the various external political, economic, social, technological, legal and
environmental factors that might affect a business. Managers then assess the risks that the identified factors pose and use that
knowledge to inform decisions.
A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political,
Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm's
control and sometimes present themselves as threats.

The basic PEST analysis includes four factors:

 Political factors are basically how the government intervenes in the economy. Specifically, political factors have areas
including tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also
include goods and services which the government aims to provide or be provided (merit goods) and those that the government
does not want to be provided (demerit goods or merit bads). Furthermore, governments have a high impact on
the health, education, and infrastructureof a nation.
 Economic factors include economic growth, interest rates, exchange rates, the inflation rate. These factors greatly affect how
businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a
business grows and expands. Exchange rates can affect the costs of exporting goods and the supply and price of imported
goods in an economy.
 Social factors include the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes
and emphasis on safety. High trends in social factors affect the demand for a company's products and how that company
operates. For example, the ageing population may imply a smaller and less-willing workforce (thus increasing the cost of labour).
Furthermore, companies may change various management strategies to adapt to social trends caused from this (such as
recruiting older workers).
 Technological factors include technological aspects like R&D activity, automation, technology incentives and the rate
of technological change. These can determine barriers to entry, minimum efficient production level and influence
the outsourcing decisions. Furthermore, technological shifts would affect costs, quality, and lead to innovation.
Expanding the analysis to PESTLE or PESTEL adds:

 Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors
can affect how a company operates, its costs, and the demand for its products.
 Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of
climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or
destroying existing ones.
Other factors for the various offshoots include:
 Demographic factors include gender, age, ethnicity, knowledge of languages, disabilities, mobility, home ownership,
employment status, religious belief or practice, culture and tradition, living standards and income level.
 Regulatory factors include acts of parliament and associated regulations, international and national standards, local
government by-laws, and mechanisms to monitor and ensure compliance with these.
More factors discussed in the SPELIT Power Matrix include:

 Inter-cultural factors considers collaboration in a global setting.

 Other specialized factors discussed in chapter 10 of the SPELIT Power Matrix include the Ethical, Educational, Physical, Religious,
and Security environments. The security environment may include either personal, company, or national security.
 Other business-related factors that might be considered in an environmental analysis include Competition, Demographics,
Ecological, Geographical, Historical, Organizational, and Temporal (schedule).[5]

Applicability of the factors

The model's factors will vary in importance to a given company based on its industry and the goods it produces. For example,
consumer and B2B companies tend to be more affected by the social factors, while a global defense contractor would tend to be
more affected by political factors. Additionally, factors that are more likely to change in the future or more relevant to a given
company will carry greater importance. For example, a company which has borrowed heavily will need to focus more on the
economic factors (especially interest rates).
Furthermore, conglomerate companies who produce a wide range of products (such as Sony, Disney, or BP) may find it more useful
to analyze one department of its company at a time with the PESTEL model, thus focusing on the specific factors relevant to that
one department. A company may also wish to divide factors into geographical relevance, such as local, national, and global.

Use of PEST analysis with other models

The PEST factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and
threats in a SWOT analysis. A graphical method for PEST analysis called 'PESTLEWeb' has been developed at Henley Business School in
the UK. Research has shown that PESTLEWeb diagrams are considered by users to be more logical, rational and convincing than
traditional PEST analysis.[6][7]
Porter's Five Forces Framework is a tool for analyzing competition of a business. It draws from industrial organization (IO)
economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an
industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability.
The most unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven
to normal profit levels. The five-forces perspective is associated with its originator, Michael E. Porter of Harvard University. This
framework was first published in Harvard Business Review in 1979.[1]
Porter refers to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of
those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces
normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry
attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core
competencies, business model or network to achieve a profit above the industry average. A clear example of this is the
airline industry. As an industry, profitability is low because the industry's underlying structure of high fixed costs and low variable costs
afford enormous latitude in the price of airline travel. Airlines tend to compete on cost, and that drives down the profitability of
individual carriers as well as the industry itself because it simplifies the decision by a customer to buy or not buy a ticket. A few
carriers--Richard Branson's Virgin Atlantic is one--have tried, with limited success, to use sources of differentiation in order to increase
profitability.
Porter's five forces include three forces from 'horizontal' competition--the threat of substitute products or services, the threat of
established rivals, and the threat of new entrants--and two others from 'vertical' competition--the bargaining power of suppliers and
the bargaining power of customers.
Porter developed his five forces framework in reaction to the then-popular SWOT analysis, which he found both lacking in rigor
and ad hoc.[2] Porter's five-forces framework is based on the structure–conduct–performance paradigm in industrial organizational
economics. It has been applied to try to address a diverse range of problems, from helping businesses become more profitable to
helping governments stabilize industries.[3] Other Porter strategy tools include the value chain and generic competitive strategies.

Threat of new entrants[edit]

Profitable industries that yield high returns will attract new firms. New entrants eventually will decrease profitability for other firms in
the industry. Unless the entry of new firms can be made more difficult by incumbents, abnormal profitability will fall towards zero
(perfect competition), which is the minimum level of profitability required to keep an industry in business.
The following factors can have an effect on how much of a threat new entrants may pose:
 The existence of barriers to entry (patents, rights, etc.). The most attractive segment is one in which entry barriers are high and exit
barriers are low. It's worth noting, however, that high barriers to entry almost always make exit more difficult.
 Government policy
 Capital requirements
 Absolute cost
 Cost disadvantages independent of size
 Economies of scale
 Product differentiation
 Brand equity
 Switching costs
 Expected retaliation
 Access to distribution channels
 Customer loyalty to established brands
 Industry profitability (the more profitable the industry, the more attractive it will be to new competitors)
 Network effect
Threat of substitutes[edit]
A substitute product uses a different technology to try to solve the same economic need. Examples of substitutes are meat, poultry,
and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on. For example, tap water
is a substitute for Coke, but Pepsi is a product that uses the same technology (albeit different ingredients) to compete head-to-head
with Coke, so it is not a substitute. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas
increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), while giving Pepsi a larger market
share at Coke's expense.
Potential factors:

 Buyer propensity to substitute

 Relative price performance of substitute
 Buyer's switching costs
 Perceived level of product differentiation
 Number of substitute products available in the market
 Ease of substitution
 Availability of close substitute
Bargaining power of customers[edit]
The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure,
which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as
implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices.
Potential factors:

 Buyer concentration to firm concentration ratio

 Degree of dependency upon existing channels of distribution
 Bargaining leverage, particularly in industries with high fixed costs
 Buyer switching costs
 Buyer information availability
 Availability of existing substitute products
 Buyer price sensitivity
 Differential advantage (uniqueness) of industry products
 RFM (customer value) Analysis
Bargaining power of suppliers[edit]
The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and
services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making
biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work
with the firm or charge excessively high prices for unique resources.
Potential factors are:

 Supplier switching costs relative to firm switching costs

 Degree of differentiation of inputs
 Impact of inputs on cost and differentiation
 Presence of substitute inputs
 Strength of distribution channel
 Supplier concentration to firm concentration ratio
 Employee solidarity (e.g. labor unions)
 Supplier competition: the ability to forward vertically integrate and cut out the buyer.
Industry rivalry[edit]
For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an
understanding of industry rivals is vital to successfully market a product. Positioning pertains to how the public perceives a product
and distinguishes it from competitors. A business must be aware of its competitors marketing strategy and pricing and also be
reactive to any changes made.
Potential factors:

 Sustainable competitive advantage through innovation

 Competition between online and offline companies
 Level of advertising expense
 Powerful competitive strategy
 Firm concentration ratio
 Degree of transparency

Usage[edit]
Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic
position. However, for most consultants, the framework is only a starting point. They might use value chain or another type of analysis
in conjunction.[4] Like all general frameworks, an analysis that uses it to the exclusion of specifics about a particular situation is
considered naive.
According to Porter, the five forces framework should be used at the line-of-business industry level; it is not designed to be used at
the industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely
related products and/or services are sold to buyers. (See industry information.) A firm that competes in a single industry should
develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for diversified companies, the primary issue
in corporate strategy is the selection of industries (lines of business) in which the company will compete. The average Fortune Global
1,000 company competes in 52 industries [5].

Criticisms[edit]
Porter's framework has been challenged by other academics and strategists. For instance, Kevin P. Coyne and Somu Subramaniam
claim that three dubious assumptions underlie the five forces:

 That buyers, competitors, and suppliers are unrelated and do not interact and collude.
 That the source of value is structural advantage (creating barriers to entry).
 That uncertainty is low, allowing participants in a market to plan for and respond to changes in competitive behavior.[6]
An important extension to Porter's work came from Adam Brandenburger and Barry Nalebuff of Yale School of Management in the
mid-1990s. Using game theory, they added the concept of complementors (also called "the 6th force") to try to explain the
reasoning behind strategic alliances. Complementors are known as the impact of related products and services already in the
market.[7] The idea that complementors are the sixth force has often been credited to Andrew Grove, former CEO of Intel
Corporation. Martyn Richard Jones, while consulting at Groupe Bull, developed an augmented 5 forces model in Scotland in 1993. It
is based on Porter's Framework and includes Government (national and regional) as well as Pressure Groups as the notional 6th
force. This model was the result of work carried out as part of Groupe Bull's Knowledge Asset Management Organisation initiative.
Porter indirectly rebutted the assertions of other forces, by referring to innovation, government, and complementary products and
services as "factors" that affect the five forces.[8]
It is also perhaps not feasible to evaluate the attractiveness of an industry independently of the resources that a firm brings to that
industry. It is thus argued (Wernerfelt 1984)[9] that this theory be combined with the Resource-Based View (RBV) in order for the firm to
develop a sounder framework.

What is Four Corners Analysis?

The Four Corners Analysis, developed Michael Porter, is a model well designed to help company strategists assess a competitor's
intent and objectives, and the strengths it is using to achieve them. It is a useful technique to evaluate competitors and generate
insights concerning likely competitor strategy changes and determine competitor reaction to environmental changes and
industry shifts. By examining a competitor's current strategy, future goals, assumptions about the m arket, and core capabilities,
the Four Corners Model helps analysts address four core questions:
 Motivation - What drives the competitor? Look for drivers at various levels and dimensions so you can gain insights into
future goals.
 Current Strategy - What is the competitor doing and what is the competitor capable of doing?
 Capabilities - What are the strengths and weaknesses of the competitor?
 Management Assumptions - What assumptions are made by the competitor's management team?
From there, you can identify a competitive strategy that manoeuvres around the rival's objectives and strengths, and that plays
to your company's capabilities.
Advantage of Porter's Four Corners Analysis
Porter's Four Corners tool has been around for a long time and it's earned a place for itself as a useful and respected
management tool. The real advantage of this approach is:
 Try to get inside the mind of the opposition
 Explore the beliefs and assumptions of your competitors.
 Use past behavior to predict future action, but actively tries to see if there is likely to be a shift in their strategy.
Components of Four Corners Analysis
The four corners refer to the four elements that are critical in analyzing a market rival, including independently and collec tively
assessing its: drivers / future goals, management assumptions, strategy and capabilities. Unlike the other static models (i.e. SWOT
Analysis) that they don't actually help the analyst understand what would motivate a competitor to take particular actions, the
four corners method was developed to capture insights about what competitors plan to do from the present forward. Now, let's
take a look of the four component of the analysis:
Drivers
Analyzing a competitor's goals assists in understanding whether they are satisfied with their current performance and market
position. This helps predict how they might react to external forces and how likely it is that they will change strate gy. We may
brainstorm by considering the following points:
 What is it that drives them forwards
 What is it that drives them to compete?
 How does this motivate and shape their strategy?
Management Assumptions
The perceptions and assumptions that a competitor has about itself, the industry and other companies will influence its strategic
decisions. Analyzing these assumptions can help identify the competitor's biases and blind spots. We may brainstorm by
considering the following points:
 What do they believe about themselves and the world in which they operate?
 What assumptions have they made about their own strengths and weaknesses in relation to their competitors?
 Is this likely to make their strategy proactive or reactive? Aggressive, or defensive?
Current Strategy
A company's strategy determines how a competitor competes in the market. However, there can be a difference between
'intended strategy' (the strategy as stated in annual reports, interviews and public statements) and the 'realised strategy' (the
strategy that the company is following in practice, as evidenced by acquisitions, capital expenditure and new product
development). Where the current strategy is yielding satisfactory results, it is reasonable to assume that an organisation wi ll
continue to compete in the same way as it currently does. We may brainstorm by considering the following points:
 How do your competitors actually act and are they happy will they be with the efficacy of their actions?
 Is there a gap between intended strategy and realized strategy?
 Is there likely to be a sea-change in their strategy due to current lack of success or are they likely to keep moving in the
same direction?
Capabilities
The drivers, assumptions and strategy of an organisation will determine the nature, likelihood and timing of a competitor's actions.
However, an organisation's capabilities will determine its ability to initiate or respond to external forces. We may brainsto rm by
considering the following points:
 What are their best options for responding to competition from their rivals? For example:
 Are they more likely to respond with a price drop
Or through aggressively targeting its distribution network?
Four Corners Analysis Template
The table below shows a Four Corners Analysis Template that consists of some typical kinds of things people would consider in
developing a Four Corners Analysis model.

Drivers Current Strategy Capabilities Management Assumptions

 Financial goals  How the business  Company's  Marketing skills

 Corporate culture
 Organizational
structure
 Leadership team
backgrounds
 External constraints
 Business philosophy
creates value perceptions of its
 Where the business is strengths and
choosing to invest weaknesses
 Relationships and  Cultural traits
networks the business  Organizational value
has developed  Perceived industry
forces
 Belief about
competitor's goals
 Ability to service
channels
 Skills and training of
work force
 Patents and copyrights
 Financial strength
 Leadership qualities of
CEO

Four Corners Analysis Example

The figure below shows a Four Corners Analysis Example that involves the strategic analysis of a rival fast food restaurant.
Porter's four corners model is a predictive tool designed by Michael Porter that helps in determining a competitor's course of action.
Unlike other predictive models which predominantly rely on a firm's current strategy and capabilities to determine future strategy,
Porter's model additionally calls for an understanding of what motivates the competitor. This added dimension of understanding a
competitor's internal culture, value system, mindset, and assumptions helps in determining a much more accurate and realistic
reading of a competitor's possible reactions in a given situation.

Motivation – drivers
This helps in determining competitor's action by understanding their goals (both strategic and tactical) and their current position vis-
à-vis their goals. A wide gap between the two could mean the competitor is highly likely to react to any external threat that comes
in its way, whereas a narrower gap is likely to produce a defensive strategy. The question to be answered here is: What is it that
drives the competitor? These drivers can be at various levels and dimensions and can provide insights into future goals.
Motivation – management assumptions
The perceptions and assumptions the competitor has about itself and its industry would shape strategy. This corner includes
determining the competitor's perception of its strengths and weaknesses, organization culture and their beliefs about competitor's
goals. If the competitor thinks highly of its competition and has a fair sense of industry forces, it is likely to be ready with plans to
counter any threats to its position. On the other hand, a competitor who has a misplaced understanding of industry forces is not very
likely to respond to a potential attack. The question to be answered here is: What are competitor's assumption about the industry,
the competition and its own capabilities?
Actions – strategy
A competitor's strategy determines how it competes in the market. However, there could be a difference between the company's
intended strategy (as stated in the annual report and interviews) and its realized strategy (as is evident in its acquisitions, new
product development, etc.). It is therefore important here to determine the competitor's realized strategy and how they are actually
performing. If current strategy is yielding satisfactory results, it is safe to assume that the competitor is likely to continue to operate in
the same way. The questions to be answered here are: What is the competitor actually doing and how successful is it in
implementing its current strategy?
Actions – capabilities
This looks at a competitor's inherent ability to initiate or respond to external forces. Though it might have the motivation and the drive
to initiate a strategic action, its effectiveness is dependent on its capabilities. Its strengths will also determine how the competitor is
likely to respond to an external threat. An organization with an extensive distribution network is likely to initiate an attack through its
channel, whereas a company with strong financials is likely to counter attack through price drops. The questions to be answered
here are: What are the strengths and weaknesses of the competitor? Which areas is the competitor strong in?

Strengths[edit]
Considers implicit aspects of competitive behavior
Firms are more often than not aware of their rivals and do have a generally good understanding of their strategies and capabilities.
However, motivational factors are often overlooked. Sufficiently motivated competitors can often prove to be more competitive
than bigger but less motivated rivals. What sets this model apart from others is its insistence on accounting for the "implicit" factors
such as culture, history, executive, consultants, and board's backgrounds, goals, values and commitments and inclusion of
management's deep beliefs and assumptions about what works or does not work in the market.[1]
Predictive in nature
Porter's four corners model provides a framework that ties competitor's capabilities to their assumptions of the competitive
environment and their underlying motivations. Looking at both a firm's capabilities (what the firm can do) and underlying implicit
factors (their motivations to follow a course of action) can help predict competitor's actions with a relatively higher level of
confidence. The underlying assumption here is that decision makers in firms are essentially human and hence subject to the
influences of affective and automatic processes described by neuroscientists.[1] Hence by considering these factors along with a
firm's capabilities, this model is a better predictor of competitive behavior.

Use in competitive intelligence and strategy[edit]

Despite its strengths, Porter's four corners model is not widely used in strategy and competitive intelligence. In a 2005 survey by
the Society of Competitive Intelligence Professionals's (SCIP) frequently used analytical tools, Porter's four corners does not even
figure in the top ten.[2]
However this model can be used in competitive analysis and strategy as follows:
Strategy development and testing: Can be used to determine likely actions by competitors in response to the firm's strategy. This can
be used when developing a strategy (such as for a new product launch) or to test this strategy using simulation techniques such as
a business war game.
'Early warning: The predictive nature of this tool can also alert firms to possible threats due to competitive action.
Porter's four corners also works well with other analytical models. For instance it complements Porter five forces analysis well.
Competitive cluster analysis of industry products in turn complements four corners analysis.[3] Using such models that complement
each other can help create a more complete analysis.