Evaluate the usefulness of SWOT and PEST techniques to CCF’S directors
when undertaking strategic analysis before deciding on the future
direction for the business. [20]
Chan Chicken Farms (CCF) can use strategic analysis to conduct research into the
business environment within which it operates, and into the organisation itself,
to help form future strategies. The company’s key objective is to be ‘maximizing
shareholder value’ and taking away the bad publicity. The two possible
strategies are to takeover a large food retailing company to provide guaranteed
outlets for CCF’s product range or to open a chicken farm in neighboring nation,
country Y, to supply that market for the first time. Strategic analysis such as
SWOT and PEST will allow CCF to gain a better understanding and minimize risk.
SWOT analysis is a form of strategic analysis that identifies and analyses the
main internal strengths and weaknesses and external opportunities and threats
that will influence the future direction and success of a business. This analysis
can be very useful when deciding on the strategy to use. The data in appendix 2
indicates one of the strengths of CFF is a long established trading record. As
demand rises for meat products, CCF has an opportunity to increase production
and are able to use the strategy of taking over a large food retailing company due
to their public company status and high market share. However, the SWOT
analysis has identified some director’s lack proven track record and outdated
meat processing factory and equipment. These weaknesses can hinder
production, as CCF may not be able to keep up with the increase in demand. A
SWOT analysis is very useful as it identifies threats to the business. One key
threat, which CCF is facing, is rivals taking advantage of CCF’s bad publicity.
SWOT involves matching the CCF’s resources and strengths to the competitive
market in which it operates. This can be proven to be very useful in strategy
formulation and selection. CCF should not always pursue the most profitable
opportunities and need to identify a good ‘fit’ between the strengths and
opportunities to overcome their weaknesses. This is a good starting point to
strategic analysis but is rarely sufficient on its own. SWOT analysis can be
subjective as the managers of CCF may see different strengths and weaknesses. It
is also not a quantitate measure; the cost of correcting weaknesses cannot be
compared with the profit from pursuing an opportunity and therefore further
analysis is needed.
PEST analysis is the strategic analysis of a firm’s macro-environment including
political, economic, social and technological changes. PEST analysis formalizes
this process and is an important part of strategic decision making. The PEST
analysis can be broken into 4 sections; political, economic, social and technology.
The political factor from the results in appendix 3 shows there are reducing
barriers to international trade within the region. The opportunity of ‘neighboring
countries such as country Y lack food production capacity’ makes it easier for
CFF to produce overseas. This shows CCF’s managers that the strategy of
opening a chicken farm in another region has potential to be successful. It is
important to note the social factors such as the increasing membership of animal
rights pressure groups and demand for meat from organic sources. This alerts
managers that there is a threat from competitors, CFF would benefit from
reducing the negative publicity. The SWOT analysis mentioned that CCF’s
technology was outdated. From conducting the PEST analysis, managers are able
to see that better technology such as fully computerized food processing
equipment is now available to purchase to overcome this weakness.
PEST analysis is very useful as it is a detailed analysis of the wider environment
in which the strategy has to operate in. It is wide ranging and provides a ‘bigpicture’ of factors that could influence CCF’s future strategies as opposed to
micro-environmental factors such as customers and suppliers. This is crucial as
it assesses if the business strategy is likely to be successful. By assessing the
external factors beyond business control it identifies opportunities of threats,
which can be used complimentary to the SWOT analysis. However, a PEST
analysis needs to be constantly updated and reviewed, as the business
environment is dynamic and rapidly changing. Is important for CCF because they
are considering foreign expansion for the first time.
Overall, CCF would find it very useful using SWOT and PEST techniques when
undertaking strategic analysis. These should be used together to help minimize
the risk of future business plans and give managers a deeper understanding of
the environment in which the strategy will operate.