4.6 SWOT Analysis
The above Borders story
underscores the importance of continually performing a “SWOT”
analysis. SWOT
stands for:
Strengths, Weaknesses, Opportunities and Threats classified into
two dimensions, internal and external.
The internal assessments are the “Strengths” (Internal
comparative advantages) and “Weaknesses” (internal disadvantages
relative to competitors).
The external assessments are the “Opportunities”
(external opportunities for generating additional sales and
earnings) and “Threats” (external disadvantages relative to
competitors and potential competitors).
Applied to Borders a SWOT
analysis would increasingly flag significant Weaknesses
and Threats
with little bright news
along the dimensions Strengths and Opportunities.
For example, for Borders
Weaknesses are clearly
their rapidly deteriorating profit margins combined with flat
sales after their expansion phase.
This is evident starting from 2006 (see above 2008 10-K s
data which covers 2003 to 2007).
Threats were also
growing significantly from Internet book sales, growth in
e-books and the shift to digital music and movie downloads.
The only potential
Strength over this time period for Borders was the strong
growth exhibited in International sales.
Finally, the major potential Opportunity for Borders
turned into an “opportunity lost.”
This was the growth in
the e-book market which Borders completely missed.
Instead they allocated significant resources to expanding
bricks and mortar and ran up costs at a time when they faced
significant “Threats” from e-commerce.