Resource-Based View PDF

Resource-Based View Definition The resource-based view (RBV) is a model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain a competitive advantage. What is a resource-b...

Resource-Based View Definition The resource-based view (RBV) is a model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain a competitive advantage. What is a resource-based view? RBV is an approach to achieving competitive advantage that emerged in the 1980s and 1990s after the major works published by Wernerfelt, B. (“The Resource-Based View of the Firm”), Prahalad and Hamel (“The Core Competence of The Corporation”), Barney, J. (“Firm resources and sustained competitive advantage”) and others. The supporters of this view argue that organizations should look inside the company to find the sources of competitive advantage instead of looking at the competitive environment for it. The following model explains RBV and emphasizes its key points. An image illustrates the key points of resource-based view model. According to RBV proponents, it is much more feasible to exploit external opportunities using existing resources in a new way rather than trying to acquire new skills for each different opportunity. In the RBV model, resources are given the major role in helping companies to achieve higher organizational performance. There are two types of resources: tangible and intangible. Tangible assets are physical things. Land, buildings, machinery, equipment and capital – all these assets are tangible. Physical resources can easily be bought in the market, so they confer little advantage to the companies in the long run because rivals can soon acquire identical assets. Intangible assets are everything else that has no physical presence but can still be owned by the company. Brand reputation, trademarks and intellectual property are all intangible assets. Unlike physical resources, brand reputation is built over a long time and is something that other companies cannot buy from the market. Intangible resources usually stay within a company and are the main source of sustainable competitive advantage. The two critical assumptions of RBV are that resources must also be heterogeneous and immobile. Heterogeneous. The first assumption is that skills, capabilities and other resources that organizations possess differ from one company to another. If organizations had the same amount and mix of resources, they could not employ different strategies to outcompete each other. What one company would do, the other could simply follow and no competitive advantage could be achieved. This is the scenario of perfect competition, yet real-world markets are far from perfectly competitive and some companies, which are exposed to the same external and competitive forces (same external conditions), are able to implement different strategies and outperform each other. Therefore, RBV assumes that companies achieve competitive advantage by using their different bundles of resources. The competition between Apple Inc. and Samsung Electronics is a good example of how two companies that operate in the same industry and, thus, are exposed to the same external forces can achieve different organizational performance due to the difference in resources. Apple competes with Samsung in tablets and smartphone markets, where Apple sells its products at much higher prices and, as a result, reaps higher profit margins. Why does Samsung not follow the same strategy? Simply because Samsung does not have the same brand reputation or is capable of designing user-friendly products like Apple does. (heterogeneous resources) Immobile. The second assumption of RBV is that resources are not mobile and do not move from company to company, at least in the short-run. Due to this immobility, companies cannot replicate rivals’ resources and implement the same strategies. Intangible resources, such as brand equity, processes, knowledge or intellectual property, are usually immobile. VRIO framework Although having heterogeneous and immobile resources is critical in achieving competitive advantage, it is not enough alone if the firm wants to sustain it. Barney (1991) has identified a VRIN framework that examines if resources are valuable, rare, costly to imitate and non- substitutable. The resources and capabilities that answer yes to all the questions are the sustained competitive advantages. The framework was later improved from VRIN to VRIO by adding the following question: “Is a company organized to exploit these resources?” VRIO framework adopted from Rothaermel’s (2013) ‘Strategic Management’, p.91 VRIO Framework is illustrated, which tests if a resource or capability is valuable, rare, costly to imitate and if a company is organized to catpure value from it. Question of Value. Resources are valuable if they help organizations to increase the value offered to the customers. This is done by increasing differentiation or/and decreasing the costs of production. The resources that cannot meet this condition lead to competitive disadvantage. Question of Rarity. Resources that can only be acquired by one or a few companies are considered rare. When more than a few companies have the same resource or capability, it results in competitive parity. Question of Imitability. A company that has valuable and rare resources can achieve at least temporary competitive advantage. However, the resource must also be costly to imitate or to substitute for a rival if a company wants to achieve sustained competitive advantage. Question of Organization. The resources itself do not confer any advantage for a company if it’s not organized to capture the value from them. Only the firm that is capable to exploit the valuable, rare and imitable resources can achieve sustained competitive advantage. Difference between resource-based and industrial organization views RBV holds that sustained competitive advantage can be achieved more easily by exploiting internal rather than external factors as compared to industrial organization (I/O) view. While this is correct to some degree, there isn’t a definite answer to which approach to strategic management is more important. The chart below shows how industry, firm and other effects explain a firm’s performance. From ~30% to ~45% of superior organizational performance can be explained by firm effects (resource based view) and ~20% by industry effects (I/O view). This indicates that the best approach is to look into both external and internal factors and combine both views to achieve and sustain competitive advantage. A pie chart, illustrating how important are firm, industry and other effects in achieving sustained competitive advantage. VRIO Framework Definition of the VRIO Framework VRIO framework is the tool used to a analyze firm’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage. The term VRIO comes from the words value, rarity, imitability and organization. What is the VRIO Framework In order to understand the sources of competitive advantage, firms are using many tools to analyze their external (Porter’s 5 Forces, PEST analysis) and internal (Value Chain analysis, BCG Matrix) environments. One such tool that analyzes a firm’s internal resources is VRIO analysis. The tool was originally developed by Barney, J. B. (1991) in his work ‘Firm Resources and Sustained Competitive Advantage’, where the author identified four attributes that a firm’s resources must possess in order to become a source of sustained competitive advantage. According to him, the resources must be valuable, rare, imperfectly imitable and non- substitutable. His original framework was called VRIN. In 1995, in his later work ‘Looking Inside for Competitive Advantage’ Barney introduced the VRIO framework, which was the improvement of the VRIN model. VRIO analysis stands for four questions that ask if a resource is: valuable? rare? costly to imitate? And is a firm organized to capture the value of the resources? A resource or capability that meets all four requirements can bring sustained competitive advantage for the company. VRIO Framework is illustrated, which tests if a resource or capability is valuable, rare, costly to imitate and if a company is organized to catpure value from it. Adopted from Rothaermel’s (2013) ‘Strategic Management’, p.91 Valuable The first question of the framework asks if a resource adds value by enabling a firm to exploit opportunities or defend against threats. If the answer is yes, then a resource is considered valuable. Resources are also valuable if they help organizations to increase the perceived customer value. This is done by increasing differentiation or/and decreasing the price of the product. The resources that cannot meet this condition, lead to competitive disadvantage. It is important to continually review the value of the resources because constantly changing internal or external conditions can make them less valuable or completely useless. Rare Resources that can only be acquired by one or very few companies are considered rare. Rare and valuable resources grant a temporary competitive advantage.On the other hand, the situation when more than a few companies have the same resources or use the same capability in a similar way leads to competitive parity. This is because firms can use identical resources to implement the same strategies and no organization can achieve superior performance. Even though competitive parity is not the desired position, a firm should not neglect the resources that are valuable but common. Losing valuable resources and capabilities would hurt an organization because they are essential for staying in the market. Costly to Imitate A resource is costly to imitate if other organizations that don’t have it can’t imitate, buy or substitute it at a reasonable price. Imitation can occur in two ways: by directly imitating (duplicating) the resource or providing a comparable product/service (substituting). A firm that has valuable, rare and costly to imitate resources can (but not necessarily will) achieve sustained competitive advantage. Barney has identified three reasons why resources can be hard to imitate:  Historical conditions. Resources that were developed due to historical events or over a long period usually are costly to imitate.  Causal ambiguity. Companies can’t identify the particular resources that are the cause of competitive advantage.  Social Complexity. The resources and capabilities that are based on the company’s culture or interpersonal relationships. Organized to Capture Value The resources themselves do not confer any advantage for a company if it’s not organized to capture the value from them. A firm must organize its management systems, processes, policies, organizational structure and culture to be able to fully realize the potential of its valuable, rare and costly to imitate resources and capabilities. Only then the companies can achieve sustained competitive advantage. Using the tool Step 1. Identify valuable, rare and costly to imitate resources There are two types of resources: tangible and intangible. Tangible assets are physical things like land, buildings and machinery. Companies can easily buy them in the market, so tangible assets are rarely the source of competitive advantage. On the other hand, intangible assets, such as brand reputation, trademarks, intellectual property, unique training system or unique way of performing tasks, can’t be acquired so easily and offer the benefits of sustained competitive advantage. Therefore, to find valuable, rare and costly to imitate resources, you should first look at the company’s intangible assets. Finding valuable resources: An easy way to identify such resources is to look at the value chain and SWOT analyses. Value chain analysis identifies the most valuable activities, which are the source of cost or differentiation advantage. By looking into the analysis, you can easily find valuable resources or capabilities. In addition, SWOT analysis recognizes the strengths of the company that are used to exploit opportunities or defend against threats (which is exactly what a valuable resource does). If you still struggle finding valuable resources, you can identify them by asking the following questions: Which activities lower the cost of production without decreasing perceived customer value? Which activities increase product or service differentiation and perceived customer value? Has your company won an award or been recognized as the best in something? (most innovative, best employer, highest customer retention or best exporter) Do you have access to scarce raw materials or hard-to-get in distribution channels? Do you have a special relationship with your suppliers? Such as a tightly integrated order and distribution system powered by unique software? Do you have employees with unique skills and capabilities? Do you have a brand reputation for quality, innovation, and customer service? Do you perform any tasks better than your competitors do? (Benchmarking is useful here) Does your company hold any other strengths compared to rivals? Finding rare resources: How many other companies own a resource or can perform capability in the same way in your industry? Can a resource be easily bought in the market by rivals? Can competitors obtain the resource or capability in the near future? Finding costly to imitate resources: Do other companies can easily duplicate a resource? Can competitors easily develop a substitute resource? Do patents protect it? Is a resource or capability socially complex? Is it hard to identify the particular processes, tasks, or other factors that form the resource? Step 2. Find out if your company is organized to exploit these resources The following questions might be helpful: Does your company have an effective strategic management process in the organization? Are there effective motivation and reward systems in place? Does your company’s culture reward innovative ideas? Is an organizational structure designed to use a resource? Are there excellent management and control systems? Step 3. Protect the resources When you identify a resource or capability that has all 4 VRIO attributes, you should protect it using all possible means. After all, it is the source of your sustained competitive advantage. The first thing you should do is to make the top management aware of such resources and suggest how it can be used to lower the costs or to differentiate the products and services. Then, you should think of ideas on how to make it more costly to imitate. If other companies aren’t be able to imitate a resource at reasonable prices, it will stay rare for much longer. Step 4. Constantly review VRIO resources and capabilities The value of the resources changes over time and they must be reviewed constantly to find out if they are as valuable as they once were. Competitors are also keen to achieve the same competitive advantages so they’ll be keen to replicate the resources, which means that they will no longer be rare. Often, new VRIO resources or capabilities are developed inside an organization, and by identifying them, you can protect your sources of competitive advantage more easily. VRIO example Google’s capability evaluated using VRIO framework Google’s VRIO capability Excellent employee management Valuable? Rare? Costly to Imitate? Is a company organized to exploit it? Yes Yes Yes Yes Result: sustained competitive advantage Google’s ability to manage its people effectively is a source of both differentiation and cost advantages. Unlike other companies, which rely on trust and relationships in people management, Google uses data about its employees to manage them. This capability allows making correct (data-based) decisions about which people to hire and the best way to use their skills. As a result, Google is able to hire innovative employees who are also very productive ($1 million in revenue per employee). Besides being valuable, it is also a rare capability because no other company uses data-based employee management so extensively. Is it costly to imitate? It is costly to imitate, at least, in the near future. First, companies should build highly sophisticated software, which is both costly and hard to do. Second, HR managers should be trained to make data-based decisions and forget their old management methods. Is Google organized to capture value from this capability? Certainly, it has trained HR managers who know how to use the data and manage people accordingly. It also has the needed IT skills to collect and manage the data about its employees. There are many more businesses that have VRIO resources or capabilities, including many of the companies we analyzed using swot analysis. Swot What Is SWOT Analysis? SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company's competitive position and to develop strategic planning. SWOT analysis assesses internal and external factors, as well as current and future potential. A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization, initiatives, or within its industry. Key Takeaways SWOT analysis is a strategic planning technique that provides assessment tools. Identifying core strengths, weaknesses, opportunities, and threats leads to fact-based analysis, fresh perspectives, and new ideas. A SWOT analysis pulls information from internal sources (strengths or weaknesses of the specific company) and external forces that may have uncontrollable impacts on decisions (opportunities and threats). SWOT analysis works best when diverse groups or voices within an organization can provide realistic data points rather than prescribed messaging. The findings of a SWOT analysis are often synthesized to support a single objective or decision that a company is facing. Understanding SWOT Analysis SWOT analysis is a technique for assessing the performance, competition, risk, and potential of a business, as well as part of a business such as a product line or division, an industry, or other entity. Using internal and external data, the technique can guide businesses toward strategies more likely to be successful, and away from those in which they have been, or are likely to be, less successful. Independent SWOT analysts, investors, or competitors can also guide them on whether a company, product line, or industry might be strong or weak and why. SWOT analysis was first used to analyze businesses. Now, it's often used by governments, nonprofits, and individuals, including investors and entrepreneurs. There is seemingly limitless applications to the SWOT analysis. Components of SWOT Analysis SWOT quadrants displayed in a circle with labels showing what each quadrant stands for Investopedia / Julie Bang Every SWOT analysis will include the following four categories. Though the elements and discoveries within these categories will vary from company to company, a SWOT analysis is not complete without each of these elements: Strengths Strengths describe what an organization excels at and what separates it from the competition: a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results. It must then decide how to use those results to attract new investors. Weaknesses Weaknesses stop an organization from performing at its optimum level. They are areas where the business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital. Opportunities Opportunities refer to favorable external factors that could give an organization a competitive advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and market share. Threats Threats refer to factors that have the potential to harm an organization. For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats include things like rising costs for materials, increasing competition, tight labor supply, and so on. SWOT Table Analysts present a SWOT analysis as a square segmented into four quadrants, each dedicated to an element of SWOT. This visual arrangement provides a quick overview of the company’s position. Although all the points under a particular heading may not be of equal importance, they all should represent key insights into the balance of opportunities and threats, advantages and disadvantages, and so forth. The SWOT table is often laid out with the internal factors on the top row and the external factors on the bottom row. In addition, the items on the left side of the table are more positive/favorable aspects, while the items on the right are more concerning/negative elements. How to Do a SWOT Analysis A SWOT analysis can be broken into several steps with actionable items before and after analyzing the four components. In general, a SWOT analysis will involve the following steps. Step 1: Determine Your Objective A SWOT analysis can be broad, though more value will likely be generated if the analysis is pointed directly at an objective. For example, the objective of a SWOT analysis may focused only on whether or not to perform a new product rollout. With an objective in mind, a company will have guidance on what they hope to achieve at the end of the process. In this example, the SWOT analysis should help determine whether or not the product should be introduced. Step 2: Gather Resources Every SWOT analysis will vary, and a company may need different data sets to support pulling together different SWOT analysis tables. A company should begin by understanding what information it has access to, what data limitations it faces, and how reliable its external data sources are. In addition to data, a company should understand the right combination of personnel to have involved in the analysis. Some staff may be more connected with external forces, while various staff within the manufacturing or sales departments may have a better grasp of what is going on internally. Having a broad set of perspectives is also more likely to yield diverse, value-adding contributions. Step 3: Compile Ideas For each of the four components of the SWOT analysis, the group of people assigned to performing the analysis should begin listing ideas within each category. Examples of questions to ask or consider for each group are in the table below. Internal Factors What occurs within the company serves as a great source of information for the strengths and weaknesses categories of the SWOT analysis. Examples of internal factors include financial and human resources, tangible and intangible (brand name) assets, and operational efficiencies. Potential questions to list internal factors are: (Strength) What are we doing well? (Strength) What is our strongest asset? (Weakness) What are our detractors? (Weakness) What are our lowest-performing product lines? External Factors What happens outside of the company is equally as important to the success of a company as internal factors. External influences, such as monetary policies, market changes, and access to suppliers, are categories to pull from to create a list of opportunities and weaknesses. Potential questions to list external factors are: (Opportunity) What trends are evident in the marketplace? (Opportunity) What demographics are we not targeting? (Threat) How many competitors exist, and what is their market share? (Threat) Are there new regulations that potentially could harm our operations or products? Strengths 1. What is our competitive advantage? 2. What resources do we have? 3. What products are performing well? Weaknesses 1. Where can we improve? 2. What products are underperforming? 3. Where are we lacking resources? Opportunities 1. What new technology can we use? 2. Can we expand our operations? 3. What new segments can we test?Threats 1. What regulations are changing? 2. What are competitors doing? 3. How are consumer trends changing? Companies may consider performing this step as a "white-boarding" or "sticky note" session. The idea is there is no right or wrong answer; all participants should be encouraged to share whatever thoughts they have. These ideas can later be discarded; in the meantime, the goal should be to come up with as many items as possible to invoke creativity and inspiration in others. Step 4: Refine Findings With the list of ideas within each category, it is now time to clean-up the ideas. By refining the thoughts that everyone had, a company can focus on only the best ideas or largest risks to the company. This stage may require substantial debate among analysis participants, including bringing in upper management to help rank priorities. Step 5: Develop the Strategy Armed with the ranked list of strengths, weaknesses, opportunities, and threats, it is time to convert the SWOT analysis into a strategic plan. Members of the analysis team take the bulleted list of items within each category and create a synthesized plan that provides guidance on the original objective. For example, the company debating whether to release a new product may have identified that it is the market leader for its existing product and there is the opportunity to expand to new markets. However, increased material costs, strained distribution lines, the need for additional staff, and unpredictable product demand may outweigh the strengths and opportunities. The analysis team develops the strategy to revisit the decision in six months in hopes of costs declining and market demand becoming more transparent. Use a SWOT analysis to identify challenges affecting your business and opportunities that can enhance it. However, note that it is one of many techniques, not a prescription. Common Mistakes When Preparing SWOT Analysis When preparing a SWOT analysis, several common mistakes can undermine its effectiveness. Let's take a look at some ways your SWOT analysis may go awry. One easy error to make when preparing a SWOT analysis is failing to be objective and honest in the assessment. Companies often tend to overemphasize their strengths while downplaying weaknesses, resulting in an overly optimistic and unrealistic analysis. This bias can lead to missed opportunities for improvement and leave the organization vulnerable to unforeseen threats. As difficult as it may be to be honest in your analysis, the validity of underlying assumptions is the cornerstone of how useful the SWOT analysis will be. Another significant mistake is conducting the analysis in isolation, without input from diverse key stakeholders. You should try get to input from employees at various levels, customers, suppliers, and industry experts. Each may have a unique view of your company, and each may come up with different items to be listed in each quadrant based on how they specifically interact with the company. Yet another common pitfall is neglecting to prioritize or weight the factors identified in the SWOT analysis. Not all strengths, weaknesses, opportunities, and threats are equally important or impactful. Failing to distinguish between major and minor factors can lead to misallocation of resources and misguided strategic decisions. It can be easy for the important items to be buried if too many non-material items are identified. Another frequent error is treating the SWOT analysis as a one-time exercise. You should be prepared to do a SWOT analysis periodically, The business environment is constantly changing, and a SWOT analysis should be regularly updated to remain relevant. In addition, the analysis itself is just the beginning; its true value lies in using the findings to develop and implement strategic actions. You can then check future SWOT analysis to make sure the company is addressing the major points. Benefits of SWOT Analysis A SWOT analysis won't solve every major question a company has. However, there's a number of benefits to a SWOT analysis that make strategic decision-making easier. A SWOT analysis makes complex problems more manageable. There may be an overwhelming amount of data to analyze and relevant points to consider when making a complex decision. In general, a SWOT analysis that has been prepared by paring down all ideas and ranking bullets by importance will aggregate a large, potentially overwhelming problem into a more digestible report. A SWOT analysis requires external considerations. Too often, a company may be tempted to only consider internal factors when making decisions. However, there are often items out of the company's control that may influence the outcome of a business decision. A SWOT analysis covers both the internal factors a company can manage and the external factors that may be more difficult to control. A SWOT analysis can be applied to almost every business question. The analysis can relate to an organization, team, or individual. It can also analyze a full product line, changes to brand, geographical expansion, or an acquisition. The SWOT analysis is a versatile tool that has many applications. A SWOT analysis leverages different data sources. A company will likely use internal information for strengths and weaknesses. The company will also need to gather external information relating to broad markets, competitors, or macroeconomic forces for opportunities and threats. Instead of relying on a single, potentially biased source, a good SWOT analysis compiles various angles. A SWOT analysis may not be overly costly to prepare. Some SWOT reports do not need to be overly technical; therefore, many different staff members can contribute to its preparation without training or external consulting. SWOT Analysis Example Let's perform a SWOT analysis together by analyzing the strengths, weaknesses, opportunities, and threats of Tesla. Strengths: Tesla has a strong position in the EV market because of its strong brand recognition as an industry pioneer. The company's advanced battery technology allows for superior range in its vehicles. Tesla's extensive Supercharger network also provides a significant advantage in terms of charging infrastructure. Weaknesses: Tesla has struggled with production capacity limitations, often failing to meet demand and delivery targets. Quality control issues have also been a recurring problem from time to time. Tesla's vehicles are generally priced higher than those of competitors, which may limit market penetration in more price-sensitive regions. Opportunities: Tesla stands to benefit from the growing global demand for electric vehicles. The company has opportunities to expand beyond automotive into related fields such as energy storage and solar power, leveraging its battery expertise. The development of autonomous driving technology also presents another significant growth avenue, as Tesla has already begun implementing self-driving cars. Additionally, Tesla has the potential to tap into large, emerging markets like China and India where EV adoption could accelerate where it hasn't already. Threats: The competitive landscape for Tesla is intensifying as traditional automakers and new entrants invest heavily in electric vehicle technology. This increased competition could erode Tesla's market share and profit margins. Economic factors such as economic downturns could impact sales of Tesla's primarily luxury-oriented vehicles. The company also faces risks related to supply chain disruptions, particularly for critical materials used in battery production where it may already have manufacturing constraints. What Are the 4 Steps of SWOT Analysis? The four steps of SWOT analysis comprise the acronym SWOT: strengths, weaknesses, opportunities, and threats. These four aspects can be broken into two analytical steps. First, a company assesses its internal capabilities and determines its strengths and weaknesses. Then, a company looks outward and evaluates external factors that impact its business. These external factors may create opportunities or threaten existing operations. How Do You Write a Good SWOT Analysis? Creating a SWOT analysis involves identifying and analyzing the strengths, weaknesses, opportunities, and threats of a company. It is recommended to first create a list of questions to answer for each element. The questions serve as a guide for completing the SWOT analysis and creating a balanced list. The SWOT framework can be constructed in list format, as free text, or, most commonly, as a 4-cell table, with quadrants dedicated to each element. Strengths and weaknesses are listed first, followed by opportunities and threats. Why Is SWOT Analysis Used? A SWOT analysis is used to strategically identify areas of improvement or competitive advantages for a company. In addition to analyzing thing that a company does well, SWOT analysis takes a look at more detrimental, negative elements of a business. Using this information, a company can make smarter decisions to preserve what it does well, capitalize on its strengths, mitigate risk regarding weaknesses, and plan for events that may adversely affect the company in the future. What Are the Limitations of SWOT Analysis? While SWOT analysis is a powerful tool, it does have some limitations. It can sometimes oversimplify complex situations and is susceptible to the subjectivity and bias of participants. The analysis also doesn't provide specific guidance on how to address identified issues and can lead to analysis paralysis if not followed by concrete action. The Bottom Line A SWOT analysis is a great way to guide business-strategy meetings. It's powerful to have everyone in the room discuss the company's core strengths and weaknesses, define the opportunities and threats, and brainstorm ideas. Oftentimes, the SWOT analysis you envision before the session changes throughout to reflect factors you were unaware of and would never have captured if not for the group’s input. A company can use a SWOT for overall business strategy sessions or for a specific segment such as marketing, production, or sales. This way, you can see how the overall strategy developed from the SWOT analysis will filter down to the segments below before committing to it. You can also work in reverse with a segment-specific SWOT analysis that feeds into an overall SWOT analysis. Although a useful planning tool, SWOT has limitations. It is one of several business planning techniques to consider and should not be used alone. Also, each point listed within the categories is not prioritized the same. SWOT does not account for the differences in weight. Therefore, a deeper analysis is needed, using another planning technique.