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SWOT analysis: giving your farm a competitive edge
Many large corporations regularly use SWOT (strengths, weaknesses, opportunities, threats) analysis to keep their company a step ahead of their competition, and to anticipate the future direction of their business. This management tool can be even more effective for farm operations, as managers can respond to changes in the marketplace much more quickly than larger businesses can. SWOT is an analysis of the Strengths, Weaknesses, Opportunities and Threats that face your farm at a point in time. It is like taking a snapshot of your farm allowing you to see both how it is functioning internally, and how it fits into the larger marketplace.

Strengths and Weaknesses are internal to your farm and are often the result of efficient or inefficient use of the farm’s resources. As a manager, you have control over these issues. An example of a strength could be the expertise of your staff; a weakness could be the inadequate size of your premises.

How your resources are used determines your competitive advantage. Some farms gain that advantage by having lower costs, while others will differentiate their product so they can successfully charge a higher price than their competition. Most combine these two strategies to give a value to their customer, and leave a profit margin for the business. There are four basic factors in building a competitive advantage: efficiency, quality, innovation, and customer responsiveness. By focusing on these a business can lower its costs and be seen as different from the competition.

Opportunities and threats are factors that are external to your farm. Often you will have no control over these factors, but you can respond to them, and anticipate them in a way that will have a positive impact on your farm’s bottom line. An example of an opportunity may be a new supplier with a wider selection of inventory, while a threat may be new competition moving into your area.  When looking at opportunities and threats you must monitor how the industry environment is changing, and what is the likely impact of these changes on your farm.

According to Michael Porter of the Harvard School of Business Administration, there are five forces that shape the competition in any industry.

  • The risk of new entry by competitors
  • The rivalry among the competition
  • The ability of buyers to bargain
  • The bargaining power of suppliers
  • The closeness of substitutes for your product or service

The stronger these forces are, the more restricted a business is in its ability to raise prices and earn more profits. The job of a manger is to recognize these opportunities and threats as they occur and determine how their business can best respond.

When looking at your farm’s strengths and weaknesses there are some specific areas to review:

  • Sales and Performance: Consider your pricing policies, your sales level compared to the capacity of your operation, and your market share.
  • Personnel: Consider the experience of your staff and the training available to them, the capacity of your employees and the efficiency in the use of their time, and your use of outside consultants.
  • Physical resources: Consider the size and use of your premises and the efficiency and effectiveness of your equipment.
  • Financial Resources: Look at your cash flow, your collection policies, your purchasing system, your access to funding, and your use of financial information.

When looking at the opportunities and threats facing your farm review:

  • The Economy
  • Your Competitors: Consider their products, pricing policies, customer base, and geographic area.
  • Technology
  • Legal and Environmental issues including any restrictions specific to your industry.
  • The Marketplace: Consider customer preferences and any changing demands from your current customer base and new potential customers.

Be sure to add any items to this list that are relevant to your business.

When doing your SWOT analysis:

  • Involve your staff. They often have a different perspective on your business as they deal directly with your customers on a daily basis. They may be able to identify opportunities of which you are not aware.
  • Work through each point on the list and rate its importance to your farm operation on a scale from 1 to 10. All factors are not equally important to your farm. You will want to focus your efforts where they will have the most benefit.
  • Look at each point that you have identified as important and determine whether it is a strength or a weakness, an opportunity or a threat. Be careful to evaluate each point as it stands today.
  • Discuss each topic in more detail. Determine why it is important to your farm, and how it has become a strength, weakness, opportunity or threat.
  • For each topic determine what could be done to maximize the opportunities and strengths, and minimize the threats and weaknesses. Create an action plan for each area to position your farm to attain the competitive advantage.
  • Delegate the responsibilities. Appoint someone to implement the action plans that you have developed. Assign someone to ensure that progress is being made in each area and keep people on task.
  • Finally, review the SWOT analysis quarterly. Look at the progress that has been made and identify any new areas that need attention. A SWOT analysis is an ongoing management tool to keep you on top of issues as they arise.

SWOT analysis is one of the best business tools to allow you to build on your strengths and correct your weaknesses, maximize your opportunities and minimize the impact of threats. This way you can keep ahead of the competition, while taking care of business.

By Reg Ens, Farm Business Advisor. Originally published in West Coast Farmer. For more information, contact your local MNP advisor or Reg at 1.800.853.9471.

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