Case study research questions and answers

¶ … SWOT analysis is used by organizations to "assess their state of health and investigate business opportunities" (Occupational Health, 2008). A SWOT forces an organization to be honest about internal strengths and weaknesses and it force the organization to examine the marketplace for opportunities that can be exploited and threats to the business. The original SWOT framework was somewhat superficial, or at least it could be due to the lack of guidance provided with respect to identifying the individual elements. A resource-based SWOT analysis helps to drill down from vague notions to more specific details. This type of SWOT also encourages focus on causal relationships -- yes, it is a weakness that the company has poor inventory management, but that is a symptom. What resource is lacking that has resulted in poor inventory management? This is the probing approach of a resource-based SWOT, and the reason why such a SWOT should yield greater insight than a conventional SWOT analysis (Valentin, 2001).

Flowing from this should be two main objectives. The first is to find opportunities that match up with the firm's strengths. This allows the firm to gain a sense of direction with respect to how it can best proceed. If there are no opportunities that match up with the firm's strengths, management must remember that will it has little influence over the opportunities, it does have control over its strengths. The firm, knowing the opportunities that exist in the marketplace, can develop the strengths needed in order to exploit those opportunities.

The second objective is to match threat and weaknesses. The firm needs to understand if there are any threats in the external environment that directly exploit the firm's weaknesses. If this is the case, then the firm needs to gain a sense of how well the threats exploit the weaknesses. This will help the firm understand how much risk it faced with respect to the external environment. It also helps the firm to gain a sense of which weaknesses it needs to shore up.

When the two objectives are put together, the output should approximate a workable strategy. The idea of the SWOT analysis is to let strategy flow from dogmatic analysis of these four variables. The rough outline of a strategy should have both opportunities that the firm can exploit with its strengths and threats that exploit the firm's weaknesses. The firm will then need to weight those opportunities against those threats, ultimately settling on a strategy that it finds to be the best with respect to meeting organizational objectives.

The pre-warehouse incarnation of PetVet had several strengths that had helped it gain a foothold in the competitive marketplace. The first strength was the location of the two stores. Both were situated in areas that had a high level of pet ownership. This provided a baseline of business for PetVet, akin to a rising tide that lifts all boats. The locations were not a competitive advantage because there were many competitors operating in those regions, but good locations are a strength because they provide the company with a healthy baseline level of business upon which they can grow. A loyal customer base also was a source of baseline business. The loyal customers, however, were not a large group, so did not constitute a major advantage for the business they brought. Rather, they constituted an advantage because strong loyalty indicates that the company is doing something right -- that they have a good value proposition in the marketplace. Indeed, some of the minor advantages, such as the goodwill generated by extended operating activities and the qualified, committed staff were intertwined with the customer loyalty. Each of these variables is a relatively minor staff, but put together they formed the nucleus of a successful business. More importantly, they were significant enough strengths that Carter and Jackson knew they could put them together to yield loyal customers.

One of the most important advantages at the time was the access to capital. For PetVet, this was the major door-opener. Most firms cannot re-invent themselves the way that PetVet did, simply for lack of capital. This is especially true of a firm intent on pursuing a low-cost strategy. The availability of capital to finance bold plans proved to be a major strength for PetVet at the time.

PetVet had several weaknesses at that time as well. The biggest weakness is that they were undifferentiated. In a competitive marketplace, it is difficult to succeed without a strong differentiating figure. This put the firm in a poor competitive position, where organic growth was going to be hard to come by. Worse, the firm's operations were not very sound. They had three key operational disadvantages. The first was that the partners were overtaxed, working themselves to the bone trying to manage two stores. This poor managerial efficiency undoubtedly contributed to the two other operational weaknesses -- high levels of inventory and high fixed overhead. The latter indicates that the business model has some fundamental flaws, the former indicates that they are not executing particularly well with the model they have.

With respect to the external environment, there are a couple of major opportunities in the marketplace. The first is to build stronger relationships with the pet shop owners. There is a high degree of synergy between pet shop owners and veterinarians. The shop owners essentially provide future clientele for the veterinarians. Carter and Jackson were able to drive an additional 10% in business by offering a discount to and forging relationships with local pet store owners. There is opportunity for continued development of this synergy. Another opportunity in the marketplace is that the industry is in a state of inertia. This lack of direction has dulled the competitive edge, even though there are a number of different companies operating in a relatively small area. The current players are complacent and uncreative. A bold idea, if it has any merit whatsoever, can result in seizing large amounts of market share from a stunned group of competitors.

The current environment is threatened mainly by the competition. In particular, this refers to warehouse-style pet supply stores. These outlets do not offer veterinary services, but they can dramatically undercut Carter and Jackson with respect to pet supplies. Additionally, because the areas in which they operate have high levels of pet ownership, they will be on the radar screen of not only warehouse stores but every other prospective entrant to any pet-oriented business in Victoria. With operational weaknesses and caught in the same inertia as the rest of the industry, Carter and Jackson would have little capacity to defend their market share beyond their small clutch of loyal customers.

What the SWOT analysis indicates is that the pre-warehouse PetVet business was in a marginal position for survival. It had little hope of defending itself against new competition because of its operational weaknesses. Managers working 70 hours a week are unlikely to have much left in the tank if a major new competitor enters the market. The firm was also not taking advantage of its strengths to exploit the opportunities. Carter and Johnson had access to capital but were not using it. They had recognized the synergy between pet shop owners and veterinarians but their chosen method of building this synergy had only yielded marginal results. The industry lacked any sense of direction, but Carter and Johnson were guilty of this as well.

Thus, the SWOT points to the strategy that they ultimately adopted. Note that the SWOT does not explicitly identify the strategy. The role of management is not merely to conduct a SWOT analysis, but to exercise skill and creativity in interpreting its findings and applying those findings to the business. The first major indicator is that Carter and Johnson need to move away from their existing strategy, as it has no growth potential. The second major indicator points to a synergy that exists and a strength (access to capital) that can be leveraged to exploit that synergy.

2. Corporate level strategy refers to the overarching set of organization-wide initiatives aimed at achieving broad objectives. Corporate level strategies essentially provide the guidance from which business-level strategies and tactics are derived. For example, corporate level strategy drives decisions with respect to in what businesses the firm wishes to compete. The business-level strategy refers to the decisions made with respect to how the firm intends to compete in its chosen businesses (Beard & Dess, 1981).

The main corporate level strategy that Carter and Jackson pursued was the decision to pursue a combination of two business concepts -- a veterinarian and pet supply warehouse. Both concepts existed previously, but they had never been put together. The new PetVet company's entire corporate-level thrust was to invent a new model by which the firm could compete in both of these businesses simultaneously. The concept arose from the realization that while one industry (veterinary) was subject to considerable strategic inertia, the pet supply industry was undergoing a change with the arrival of warehouse retailing to the sector. Traditional, small pet stores were being forced out of business, which was cutting out one of the major opportunities for PetVet. By vertically integrating, however, PetVet forged a new business model. This corporate level strategy entailed significant risk. It was entirely conceivable that the untested concept would fail, but if it succeeded it would catch the competition flat-footed.

It required several business-level strategies to make PetVet succeed. Ultimately, the company has adopted a low cost model for both the retailing and the veterinary branches of the business. At the retail level, PetVet realized that the threat represented by warehouse retailers was significant. They could succeed if they established a presence in an area first, but would have difficulty competing head-to-head against those firms, especially on cost. Thus, while adopting a low cost strategy, PetVet also adds an element of differentiation in the presence of the veterinary clinic.

The clinic itself, while a means of differentiating a retail store, is operated more on a low cost basis as well. Most veterinary clinics operate on an approximation of a differentiated strategy, but without any real differentiation. By leaning towards a low cost strategy, and adding the differentiation of an on-site pet supply store, PetVet seeks to present a unique value proposition to the marketplace.

There are several advantages to the corporate-level strategy. The strategy developed by PetVet is unique. Thus, they automatically gain first mover advantages. This is double valuable in gaining market share in veterinary work, because the industry having been stagnant for so long, such a bold move would have caught everybody by surprise. One way to take advantage of an opportunity is to develop a strategy that exploits an industry weakness. In this case, it was the unorthodox vertical integration.

This corporate strategy also functions as a means of defense against incursions by warehouse-sized pet supply stores. These stores have significant competitive strength. Had PetVet been a direct competitor, they may have found it difficult to compete on a cost basis against the warehouse stores. As a result, they needed a point of differentiation. The strategy to deliver differentiation in terms of service synergies while maintaining a low cost strategy in the core retailing business was an excellent means of establishing market position. By creating the market, position is easily established.

The disadvantage is that creating a new market is not easy. There is no guarantee that the marketplace will respond to the specific type of offering PetVet put forth. Their previous attempts at building alliances with pet stores had yielded only marginal success. If the market in this case does not respond, PetVet is left without competitive advantage.

Additionally, creating a new market entails substantial capital input and the demolition of the old business. For Carter and Johnson, starting PetVet was like staring an entirely new business. They had gained some experience and knowledge with their previous venture, but they would now be faced with shutting those ventures down to attempt a concept that had never been tested, at significant financial risk.

The advantage of the business level strategy was that it addressed some of the previously-identified operational weaknesses. PetVet in any format was not going to thrive without addressing issues of inventory management and lack of differentiation. By adopting a low cost strategy on both fronts, PetVet was able to not only work the synergies of the two businesses but to find ways to operate each successfully.

At the core of PetVet's business level strategy was to compete head to head with the competition on price, but add the differentiating wrinkle of vertical integration. This had the disadvantage of lacking focus. Typically, a firm should have a business-level strategy that is either differentiated or low cost. It is difficult for any company to do both, and firms that attempt to often find themselves bested at both by the competition.

PetVet has not, however, chosen to attempt both low cost and differentiation because they want the challenge of doing the impossible. Rather, they do it because it seemed the only reasonable way to gain differentiation in the marketplace. It gives them an opportunity to tailor the activities in its value chain, which if it can do so uniquely, can give it a competitive advantage (Hodgetts, Porter, 1999). The advantage may not be sustainable, but that it exists is, alone, motivation for such business-level strategies.

3. PetVet engaged in three tactics in order to create barriers to entry. Remember that the most significant threat to PetVet's venture came from warehouse-style pet supply stores. Without the distraction of running a veterinary clinic, these outlets could focus solely on their low-cost strategy. Thus, even the diversification of services offered by PetVet may not have been sufficient a barrier to entry without further tactical moves.

PetVet's first barrier was their economies of scale. This derives from the size of their retail operations and the contracts they have signed with suppliers. Other warehouse operators would also need to learn the veterinary business, which would impose further costs associated with the learning curve. It has been established that while managers weight all barriers to entry in their market entry decisions, the most weight is given to the set-up costs (Karakaya & Stahl, 1989). Thus, by establishing contracts and a pedigree as a volume-mover, PetVet earned itself a significant barrier to entry. It is difficult for new entrants, which typically do not have the same access to economies of scale, for enter a market and tackle the cost leader head on.

The second barrier to entry that PetVet created with the high set-up costs. As much money as it takes to open a warehouse-style store, it takes substantially more to incorporate a veterinary clinic. There is a steep learning curve with respect to that aspect of the operation that will impose significant costs on new entrants. Yet without a vet clinic, the new entrant would appear to have a lesser offering. Basic capital budgeting techniques illustrate the importance of high set-up costs to creating barriers to entry. The up front costs are not discounted, whereas revenues that are slated for years down the road will be discounted significantly. Thus, the higher the set-up costs the riskier the project.

The third barrier to entry created by PetVet is the loyalty program. The company took the competencies that it had developed in the pre-warehouse days that had won them strong customer loyalty and applied them to the new business model. This helped PetVet develop its loyalty program, and litter-to-the-grave approach to servicing the customer. If the market is close to saturated, then any new competitor must steal customers away from existing firms in order to get a foothold in the market. The PetVet loyalty program reduces the likelihood that customers will leave PetVet for another competitor. This increases the cost of acquiring customers at the new entrant's store. As a consequence, the new entrant is less likely to be profitable and therefore less likely to enter the market in the first place.