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Home arrow Management arrow Strategic Management in the 21st Century. The Operational Environment
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The SWOT analysis is typically an analytical platform for creating strategic plans. To get an overview of the issues, analysts often pose and try to answer three strategic questions: Where is the firm now? Where does it want to be in 5 to 10 years? How does it plan to get there? These are challenging questions, particularly for an outside observer. Nevertheless, the foregoing analysis suggests some answers, bearing in mind that it is late 2010/early 2011, and everything might look very different in 3 years, 5 years, and 10 years.

Where Is the Firm Now?

NGC is well positioned in the aerospace and defense industry (S). Its annual sales are $35 billion of which 78 percent are attributable to defense, giving it the third-largest market share in the industry (S/W). NGC has a 20 percent to 25 percent share of the F-35 Joint Strike Fighter program revenues (S), and it is a 40 percent partner in the production of the F/A-18E/F Super Hornet (S). NGC has almost 45 percent of the unmanned aerial systems market, which has growth potential (O), but the market is still relatively small (T).

NGC had an A+ financial rating (S) and a global supply chain (S). Its third-quarter sales were up four percent to $8.7 billion; its free cash flow was $817 million (S); and over the last six years it had repurchased nearly $6.8 billion of its shares (S). NGC may have a sustainable competitive advantage (i.e., a sustainable level of excellence in free cash-flow generation). However, the largest firms in the industry are conglomerates that tend to follow each other's actions in good times and bad (W). Thus, it is likely that the largest firms have a high degree of competitive parity. NGC's management is numbers driven (S) and focused on capital efficiency over revenue growth (S), divesting underperforming businesses (S), and sustainable performance improvement (S). It uses a portfolio approach to manage 100 different business elements. NGC spent over $600 million on research in 2009 (S), and it has 6,293 patents (S).

Where Does It Want to Be in 5 to 10 Years?

NGC is planning to spin off its shipbuilding business (S); so presumably, it does not want to invest in low-margin manufacturing operations. The remaining business units, aerospace systems, electronic systems, information systems, and technical services, are involved in the F-35 Joint Strike Fighter program and presumably are businesses that the management wants to expand. Aerospace systems include unmanned aircraft, and information systems include cybersecurity. NGC is repurchasing significant quantities of its stock, which raises a question of intentions. In late 2010, NGC had 291,990,000 shares outstanding; at $60/share, its market capitalization was $17,519,400,000. Is there a move to take the company private and avoid the scrutiny of the Securities & Exchange Commission?

How Does It Plan to Get There?

NGC might have been in a retrenchment mode for several years. It appears to have a strong financial position, and it is well positioned in its industry. It seems to be more focused on the efficient use of capital as opposed to revenue growth (S), which the investors seem to favor. It will use its numbers-oriented portfolio analysis to decide what operations to keep and build and what operations to divest. It looks like NGC has made a decision to spin off its shipbuilding segment, which is consistent with retrenchment. As it retrenches, it will develop a recovery strategy, building on the expertise of its four remaining business units. However, NGC faces several challenges over the 5- to 10-year period, including:

Societal forces: Economic forces (e.g., federal debt and deficit levels), military/terrorist forces (e.g., the probability of a 9/11-scale attack), and their interdependencies will drive NGC's scenarios. Cyber forces are likely to become more threatening; political forces will continue to shape scenarios; and unforeseen forces are likely to emerge. Innovation will continue to move forward; however, the level of innovation in the aerospace and defense industry is problematic.

Competitive forces: It appears that the aerospace and defense industry is facing declining market opportunities. As a result, firms in the industry are implementing retrenchment strategies and mulling over recovery strategies. The structure of the industry appears rigid and unlikely to change significantly in the near future. The bargaining power of the buyers is likely to remain high to moderate. Political forces may keep some firms and product/service offerings operating beyond their economic life to maintain competition in an industry sector or for political reasons (e.g., protecting jobs in a congressional district). The intensity of rivalry is likely to remain high and rising, precipitating firm closures, mergers, and acquisitions. The bargaining power of suppliers is likely to be moderate and global, and the threat of new entrants is likely to remain low.

Stakeholder forces: The aerospace and defense industry appears to face stakeholder forces that could affect its strategy choices. Creating win/ win relations is important, and Freeman's four questions are worth considering.63 The industry could probably improve its stakeholder relations through collaboration. However, there are significant barriers to collaboration. Unless the stakeholders can find common ground (i.e., superordinate goals), collaboration simply will not happen. Mutual trust is also critical. Beyond collaboration, there is litigation, which is costly and lessens the likelihood of successful collaboration in the future but may be necessary to protect the firm's assets.

In closing, the SWOT analysis provides a useful tool. However, none of the components, with the possible exception of the analysis of resources and capabilities, is measureable on a commonly understood scale. As a result, communication remains subjective and imprecise. However, an opportunity to make a valuable contribution to the research literature beckons.

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