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Introduction to Project Management Unit 4

Unit 4 Project Initiation Strategies


Structure:
4.1 Introduction
Objectives
4.2 Generation of Ideas
Group techniques for idea generation
Sources of project ideas
Use of creativity in idea generation
4.3 SWOT analysis
SWOT analysis as strategic planning tool
Scanning the environment for SWOT analysis
Corporate appraisal for SWOT analysis
4.4 Screening of strategies or projects
4.5 Summary
4.6 Terminal Questions
4.7 Answers to SAQs and TQs

4.1 Introduction
Projects get conceived as a result of the strategy planning. A strategy plan
to set up a new business unit may have been already made by the business
promoter or a team of business promoters. In a running business unit, new
projects get conceived to increase the volume of business or to increase its
profitability or for diversification of business or even for maintaining the
market share in the face of increasing and stiffer competition. The company
must strive to keep generating ideas by creating a favorable environment
within the organization. The company must also keep evolving strategies by
scanning the environment and continuously appraising its strengths and
weaknesses. When a number of projects come up for consideration, the
company needs to deploy criteria for selecting the projects for
implementation.

Objectives
After studying this unit, you will have an understanding of:
1. Group techniques deployed for generation of project ideas in the
organization

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2. Possible sources of information for generating project ideas


3. Individual and group creativity attributes
4. How SWOT analysis is carried out for strategic planning
5. Criteria for screening strategies and project ideas

4.2 Generation of ideas


4.2.1 Group techniques for idea generation
Generation of ideas can take place from any hierarchical level in a firm. A
project idea is sourced from a search for promising project ideas. The
success of a project lies in getting into the right business at the right time.
Identification of such opportunities cannot be a wholly structured process
since this task of identification can get accomplished by either convergent or
divergent thinking, either objective analysis of quantifiable factors or
subjective analysis of qualitative factors, and the task can be either
controllable or dependent on fortuitous circumstances. But companies need
to be innovative in order to keep their business successful in view of factors
like changing customer needs, increasing competition, new technologies
and shortened product life cycles. For this purpose, companies develop
purposeful, systematic approaches for generating new project ideas.
Creativity is a necessary attribute for generation of ideas. Creativity which
exists at the individual level, and requires nurturing at the organizational
level is discussed in section 4.2. Organizations prefer to nurture creativity at
the group level as it ensures participation and acceptance of all employees
concerned. Certain broad considerations and guidelines can be applied to
help in the generation of project ideas. Some group creativity techniques to
generate a large number of ideas for the solution of a problem are
discussed hereunder. It must be borne in mind that these techniques rely on
a correct problem definition or a problem statement. The characteristics of a
good problem statement are discussed just after the discussion of three
commonly used group techniques.
Brainstorming:
This method aims to give people freedom of mind and action to spark off
and reveal new ideas. A group attempts to find a solution for a specific
problem by amassing all the ideas spontaneously by its members. The rules
followed here are:

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 No criticism of ideas
 Go for large quantity of ideas
 Build on each others ideas
 Encourage wild and exaggerated ideas
There is a facilitator who composes the brainstorming panel and an idea
collector (facilitator can himself be the idea collector) to record the
suggested ideas. The facilitator chairs the session without suggesting his
own ideas, but ensures that ground rules are followed, and the environment
in the group meeting stimulates creativity. Examples of leading questions he
can ask during the session are „Can we combine these ideas?‟, „How about
looking from another perspective?‟ The idea-collector keeps writing on
sheets of flipchart the ideas called out by members without paraphrasing
and numbers each idea for future reference.
Brainstorming can be used for just generating ideas for others to evaluate
and select. But a more effective strategy is to allow the group itself to
evaluate and select one as the solution to the problem proposed to the
group. In either case, there should be incentives for participation so that
participants maintain their efforts.
Brainstorming is a lateral thinking process. It is particularly helpful when you
need to break out of stale, established patterns of thinking, so that you can
develop new ways of looking at things. This helps when you need to look at
new opportunities, where you want to improve the service that you offer, or
when existing approaches just are not giving you the results you want. It
asks that people come up with ideas and thoughts that seem at first to be a
bit shocking or crazy. You can then change or improve them into ideas that
are useful, and often stunningly original. During the brainstorming process,
there is no criticism of ideas, as free rein is given to people‟s creativity
(criticism and judgment cramp creativity) which can take the idea to the next
stage. Group brainstorming can be very effective as it uses the experience
and creativity of all members in the group. When individual members reach
their limit on the idea, another member‟s creativity and experience is
brought out. This often makes group brainstorming sessions enjoyable
experiences, which greatly facilitate bringing team members together.
Individual brainstorming is best for generating many ideas, but tends to be
less effective at developing them. Group brainstorming tends to develop

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fewer ideas, but takes each idea further. Group brainstorming needs formal
rules to work smoothly. This is to ensure that uncreative people do not crush
ideas given by individual group members, who may thus feel humiliated.
Nominal group technique:
This is a type of brainstorming that encourages all participants to have an
equal say in the process. Participants are asked to write their ideas
anonymously. The moderator collects the ideas and each is voted on by the
group. Voting can simply be by show of hands. The top ranked ideas are
sent back to the group or sub groups for further brainstorming. Each
subgroup will come back to the whole group for ranking the listed ideas.
Sometimes ideas that were previously dropped may be brought forward
again once the group has revaluated the ideas. This method requires a
trained facilitator, as well as priming and encouraging the group to embrace
the process. It may take a few practice sessions to train the team in this
method before tackling the important ideas.
Delphi method:
This is a systematic, interactive, forecasting method which relies on a panel
of independent experts, carefully selected. It is based on the principle that
forecasts from a structured group of experts are more accurate than those
from unstructured groups or individuals. The experts answer prepared
questionnaires in two or more rounds. After each round, a facilitator provides
an anonymous summary of the experts‟ forecasts from the previous round s
well as the reasons they provided for their judgments. The participants can
therefore revise their earlier answers by knowing the responses of other
members of the group. It is expected that in this process the range of the
answers will decrease and the group will converge towards the correct
answer.
The process is stopped after a predetermined stop-criterion (e.g. number of
rounds, achievement of consensus). Usually, participants maintain
anonymity even after completion of the final report. The facilitator
(coordinator of the Delphi method) sends out the questionnaire, collects and
analyses responses, and identifies common and conflicting viewpoints. The
process continues up to the stop-criterion stated above. Traditionally, this
method has aimed at consensus by iteration. However, companies can also
opt to use the method as a decision support method by focusing on ongoing

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discussion and finding relevant arguments, rather than focusing on a


consensus output
Mind mapping
Another way to look at the human levels of thinking is the Mind mapping
concept. Human beings are said to have two types of thinking. (1) the left
brain thinking i.e. Words, logic, numbers, sequence, linearity, lists etc.
(2) the right brain qualities are imagination, association of ideas and
flexibility etc., which are considered as elements of creative thinking. Mind
mapping utilizes curves, colors, images, symbols and spatial visualization in
order to enable „whole brain thinking‟, i.e. combining both left brain and right
brain thinking.
Mind mapping exercise is aimed at increasing mental energy to utilize
creative thinking skills, enabling the mind to track out ideas which normally
lie in obscurity on the edge of thinking, encouraging playfulness, humor and
innovation to stray far from the norm and produce a truly creative idea.
Following example is taken from the software Buzan‟s iMind Map which was
chosen for the brainstorming session aimed at planning for the future of
young and developing minds. The software replicates the organic shape,
form and use of colors and images to convey a thought or idea – a graphic
technique for stimulating creativity and unleashing the true, often untapped
potential of the mind. This was used in June 2008 at Petra, Jordan, where
30 Nobel prize winners (scientists, entrepreneurs, academics, and
humanitarians) participated in the conference focused on the theme
„Reaching for New Economic, Scientific and Educational horizons‟. Two of
the many conclusions of the brainstorming session were – elimination of
child poverty worldwide is essential to move forward with educational
development; new and innovative learning tools are the foundation for a
positive future for the next generation.)
A typical mind map exercise reads as under:
1. Draw a stimulating central image representing the general topic of
interest. Spend 20 minutes to draw every idea that comes to your mind
as radiating from the subject. Treat no idea as absurd in this process,
which is called Mind-burst.
2. Have a short break, giving your mind a rest and then carry out 1 st
reconstruction and revision. Here, you identify the major branches,

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categorizing, building up hierarchies and finding new associations


between your preliminary ideas. Make a revised mind-map, which will
have followed your mind flow thus exploring your current thought to
replace the old.
3. The next stage is incubation when the brain is relaxed such as sleeping,
day dreaming and running. The probability of mental breakthroughs
increases in this stage.
4. The next stage is 2nd reconstruction and revision, when your mind will
have a fresh perception on your 1st and 2nd mind-maps. In this step, you
will need to consider all the information gathered and integrated in
stages 1, 2 and 3 in order to make a comprehensive, final mind map.
5. Then is the final stage, where you need to search for the solution,
decision, or realization which was your original creative goal. This often
involves linking elements in your mind map, leading to major new
insights and breakthroughs.
Example of a mind map drawn in a mind mapping exercise is shown in
fig. 4-1 A

Fig. 1- A: Buzan’s Mind map for golf game improvement


(Source: Buzan’s iMind Map)

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Good Problem definition:


Problem definition is crucial to the success of the above methods. For a
brainstorming exercise, the problem must be clear, not too big, and captured
in a specific question. The question “What post-sale customers support
services we can include for our product that are not available to our
customers now, but are needed” is a clear question. A broad question like
„What new areas of business can we diversify into?‟ may necessitate a
mind-mapping process, which is briefly described later.
Idea screening
Idea screening is a necessary sequel to idea generation, since projects
require key resources and energy from the organization. Successful
organizations have two key attributes
 Doing things right
 Doing the right things
While „creativity‟ leads to generation of ideas, „innovation‟ is the transforming
of these ideas into action through selection, improvement and
implementation. Creativity is therefore the input and Innovation is the output.
Innovation can be classified in two categories
 Hard innovation:
This category of innovation is attributable to organized R & D
characterized by strategic investment in innovation, be it high-risk-high-
return radical innovation or low-risk-low-return incremental innovation.
R & D can result in technological breakthroughs. Examples of these are
continuous innovations carried out by R & D in crude oil refining and
development of downstream petroleum products by multi-national
petroleum companies, R & D efforts of Defence departments of the
Governments in many countries, Space exploration R & D programmes,
nuclear applications R & D programmes. The R & D budgets in these
areas are of a very high order, largely funded by Governments.
 Soft innovation:
This category of innovation is the clever, insightful, useful ideas that just
anyone in the organization can think up.

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We can visualize the areas of innovation as seven interwoven areas as


shown in fig. 4-1.
Marketing Organizational
Innovation innovation

Product Business innovation Strategy


Innovation innovation

Process Technology
Innovation innovation

Figure 4-1: Areas of Innovation


Source: Systemic Innovation by Vadim Kotelnikov

Hard innovations which involve R & D and technological changes


automatically lead to idea generation. The category of innovation referred in
the bottom right hand corner of fig.4-1 falls in this category. In this chapter,
we deal with the soft innovation category, which involves existing fields of
technology and rely on the other areas of innovation referred in the figure
viz. marketing, organization, product, process or strategy innovations. Some
of the tools in use to foster creativity and innovation are mentioned
hereunder – however, it must be noted that the method must be selected
keeping in view the nature of the problem, expertise & type of thinking of the
individuals chosen for participation, experience of the facilitator etc.
Creativity, both at the individual and corporate levels, is important for
generation of ideas in a company. This is discussed in section 4.2.3.
4.2.2 Sources of project ideas:
We will outline hereunder some sources to scout for project ideas:
o Study of changing Government policies, Plan outlays and Guidelines
o Study of Suggestions of Financial Institutions and Development
Agencies
o Study of New Technological Developments
o Study of the performance of Existing Industries

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o Study of Local Materials and Resources


o Study of Inputs and outputs of various industries
o Study of Possibilities of Mergers & Acquisitions and Collaborations
o Study of Possibility of Supplies to Other Countries
o Study of Customer Preferences in Identified Geographical areas
o Study of Business Possibilities by Attending Trade Fairs
o Study of Import Substitution products
o Suggestions given by suppliers to adopt suppliers‟ innovated products
4.2.3 Use of Creativity in idea generation:
As we noted in the previous section, creativity at the individual and
organizational level aids greatly in idea generation. Some features of
creative thinking are discussed hereunder. Creativity is a human being‟s
innate ability to come up with new ideas. Definitions used for creativity vary
in the use of words. Examples are:
“Creativity is
1. the capability of producing new solutions linking together unrelated
events, instead of using a logical process
2. the intellectual movement, that consists of linking together information in
an unpredictable way, in order to build a new order”

Joly 1993
“Creativity is the ability of thinking out of scheme, reaching new and
functional conclusions, suited to solve a problem or to catch an opportunity”
Bertone 1993
“The fundamental „ingredients‟ of creativity are: the expertise in a specific
field or expertise, it is to say those sectorial skills , representing the grasp in
a particular area ; the second ingredient is the ability to thinking in a creative
way, in other words the ability to look at the events from a new perspective
and to imagine a wider range of different possibilities ; finally, the third and
last ingredient is the intrinsic motivation, resulting from the pleasure of doing
a specific thing”
Teresa Amabile
Whatever the definition that is propounded by various authors on the
subject, most agree that creativity starts from a good problem‟s formulation.
In order to set a problem and to solve it by means of using a provoked
creativity, it is necessary to adopt a proper method of working, which is very
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different from the usual one, since it implies the use of some suited
techniques. In practical terms, two paths have to be paced simultaneously to
apply creativity.
1. the 1st path is a psychological one and requires the abolition of
inhibitions i.e. personal and natural hindrances
2. the 2nd path is a logical one and implies the adoption of a well identified
action process as well as intuitions based on techniques and methods
properly chosen and adapted to the specific problem to be solved
Another model of interest is that propounded by Mr. Ned Herrmann in 1995,
who stated that there are four pure styles of thinking that combine to yield a
wide range of different thinking styles. He developed an instrument that
measures these preferences in an individual, called the Hermann Brain
Dominance Instrument (HBDI). The individual respondent receives a profile
in which score ranges from1, which is most preferred, to 3, which is least
preferred. There is no 0 score as everyone uses all four styles to some
degree. Each style is put in one quadrant of a circle.
Quadrant A thinking associated with this quadrant is logical, analytical,
technical, mathematical and problem solving. e.g. people in professions of
engineering, mathematics, legal and financial and some middle
management positions.
Quadrant B thinking associated with this quadrant is similar to A, but with
significant differences. Words that describe B quadrant are organizational,
administrative, conservative, controlled and planning. e.g. supervisors,
administrators, planners, bookkeepers, cost accountants.
Quadrant C Thinking associated with this quadrant is interpersonal,
emotional, musical, spiritual and talkative – in summary very „feeling‟ and
„people oriented‟ e.g. nurses, social workers, musicians, teachers,
counselors.
Quadrant D Thinking associated with this quadrant can be described as
artistic, holistic, imaginative, synthesizing, conceptual e.g. people who feel
drawn to careers involve entrepreneurial effort, facilitation, advising,
consulting, art, sales.
Mr. Hermann is careful to emphasize that this instrument measures only the
individual thinking preferences, not thinking abilities or skills. He also

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stresses that an individual may have preferences in more than one


quadrant, even all four quadrants, each to a different degree. The resulting
conclusion is “We can all think in all quadrants – we just have to work harder
in the least preferred ones”. We can understand the implication of the
thinking preferences with the following examples and suggestions for
effectively managing members of a team having different thinking
preferences:
1. Quadrant A preference in thinking is most likely to be suited for closed-
ended problems i.e. problems which have only one solution like repairing
a car, discovering the cause for a disease. Quadrant D thinking is most
likely to be suited for open-ended problems i.e. problems which have
several solutions e.g. building a house, developing new software.
2. One application of the HDBI that is well documented is its use in putting
together teams.
A creative team should collectively represent a „whole brain‟, meaning that if
you overlay the profiles of all members of the team, they will form a
composite profile that shows preferences in all four quadrants. Otherwise, if
the aggregate profile of the team has a strong aversion to one of the
quadrants, we can expect that issues requiring thinking in that area may not
be handled well. For example, a technical team (group of people may be
strong in A, B and D quadrants and weak in C i.e. the one having to do with
interpersonal matters. The solution, in this case, is that the team members
should understand that failing to deal with quadrant C issues is going to
cause them problems in dealing with what they really care about (namely
technical things), then they are more likely to spend time on such issues.
Another example is a creative group that is, on the aggregate, strong in
quadrants A, C and D, but not in B-which has to do with detailing. If they are
aware of the low quadrant score for the team, they can compensate by
working hard to ensure that details are not overlooked.
For generating ideas, a company must foster an organizational culture and
methods to tap creativity at both individual and organizational levels.
Success is ultimately achieved through organizational creativity. Vicari
(Bocconi University, Milan) says that organizational creativity is not the sum
of individual creativities, but is the result of the conditions organizations are
in i.e. the social context where individuals work. A grid of Individual and
Organizational creativity propounded by S.Vicari is shown in fig. 4-2.
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Individual creativity
low high
 Organizations based  Successful
on continuous organizations
Organizational high development, on  High rate of
systematic research of innovations
efficiency
 Few innovations, just  Low rate of
limitations innovations,
 Not effective sometimes
creativity low organizations radical, based on
entrepreneurial
spirit of
individuals

Figure 4-2: Grid showing Individual and Organizational Creativity


Source: S.Vicari, La creativits dell’impresa, 1998

An example of factors enabling individual creativity is given in the table A


hereunder.
TABLE A
Source: Adapted from Dean Prebble and Prof.Howard Frederick, Ten3
NZ Ltd.
1. Creativity takes time and silent space:
An individual can schedule time daily or some days in a week as a
commitment to himself / herself.
2. There are cycles of creativity
An individual goes through a phase where he feels as though nothing is
happening and his / her mind is not creative for a period.
3. Select mentors, friends and dream partners wisely
Not all of your friends can be expected to be happy with your success
or big dreams. So, when it comes to working creatively, choose like
minds and train them to be honest and unconditionally constructive.
4. Commit to yourself
Many people feel guilty about temporarily (i.e. during this process)
getting unconnected with the people who matter to them. The answer is
to stay connected with them.

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5. Set strong boundaries


We need strong boundaries in our „want‟s and „do not want‟s, so that
we have energy and time for our creations.
6. Work from your strengths
If you were to spend 80% of your effort to become good at a weakness,
you might improve that area 20%. But if you were to spend that same
80% of your effort to improve an area of strength, you may improve
your strength even 100% or several fold.
7. Fear is a companion of creativity
You must develop a high risk, thrill seeking personality to overcome
fear when you venture out into unfamiliar territory. The only way to
lessen fear is to make friends with it, redefine fear as performance
energy and move on.
8. Stop criticizing yourself
Do not constantly feel that you are coming up short. Stay positive about
your performance. You can always polish it and improve.
9. Get over perfectionism
Nobody can do something new perfectly the first few times. Do great
work, but do not hold on to it until it is perfect. By the time it is perfect, it
may get outdated anyway.
10. Creativity is about play, fun and flow
Fun is about doing the job you like. So show enthusiasm and be
energized and excited about tackling a new set of challenges.
An example of factors killing creativity is given in the table B hereunder.

TABLE B
Source: Same as Table 4 A
1. Always pretend to know more than everybody around you.
2. Get employees to fill in time sheets
3. Run daily checks on progress of everyone‟s work
4. Ensure that highly qualified people do mundane work for long periods.
5. Put barriers up between departments
6. Don‟t speak personally to employees, except when announcing
increased targets, shortened deadlines and tightened cost constraints
7. Ask for a 200-page document to justify every new idea
8. Call lots of meetings

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9. Place the biggest emphasis on the budget


10. Buy lots of computers
Two main approaches are employed to harness creativity for business
success:
 Creativity exists in individuals to varying degrees. At the organizational
level, management may need to put in place certain methodologies to
make the company creative and innovative as an organization, utilizing
the creativity of individuals.
 Creativity can be harnessed to either come up with an idea for a project
or to find solution to a project (or problem) for which a reasonably clear
definition is available.
No standard technique can be made to apply to all individuals to enable
one‟s creative thinking. An example of a technique that can be applied at the
individual level is Attribute listing, which is shown by the following example.
When one needs to generate ideas or solutions to a complex challenge, he
or she first lists all the attributes of the problem, which may include
 Physical
 Mental
 Emotional
 Social
 Other (depending on the complexity of the challenge
Then, the person concentrates on each attribute at a time. The following
example is given as an illustration
Source: Infinite Possibility Generator by Jeffrey Hoffman
A marketing manager needs to generate ideas for a new healthcare product,
three key attributes are listed and the variables under key variable are
identified.
Form Type Target market
Gel Jar Teens
Powder Can Pregnant women
Liquid Tube Single men
Paste Carton Vegetarians
---------- and so on -------------------------------------

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Then try all combinations of the variables for the key attributes e.g. liquid,
can, vegetarians.
While creativity is typically used to refer to the act of producing new ideas by
individuals or groups, innovation is the process of both generating and
applying such creative ideas in some specific context. In an organization,
therefore, the term innovation is often used to refer to the entire process by
which an organization generates creative new ideas and converts them into
novel, useful and viable commercial products, services and business
practices. Creativity by individuals and teams is a starting point for
innovation, the first being a necessary but not sufficient condition for the
second. (Amabile)

4.3 SWOT analysis


4.3.1 SWOT analysis as a strategic planning tool
SWOT is an acronym for strengths, weaknesses, opportunities and threats.
It is a strategic planning tool used to evaluate these four concern areas
involved in a project or in a business venture or in any other situation
requiring a decision. Periodic SWOT analysis facilitates the generation of
ideas. It is also be used for screening of ideas. In SWOT, the following
analysis is carried out for arriving at a decision on a strategy or project.
1. What are our (i.e. our organization‟s) strengths?
– How can we take advantage of them?
2. What weaknesses do we have?
– How do we minimize the effect of them?
3. What opportunities does this market offer for us?
– How can we capitalize on them?
4. What threats exist that may impact our success?
– How can we deal effectively with these?
It is not enough to just identify the list of the four concerns – Both questions
in each of the four concerns must be answered. An assessment of strengths
and weaknesses occurs as a part of organizational analysis; that is, it is an
audit of the company‟s internal workings, which are relatively easier to
identify and control than outside factors. Conversely, examining
opportunities and threats is a part of environmental analysis – that is, the
company must look outside of the organization to determine opportunities
and threats, over which it has lesser control.
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The SWOT analysis framework is summarized as under


Environmental Scan
Internal analysis External Analysis
(S) (W) (O) (T)

Examples of each of the above four concern areas are as under:


1. Strengths (S) – company‟s ability to create new products, to provide high
level customer service, to have a presence in multiple retail markets,
quality of its managers, being privy to a technological edge in
manufacturing a higher quality product or a cheaper product of the same
quality as competitor‟s.
General examples of Strengths are
 Patents
 Strong brand names
 Good reputation among customers
 Cost advantages from proprietary know-how
 Exclusive access to high grade natural
 Favorable access to distribution networks
2. Weaknesses (W) – company may have a large bureaucratic structure,
higher labor costs leading to lower productivity, lack of visibility due to
inadequate marketing
General examples of weaknesses (i.e. absence of certain strengths) are
the lack of strengths listed under (S) above
(We should note here that in some cases, a company may reckon a
factor as a S when it may actually be a W e.g. a large manufacturing
capacity compared to a competitor is reckoned as S – but if that results
in the company being slow in reacting to changes in the strategic
environment, it will a W. Hence a pragmatic evaluation by the company
is required here)
3. Opportunities (O) – availability of internet has provided numerous
opportunities for companies to expand their product sales, General
Motors has developed automobile engines which can operate on
gasoline mixed with ethanol produced from corn and is able to sell these
automobiles in the market, using the opportunity of public awareness
about restricting use of fossil fuels.

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 An unfulfilled customer need


 Arrival of new technologies
 Loosening of regulations
 Removal of international trade barriers
4. Threats (T) – threats can be an individual, group, or organization outside
the company that aims to reduce the level of the company‟s
performance e.g. Dr. Reddy‟s Laboratories (DRL) was started with
pharmaceutical specialists who were earlier employed with Indian Drugs
& Pharmaceuticals Ltd. (IDPL), and DRL overtook IDPL very quickly as a
drug manufacturing company. (IDPL had to close its operations
subsequently). Threats can also come from government regulation or
consumer groups.
 Shifts in consumer tastes away from the firm‟s products
 Emergence of substitute products
 New regulations
 Increased trade barriers
(these examples are essentially the flip sides of examples listed under (O)
above).
A SWOT analysis leads to the generation of a SWOT profile (see fig. 4-3)
which is used as the basis for goal setting, strategy formulation and
implementation.
Strengths ( S ) Weaknesses ( W )
 What do you do well?  Where do you have fewer
 What unique resources can resources than others
you draw on?  What could you improve?
 What do others see as your  What are others likely to see
strengths? as weaknesses?
1. 1.
2. 2.
3. 3.
4. 4.
. .
. .

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Opportunities ( O ) Threats ( T )
 What good opportunities are  What trends could harm you?
open to you?  What is your competition
 What trends could you take doing?
advantage of?  What threats do your
 How can you turn your weaknesses expose you to?
strengths into opportunities?
1. 1.
2. 2.
3. 3.
4. 4.
. .
. .

Fig. 4-3: SWOT profile

SWOT analysis is only the first step in developing and implementing as an


effective organizational strategy. After this analysis, the next step is to rank
the strengths, weaknesses, opportunities and threats and to document the
criteria for ranking. A two-by-two grid is drawn to determine the company‟s
strategic fit. The grid is also known as a SWOT Strategic Alternatives matrix
or a TOWS Strategic Alternatives matrix and is shown in fig. 4-4

Opportunities (O) Threats (T)


1. 1.
2. 2.
3. 3.
. .
. .
Strengths (S) SO ST
1. “Maxi-Maxi” Strategy “Maxi-Mini” Strategy
2. Strategies that use Strategies that use
3. strengths to maximize strengths to minimize
. opportunities threats
.

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Weaknesses (W) WO WT
1. “Mini-Maxi” “Mini-Mini” Strategy
2. Strategy
3. Strategies that Strategies that
. minimize minimize weaknesses
weaknesses by and avoid threats
.
taking advantage
of opportunities

Fig. 4.4: TOWS Strategic Alternatives Matrix.


Source: Mind Tools Career Excellence Club

Step 1: Perform a SWOT analysis and generate SWOT profile as per


fig. 4-3
Step 2: Copy the key conclusions from the SWOT profile into the area (blue
shaded) provided.
Step 3: For each combination of internal and external environmental factors,
consider how you can use them to create good strategic options;
 SO How can you use your strengths to take advantage of these
opportunities?
 ST How can you take advantage of your strengths to avoid real and
potential threats?
 WO How can you use your opportunities to overcome to overcome the
weaknesses you are experiencing?
 WT How can you minimize your weaknesses and avoid threats?
We should note the following:
1. The WT quadrant is concerned with defensive strategies. This should
not be relied on to create success. This should be put into place to
protect the company from loss.
2. When there are many factors to consider, it may be helpful to construct a
matrix to match individual strengths and to the individual opportunities
and threats that the company has identified. To do this, a matrix can be
constructed as under for each quadrant (SO, ST, WO and WT). See
fig. 4 -5:

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S1 S2 S3 S4
O1
O2
O3
O4
Fig. 4.5: SWOT matrix

Step 4: Evaluate the options generated, and identify the relative benefits
which is discussed in the section 4.6.
4.3.2 Scanning the Environment for SWOT analysis
The environment (external) which is scanned to identify opportunities and
threats for SWOT analysis can be divided into six broad sectors as shown
under;

COMPETITORS

ECONOMY GOVERNMENT

BUSINESS

SOCIO-DEMOGRAPHICS TECHNOLOGY

SUPPLIERS
(The Customer sector, which is of equal significance, is considered
embedded in Economy or Government)

Economic sector: Factors to be studied in this sector would be demand-


supply for products/projects, overall rate of economic growth, foreign
exchange reserves position/balance of payments position of the country,
inflation rates, interest rates, income and consumption patterns of target
customers. For example, low interest rates resulting from high public
propensity to save in Japan has helped the Japanese companies to expand
to the degree they have till today.

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Governmental sector: Govt. policies on economic and industrial


development of the country, tax regime in the country have a significant
impact on the strategies a company can adopt. For example, one of the
reasons for the high rate of growth of the IT industry in India has been the
tax exemptions and liberal land allotment policies adopted by the Govt. for
setting up new units in this area. Similarly, opening setting up of mega-
power plants (upto 4000 MW) to the private sector has resulted in several
mega-power plants being implemented in the country.
Socio-demographic sector: A study of this sector is concerned with skilled
labor availability in specific regions, population growth, gender composition,
age shifts in population, changing preferences of urban population. Demand
for ready-to-eat and processed foods have increased in India on account of
mobility and change in lifestyle adopted by much of the urban population.
Technological sector: Technology development within and outside the
country may influence strategies adopted by companies. Companies need
to possess the latest information on technologies available for their products
or projects. Examples are electronic goods manufacture (continuous
improvement in chip-designs is leading to continuous miniaturization and
additional features), automobile manufacture (in U,S.A, automobile
companies are introducing more fuel-efficient engines as well as engines
which run on fuels containing ethanol produced from agricultural products),
supercritical boilers working at very high pressures are now adopted for
mega-power projects, new sea water desalination technologies are being
adopted even in India to cater to both industry and drinking needs.
Supplier sector: Any business or project requires inputs provided by
suppliers. Inputs can vary From raw materials, water, power to outsourced
services like IT services, engineering consultancy services, components
supplies, equipment renting. Gathering of latest information on capable
suppliers, entering into good contractual agreements with them are crucial
for a company and influence the strategies.
Competition: The study of the competition scenario in an industry is an
essential component of its market survey and is a crucial factor in ensuring
its success. In a market survey where demand exceeds supply,
homogeneity among the products will exist. But when competition is fierce
with a number of players available to cater to consumer demand, product

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differentiation and better / complementary customer services offered by the


company will be required for business success.
4.3.3 Corporate appraisal for SWOT analysis
Para 4.5 discussed sectors of environment, which primarily relate to the
areas in which opportunities and threats can be identified and analyzed.
Similarly, corporate appraisal needs to be conducted essentially to identify
and analyze the strengths and weaknesses in the company. The broad
areas of corporate appraisal and the important aspects to be considered
under them are as under;
 Unique Selling Points
Patents owned
Exclusive licensing arrangements with technology/components suppliers
 Marketing and Distribution
Market image
Product line
Market share
Distribution network
Customer loyalty
Marketing and distribution costs
 Production and Operations
Condition and capacity of plant and machinery
Availability of raw materials, subassemblies, and power
Degree of vertical integration
Location advantage
Cost structure
 Research and Development
Research capabilities of the firm
Track record of new product developments
Laboratories and testing facilities
Coordination between research and operations
 Corporate Resources and Personnel
Finance and accounting
Clout with governmental and regulatory agencies
Corporate culture
Dynamism of top management
Competence and commitment of employees

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State of industrial relations


 Finance and Accounting
Financial leverage and borrowing capacity
Cost of capital
Tax situation
Relations with shareholders and creditors
Accounting and control system
Cash flows and liquidity
(Source: Adapted from “ Planning, Analysis, Selection, Financing, Implementation
and Review”, Prasanna Chandra)

4.4 Screening of Strategies or Projects


When a company evaluates a large number of projects regularly, preliminary
screening can be done using a project rating index. The steps involved in
determining the project rating index are as follows:
o Identify factors relevant for project rating
o Assign weights to these factors depending on their perceived relative
importance
o Rate the project proposal on various factors, using a suitable rating
scale (5-pont scale , 7 point scale, 9 point scale etc.)
o For each factor, multiply the factor rating with the factor weight to get the
factor score
o Add all the factor scores to get the overall project rating index
o Once the project rating index is determined, it is compared with a
predetermined hurdle value to judge whether the project is prima-facie
feasible or not.
Factor Factor Rating Factor Score
Weight (on a 5 scale)
Reasonableness of 0.35 5 1.75
Cost
Technical Know-how 0.2 3 0.6
Dependence on 0.3 4 1.2
Company‟s strength
Change in Consumers‟ 0.15 3 0.45
preferences
Total weight = 1.0 Project Score = 4

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(The max. possible score for a project will be 5, and if the hurdle value is set
as 3, this project passes the initial screening)
Sometimes it may be difficult to give weights and ratings to the factors. This
happens when there are a number of variables involved that affect the
measure of each factor that a project or strategy would yield. In such a case,
the priority matrix is worked out by comparing whether project A is better
than project B (designated by 1 for project A & 0 for project B – this can be
called a binary digit approach or a paired comparison ). The same is done
by pairing various projects. As an example, the final matrix for projects A, B,
C, D will turn out as under:

Project A B C D Total Rank


A x 1 0 1 2 1
B 0 x 1 1 2 2
C 1 0 x 0 1 4
D 0 0 1 x 1 3

The following basis is used to arrive at the matrix above


Project A is superior to Project B
Inferior to Project C
Superior to Project D
Project B is superior to Project C
Superior to Project D
Project C is inferior to Project D
The row with the highest total is the 1st choice and the row with the lowest
total is the last choice. If two rows show the same total, look in the matrix to
see which of the two choices outranks the other because that decision has
already been made.
Analytical Hierarchy approach
The priority matrix can be enhanced by evaluating various attributes of each
choice. This means that when you decide that project A is superior to
Project B, you ask a further question “Given that there are four concern
areas i.e. P, C T & S (see Unit 1), in which concern area is Project A superior
to Project B ?”. Then votes can be made for all 4 criteria for each paired
comparison. To arrive at a numerical weight for each choice, matrix algebra

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is involved (available with a software programme called Expert Choice). This


programme allows comparisons between quantitative and qualitative facets
of a choice, to arrive at a correct decision. Refer to www.expertchoice.com
We have discussed above an analytical approach to preliminary screening.
Qualitative considerations are also used to do preliminary screening of
projects. This can be more a process of rejection than selection. This can be
particularly relevant to the Indian context, where certain external conditions
are fixed. Indian industry has traditionally faced external constraints like
import restrictions, high customs tariffs, lack of raw material availability, lack
of foreign exchange availability, fluctuating supplies of agricultural materials
like cotton, jute, oil seeds, power shortages, public protests against projects.
Although many of these constraints have eased post liberalization, some
constraints may still become significant. The following areas may need to be
looked into for preliminary screening:
o Compatibility with the promoter
o Consistency with Govt. priorities
o Availability of inputs
o Adequacy of market
o Reasonableness of cost
o Acceptability of risk level
Net Positive Value (NPV) as Project selection Criterion:
NPV is the present value of the future revenues minus future costs. This is a
very popular and valid method for selecting a project from the financial
viewpoint. While discussion of NPV is made in a different Unit, some factors
which companies can use to enhance NPV are:
Govt. policy: e.g. special tax benefits and exemptions for an industry or a
location
Economies of scale: in manufacturing, unit cost can be substantially
reduced by adopting high production volume e.g. petroleum refining, steel
production, mining
Product differentiation: can be achieved by innovative product features, high
quality products, customized service
Technology superiority: DRL outperformed its competitors in the drug-
manufacture because of their technology resulting from R & D

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Self Assessment Questions 1


State whether the following statements are True or False
1. Firms prefer to encourage group creativity rather than individual
creativity.
2. Group brainstorming requires formal rules to work smoothly.
3. Delphi method relies on group discussion between experts.
4. Left brain thinking ‟focuses on logic‟, sequence, linearity, numbers and
words whereas „right brain thinking‟ focuses on imagination and
association of ideas.
5. Precise problem definition is crucial to the success of any idea
generation technique.
6. Soft innovation refers to innovation in technical design or technical
research.
7. The HDBI model can be used to ascertain the thinking abilities and
skills of an individual.
8. Corporate appraisal is conducted essentially to analyze Strengths and
Weaknesses in a company.
9. (i) Maxi-Maxi strategy results from SO quadrant
(ii) Mini-Maxi strategy results from WT quadrant.

Answer the following questions


10. Name 6 sources of project ideas.
11. Name 4 factors that enable the development of individual creativity
State 4 factors that impede creativity in an organization in SWOT
analysis.

4.5 Summary
Projects are conceived and initiated as a result of strategy planning. While
setting up a new business unit is a project, a business unit can ill afford to
remain static in today‟s competitive scenario. Avenues for business growth,
diversification, and sometimes, even for maintaining market share, need to
be constantly explored by generation of ideas in any organization.
Successful organizations continuously scan the environment, keep
appraising their strengths and weaknesses and strive to provide a favorable
environment for such idea generation in the organization. Thus ideas are
thrown up for initiating projects.

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Many organizations understand that idea generation can take place at any
hierarchical level and adopt group techniques to tap individual creativity and
nurture it at the organizational level. Brain storming, nominal group
technique, Delphi method and mind mapping are some group techniques
deployed for idea generation. The company must foster an organizational
culture and methods to tap creativity both at the individual and
organizational levels. In a section of this unit, some factors enabling
individual creativity, as well as some factors which tend to kill creativity were
listed. A good problem definition is also important to elicit ideas and
solutions which are relevant to the problem.
Periodic SWOT analysis, which is a strategic planning tool, also helps in the
generation as well as screening of ideas. SWOT analysis examines the
organization‟s internal environment to identify its strengths and weaknesses,
and the external environment to identify the opportunities and threats. A
corporate appraisal can be done for an analysis of the internal environment
considering factors such as the organization‟s USPs (Unique selling points),
marketing & distribution, production & operations, R & D, corporate
resources & personnel and finance & accounting.
Idea generation may yield several projects for consideration. These need to
be screened for selection and subsequent initiation. A project rating index
can be adopted for rating and prioritizing the projects. The analytical
hierarchy approach or a qualitative approach, as found relevant can be
adopted for selection and initiation of projects. Net positive value method is
popularly adopted for project selection.

4.6 Terminal Questions


1. State the factors which result in projects getting initiated.
2. Describe the group techniques of brain storming, nominal group
technique, Delphi method and mind mapping.
3. Bring out the differences between hard innovation and soft innovation.
4. List the sources of project ideas
5. What are the thinking preferences of an individual as per the Hermann
Brain Dominance Instrument?
6. An organization should provide an environment conducive to both
individual creativity and group creativity. Explain the steps that a
company can adopt to facilitate this.

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7. Explain features of the six broad sectors involved in environment


scanning necessary for a SWOT analysis.
8. Describe the four types of strategies that can result from SWOT
analysis.
9. Which aspects of the organization does a corporate appraisal address
in respect of performing a SWOT analysis?
10. Describe the approaches that are used to screen projects.

4.7 Answers to SAQs and TQs


SAQ 1
1. (T)
2. (T)
3. (F)
4. (T)
5. (T)
6. (F)
7. (F)
8. (T)
9. (i) (T)
(ii) (F)
10. Section 4.2.2
11. Section 4.2.3

Answers to TQs
1. (Section 4.1)
2. (Section 4.2.1)
3. (Last portion of section 4.2.1)
4. (Section 4.2.2)
5. (Section 4.2.3)
6. (Section 4.2.3)
7. (Section 4.3.2)
8. (Section 4.3.1)
9. (Section 4.3.3)
10. (Section 4.4)

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