Economics: January 2004

Farmers and ranchers have been addressing challenges for years. I continue to be impressed with the perseverance of those in the agricultural industry to overcome the obstacles placed before them. It seems that the rate at which changes are developing has increased. This phenomenon calls on managers of farm businesses to quickly assess the impact of the changes to the business. Managers should consider conducting a situational analysis to assess the firm's readiness to face challenges and potential changes. One aspect of the evaluation is to perform a SWOT analysis. The acronym stands for the farm business's strengths, weaknesses, opportunities and threats. The analysis begins by conducting an assessment of the internal strengths and weaknesses of the farm business. After completing the internal analysis, document the opportunities and threats that may affect your business based on the economic and business environment surrounding it. These two, O and T, exist independently of the farm business. These are referred to as the external components of the SWOT analysis. The benefit of preparing a SWOT analysis is, after thoroughly evaluating each of the components, to uncover promising opportunities and position the company to minimize the impact of potential threats. Let's look into each of the four components of SWOT.

Strengths and Weaknesses
Strengths are your competitive edge and are within your control to change (i.e., competencies). They are resources that the farm business can use to fulfill the mission of the business. Weaknesses are limitations, faults or defects in the farm business that restrict it from reaching its potential. Some areas to consider when evaluating your strengths and weaknesses include: market access, financial resources, key staff, access to abundant natural resources, operational efficiencies and capacity, established customers, contacts, equipment, information and processing systems, contracts, image and reputation, management knowledge and skills, communication skills and other competency categories.

Opportunities and Threats
An opportunity is an external condition(s) that could positively impact the performance of the company. The company's competitive advantage is enhanced if the opportunity is acted upon in a timely manner. Threats are external conditions that could negatively impact the performance of the company in the future. Some of the external factors (national and international) that could impact the business are: governmental regulations, input providers, economic environment, politics, consumer's tastes and preferences, market trends, new technology, competitors and other external conditions. After identifying the external factors, it is useful to rank each factor based on its importance and probability of occurrence to the farm business.

Allow people or stakeholders who are knowledgeable about your farm business to perform a SWOT analysis. Ask your customers, business partners, employees, accountant, attorney, input providers and others to provide you an honest assessment of your farm business using the SWOT format. Incorporating input from a broad spectrum of individuals greatly improves the quality of the analysis.

Once the analysis is complete, it is time to review the information to formulate strategies that are readily apparent. Keep in mind, the overall strategy is to build on strengths, resolve weaknesses, exploit opportunities and avoid threats. This is partially accomplished by matching the company's strengths with external opportunities. The real challenges are to convert the internal weaknesses into strengths and the external threats into opportunities.

The strategies identified in the SWOT analysis should be incorporated into the company's comprehensive strategic plan. The focus or direction of the company is often changed once a SWOT analysis has been performed. If you desire assistance in performing a SWOT analysis on your operation, contact one of the agricultural economists at Noble Foundation.