4.6 SWOT Analysis

The above Borders story underscores the importance of continually performing a “SWOT” analysis.  SWOT stands for:  Strengths, Weaknesses, Opportunities and Threats classified into two dimensions, internal and external.   The internal assessments are the “Strengths” (Internal comparative advantages) and “Weaknesses” (internal disadvantages relative to competitors).  The external assessments are the “Opportunities” (external opportunities for generating additional sales and earnings) and “Threats” (external disadvantages relative to competitors and potential competitors). 

Applied to Borders a SWOT analysis would increasingly flag significant Weaknesses  and Threats  with little bright news along the dimensions Strengths and Opportunities.  For example, for Borders Weaknesses are clearly their rapidly deteriorating profit margins combined with flat sales after their expansion phase.  This is evident starting from 2006 (see above 2008 10-K s data which covers 2003 to 2007). Threats were also growing significantly from Internet book sales, growth in e-books and the shift to digital music and movie downloads.  The only potential Strength over this time period for Borders was the strong growth exhibited in International sales.  Finally, the major potential Opportunity for Borders turned into an “opportunity lost.”   This was the growth in the e-book market which Borders completely missed.  Instead they allocated significant resources to expanding bricks and mortar and ran up costs at a time when they faced significant “Threats” from e-commerce.