What does a strategic partnership mean to your enterprise? More importantly, how does one define a strategic partnership and shouldn’t that partnership be linked to your company’s overall strategic plan? When answering these questions, think of how the TOWS analysis helps to define your company’s internal strengths and weaknesses relative to your market’s external opportunities and threats. The TOWS analysis is a fantastic tool to not only support and define your company’s overall strategic plan, but to ensure that your partnerships are aligned with that plan. Used properly, and the tool can simplify how your company approaches planning.
TOWS Analysis VS. SWOT Analysis
The TOWS analysis is often viewed as an upgraded or modified SWOT. When thinking of the SWOT analysis, one immediately thinks of the items and points that find their way under Strengths, Weaknesses, Opportunities and Threats.
However, the SWOT has several major disadvantages as a planning tool. One is the issue pertaining to where points of interest should go under each heading. For instance, a company may view its strengths differently from how its customers view them. In addition, individuals tend to focus in on one heading – completely ignoring, or not elaborating enough, on the others. Finally, the grid doesn’t show how to move from strategy to an actionable plan. However, TOWS eliminates these issues entirely.
The above video is from: Assessing the Company’s Supply Chain with a SWOT Analysis
Understanding Strategic Partnerships
When companies look to answer the question: "how can a strategic partnership increase market share?", they must first start by defining what that potential partnership might mean. Strategic partnerships can be viewed from several perspectives. However, by and large, they are ultimately focused on trade-offs where two or more companies use each other’s core competencies to form an alliance, an alliance that aims to achieve similar goals of increased market share, reduced costs and upgraded operational capabilities. However, success depends upon the each company’s ability to use the partnership to grow each other’s competencies without having to develop them internally.
For instance, a large OEM (Original Equipment Manufacturer) might align itself with a VAR (value-added reseller) that can service the equipment manufacturer's end-user customer base without the OEM having to hold large inventory skews of spare parts and raw materials. The equipment manufacturer cuts down on inventory and service costs, while the smaller VAR is able to increase sales and revenue with additional service contracts and spare part sales.
Using TOWS Analysis to Align Strategic Partnerships
The TOWS analysis simplifies SWOT by forcing companies to view their strengths and weaknesses as internal while their opportunities and threats as external. One is centered around defining the company’s core strengths and weaknesses, while the other is focused on defining those opportunities and threats within the market. Below is an example of what the TOWS analysis would look like and is taken from Strategic Business Planning: Use TOWS to Move SWOT to an Action Plan
The highlighted yellow areas of the TOWS grid are the reasons the company must enter a strategic partnership. In other words, the yellow areas are essentially the criteria the company should use to develop its strategic partnership. We’ll summarize these yellow highlighted areas below and use them to justify the company’s decision to move forward with a strategic partnership.
Weaknesses:
- Large overhead and high service costs
- Long turn times on raw materials & spare parts
- High inventory holding costs affecting gross profit
The company's weaknesses provides it with the impetus to move forward with some kind of strategic partnership to address its high service costs, long turn times on raw materials and its difficulty in selling spare parts to its end-user customer base. In essence, the company must retain high amounts of inventory to support the service end of its business. This increases the company’s inventory holding costs, increases its cost to service and is affecting its gross profit on sales.
Opportunities:
- Market needs custom-made designs & faster service
- Possibility of low cost material & lower service costs from vendors
The company has opportunities within the market that it must capitalize on. Customers need faster, less expensive service charges to go along with the company’s custom-made design capabilities. Despite the company’s excellence in providing custom-made parts, its cost to service are too high. The company knows that charging customers NRE, non-recurring engineering charge, is a vital part of its business. The market has several quality vendors who can help lower material costs, and service costs, by taking over the responsibilities of managing inventory and sending field service technicians to the company's end-user customer base.
Weaknesses / Opportunities: Inner Grid
- W2 & W4 to O3 & O4: Can't meet needs for integration & design services with long lead times, design delays & current service costs
- W1, W3 & W5 to O5: Establish strategic partnership with vendors to lower inventory, repair and service costs
Bottom line, the company won’t be able to capitalize on the market’s external opportunities if it doesn’t address its internal weaknesses of high service costs and long lead times on spare parts.
Weaknesses / Threats: Inner Grid
- W1,W2 &W4 to T1: Overhead & high service costs coupled with market delays are being capitalized on by smaller competitors
- W5 to T3: High inventory holding costs make delayed customer payments more costly = high financing costs!
If the company doesn’t address its high cost to service, then its smaller competitors will surely steal market share. In addition, the company’s inventory holding costs are further impacted by customers who take too long to pay their bills. In this case, the company’s weaknesses will be further impacted by extra financing costs – especially if it doesn’t enter into a strategic partnership to reduce these costs.
Use TOWS to link your company’s internal strengths to your industry’s external opportunities and threats. What strengths does your enterprise have that can secure these opportunities? What strengths does your enterprise have that can disarm your market threats? After answering these two questions within the TOWS grid, you must focus on your internal weaknesses relative to your external opportunities and threats. What internal weaknesses will stop your enterprise from capitalizing on your market opportunities? What internal weaknesses could be capitalized by the external threats in your industry? Again, answer these questions inside your TOWS grid. Next, look for those areas where a strategic partnership will improve your ability to close on opportunities, improve upon your weaknesses, and reduce the impact of the threats posed within your market. To read more about TOWS, please refer to The TOWS Analysis: Resource Allocation vs. Resource Utilization
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