Bayes' Formula

Author's Note: This is a great video for teaching Bayes' Theorem in its simplest form.

Summary
In order to illustrate the utility of Bayes’ Theorem, the author draws upon two simple scenarios. First, suppose someone faces the decision of needing to choose between three doors. If the person making the decision does not have any prior knowledge about the situation, the scenario creates an unconditional probability. But, once the person receives new information about the scenario, the rational person should reconsider his/her decision and subsequent probabilities.

Bayes’ Theorem is about the introduction of new information used to adjust probabilities and create conditional probabilities. In the formula, P(G/U), P is the probability that G will occur, if U happens.

To illustrate the application of Bayes’ Theorem and conditional probabilities, the author illustrates a second scenario. Pretend that there is a 70% probability that the economy will grow and a 30% probability that the economy will slow (an unconditional probability). The author owns a stock that has an 80% chance of increasing if the economy grows. That same stock, however, only has a 30% chance of increasing if the economy slows. The 80% and the second 30% are conditional probabilities; they are based on the condition that the economy will grow or slow.

The author can then determine the scenario’s four conditional probabilities:
1) What is the probability that the economy will grow and the stock will increase?
2) What is the probability that the economy will grow and the stock will decrease?
3) What is the probability that the economy will slow and the stock will increase?
4) What is the probability that the economy will slow and the stock will decrease?

To answer these questions and determine their probabilities, the author uses the equation: P(UG) = P(U/G)P(G). Notice that this equation is longer than the first because this one incorporates two conditions: the economy will grow/slow and the stock will increase/decrease.

Bayes' Theorem for Intelligence Analysis

Jack Zlotnick
CIA Historical Review Program

Author’s Note: Released by the CIA’s Historical Program in the early 1990’s, Jack Zlotnick wrote this piece in the 1970’s. At the time, the CIA was still in the process of testing Bayes’ Theorem. Due to the ongoing testing period (at that time), Zlotnick does not offer a position on the utility and validity of the Bayesian method with regards to intelligence. In fact, Zlotnick spends a considerable amount of time in the article discussing the ways the theorem should continue to be tested.

Summary
Due to the very nature of intelligence, analysts should be naturally interested in the Bayesian Theorem. Intelligence is probabilistic in nature. Intelligence analysts usually conduct their analysis based on incomplete evidence in which they must address probabilities (thus WOEP’s).

For intelligence applications, Bayes’ Theorem is represented by the equation R=PL. “R” is the revised estimate of the odds favoring one hypothesis over another competing hypothesis (the odds of a particular hypothesis occurring after new evidence is entered into the equation). “P” is the prior estimate on the hypotheses probabilities (the odds before considering the new evidence entered into the equation). The analyst must offer judgments about “L” or the likelihood ratio. This variable is the analyst’s evaluation of the “diagnosticity” of an item of evidence. For instance, if a foreign power mobilizes its troops, what are the chances that “X” will happen over “Y”.

The principle features of the Bayes Theorem distinguish it from conventional intelligence analysis in three ways. First, it forces analysts to quantify judgments that are not ordinarily expressed in numeric terms. Second, the analyst does not take the available evidence as given and draw conclusions. And third, the analyst makes his/her own judgments about the bits and pieces of evidence. He/she does not sum up the evidence as he/she would if he/she had to judge its meaning for a final conclusion. The mathematics does the summing up.

The author is skeptical that the complex tasks analysts are forced to consider can be reduced to numeric values. Bayes’ Theorem, however, may be useful for examining strategic warning by uncovering patterns of activity by foreign powers.

Gap Analysis As A Tool For Community Economic Development

Suzette D. Barta and Mike D Woods
Oklahoma State University

Author’s Note: This article is about “sales gap analysis.” The article focuses on a project in Oklahoma in which small cities are trying to determine the health of their local economies. Particularly, the cities are trying to determine whether local buyers are spending their money within the local community or outside the community. Although this article is slightly off topic, the discussion on gap analysis does contain a couple nuggets of valuable insight.

The purpose of this article is to help community leaders understand that there are some tools available that can help local merchants better understand the weaknesses of their local retail market. Once the leaders understand the local market’s weaknesses, a competitive response plan can be drafted.

The Oklahoma projects aims to determine whether local markets have a retail surplus or a leakage of retail (Are local customers shopping within the local market? Are external customers shopping within the local market?) This determination of a retail surplus or leakage is called a sales gap analysis.

Gap analysis is a technique for identifying the strengths and weaknesses in a local retail market. In this situation, the analysis estimates how many shoppers are coming to a community to purchase retail items.

Local residents must decide for themselves whether a retail gap is acceptable, not acceptable, or even preferable. If it is deemed not acceptable, then community leaders should devise a competitive strategy to meet the needs of the community. A common misperception however, is to assume that if a gap exists, then it must be filled.

A gap analysis only indicates the possible areas of leakage. The analysis does not indicate why the leakage exists, whether or not the leakage is acceptable, or how to stop the leakage from occurring. Gap analysis is only a starting point. The information generated from a gap analysis is only valuable if it is used to stimulate further discussion and to devise an appropriate competitive strategy for action.

Gap Analysis Strengthens Link Between Requirements And Verification

Brian Hooper and Bill St. Clair
COTS Journal

Author's Note: This article primarily discusses ways in which requirements traceability may be improved, specifically in companies working on military projects that require safety certifications. The authors highlight gap analysis as the means in which the weaknesses in requirements traceability are discovered.

Summary
Gap analysis is a technique routinely used in business to measure the development/maturity of working processes and to identify potential areas for improvement. Gap analysis provides an opportunity to examine operating processes and products typically by employing a third party to conduct the assessment. The valuable information offered by the gap analysis helps to improve a company’s processes so that when a formal assessment or certification of products is conducted, the assessment is much more likely to be passed on the first attempt.

Companies are looking outside their own market sector for best practices and approaches, techniques, and standards. Gap analysis provides a framework to isolate areas in which they need to improve. The results from a gap analysis also aid companies in efficiently refocusing their resources in order to achieve the desired improvement.

With the increased need for software control, a gap analysis of safety-critical projects (particularly military related projects) regularly flags the field of requirements traceability. Many development standards require a Requirements Traceability Matrix (RTM). Requirements traceability is a widely accepted best practice in the development industry to ensure that all requirements are implemented and that all products can be traced back to one or more requirements.

More often than not, however, traceability matrices are performed as a low-priority task. Constructing a RTM requires an enormous amount of time and money. Failure to construct an accurate RTM may result in a product failing its certification assessment.

What Is Game Theory And What Are Some Of Its Applications?

Saul I. Gass
Professor emeritus at the University of Maryland

Summary
After learning how to play the game tick-tack-toe, players typically discover a strategy of play that enables them to achieve at least a draw and potentially a win if the opponent makes a mistake. Sticking to that strategy ensures that the player will not lose. This illustrates the essential aspects of game theory.

Games with perfect information, such as tick-tack-toe, allow for the development of a pure strategy, an overall plan specifying moves to be taken in all eventualities that can arise. Games without perfect information (e.g. poker), however, offer a challenge because there is no pure strategy that ensures a win.

Players of games with imperfect information must then reconcile the questions: What is the optimal mix of strategies to play? How much do I expect to win?

Players must seek an equilibrium solution or a mixed set of strategies for each player, so that each player has no reason to deviate from that strategy, assuming all other players stick to their equilibrium strategy. This then creates the important generalization of a solution for game theory. All many-person non-cooperative finite strategy games have at least one equilibrium solution.

It is important to note, however, that for many competitive situations, game theory does not really solve the problem. Rather, game theory helps to illuminate the problem and offers players a different way of interpreting the competitive interactions and possible results. Game theory is a standard tool of analysis for professionals working the fields of operations research, economics, regulation, military, retail marketing, politics, conflict analysis, and many more.

Specific real-world situations include missile defense, sale price wars, NASCAR racing, military conflicts, conflict resolution, the stock market, telecommunications, elections and voting, and arbitration to name a few.

What Is Game Theory

David K. Levine
Department of Economics, UCLA

Summary
Game theory provides a simple representation of a variety of important situations. There are two main branches of game theory: cooperative and noncooperative game theory. David Levine of UCLA defines noncooperative game theory as “dealing largely with how intelligence individuals interact with one another in an effort to achieve their own goals.” Noncooperative game theory is the subject of Levine’s article. (Note: Levine does not define cooperative game theory).

One way to approach a noncooperative game is to list the players and their respective alternative choices (called actions or strategies) available. Consider for example the game Prisoner’s Dilemma. In the case of this two-player game, the actions of one player form the rows of a matrix while the opposing player’s actions from the columns. The entries into the matrix represent the utility or payoff to the two players. (Note: Levine does not discuss how he derived the values).

Higher numbers represent higher values in utility. If neither suspect confesses, both prisoners (or players) go free and split the proceeds of their crime (represented by a value of 5). If one player confesses and the other does not, however, the prisoner who confesses testifies against the other in exchange for going free and gets the entire value of 10 utility points; while the other player who did not confess goes to prison, resulting in the low utility score of -4. If both prisoners confess, then both are given a reduced term, but are convicted, which is represented by a utility value of 1.

An intelligent player of the game should quickly understand that no what he/she believes that his/her opponent will do, it is always better to confess. If the partner in the other cell is not confessing, it is possible to get a 10 instead of a 5. If the partner in the other cell is confessing, it is possible to get a 1 instead of a -4.

Author's Note: Levine offers a second example in which he examines the question, ""If we were all better people the world would be a better place." Although the discussion was interesting (Levine disproves the statement), the discussion was not helpful in understanding the dynamics of game theory.

The "Red Team": Forging A Well-Conceived Contigency Plan

By Col. Timothy G. Malone and Maj. Reagan E. Schaupp
Aerospace Power Journal
Summer, 2002

Author's Note: Due to the article's length, only the most relevant information for our class was summarized.

Summary
Throughout the article, the authors provide two separate definitions for red teaming. Although the definitions are similar, they are also different (which is somewhat puzzling). I synthesized the two definitions and came up with this: a red team is a group of subject-matter experts with appropriate backgrounds that provide an independent review of processes and products using devil’s advocacy and knowledgeable role-playing of the enemy. The red team assesses planning decisions, assumptions, and courses of action from the perspective of friendly and enemy organizations.

The authors acknowledge that the concept of red teaming is far from new. Government, military, and civilian circles have all used red teaming in a variety of contexts. In government circles, it normally is associated with assessing the vulnerabilities of systems or structures, especially within the warfare arena. In the business world, red teaming usually refers to a peer review of a concept or proposal.

If conducted effectively, red teaming can produce more complete analysis at all phases and deliver a better plan of operations for the decision-maker. Effective red teams can pinpoint planning shortfalls, deviations from doctrine, reveal overlooked opportunities, and extrapolate unanticipated strategic implications. Additionally, red teaming can also determine whether the required task is understood or whether further guidance is needed.

Because a red team will conduct a comprehensive review planning products and processes, the selection of team members is critical. Red team members must have credibility, which comes only with expertise and experience. If some red team members blatantly fall short of this prerequisite, their counterparts will be skeptical of any insights they claim to have about the operation. The timing of red teaming events can play a crucial role in planning success. Ideally, the commander should form a red team as early in the planning effort as possible.

The Role And Status Of DoD Red Teaming Activites

Defense Science Board Task Force
September 2003
Sections I-III,VI

Summary
Red teams can be a powerful tool to understand risks and increase options. Their purpose is to reduce an enterprise’s risks and increase its opportunities. Red teaming can be used at all three levels of an enterprise: strategic, operational, and tactical. The Defense Science Board, however, found that the use of red teams within the Department of Defense is mixed at best.

Despite this mixed record, the Defense Science Board concluded that the use of red teams is especially important given today’s climate. Adversaries are tough targets for intelligence (compared to the Cold War). Red teaming can both complement and inform intelligence collection and analysis. Aggressive red teams challenge emerging operational concepts in order to discover weaknesses before real adversaries do. Red team also tempers the complacency that often follows success (referenced to the time period following Desert Storm).

Red teams come in many varieties and there are different views about what constitutes a red team. The Defense Science Board defined the term broadly, including not only playing the adversary, but also playing devil’s advocate and related roles. While differing in some respects, these activities all have in common the challenging of an organization’s norms. A red team is comprised of individuals selected for their special subject matter and expertise, perspective, imagination, or critical analysis. The red team itself is only one element in a red teaming process. Elements of the process include who the red team reports to, how the red team interacts with the management of the enterprise, and how the enterprise considers the use of the red team’s products.

Although red teaming is important, it is not easy and rarely done well. Typical causes for red team failure include the read team not taking their tasking seriously, the red team loses its independence, and the red team becomes removed from the decision making process. Conversely, attributes of an effective red team include an environment that values internal criticism, “top cover” or the support of upper level management to raise issues that may be unpopular, and proper staffing on the red team.

Decision Trees

Edwin Greenlaw Sapp
CIA Historical Review Program
22 September 1993

Summary
The decision tree is a prototype for the preponderance of logic diagrams. It is a linear means of representing the alternatives, objectives, and consequences of a series of decisions. The decision tree, essentially, is an algorithm for the analysis of complex sequential decision problems.

Decision trees can be used to depict a series of true-false sequences (a deterministic way) or to display subjective likelihoods and their relationships (a probabilistic use). The technique is simple:
1. Identify the strategies available, and the possible states of nature (chance events) that might occur.
2. Draw the tree skeleton.
3. If probabilities are being expressed, enter the economic or statistical data and associated (subjective) probabilities.
4. Finally, analyze the tree to determine the best course of action.

For a rudimentary example, suppose you would prefer to hold a party on your patio, but there is a 40 percent chance of rain and the party cannot be moved once the decision has been made. You have only two strategies: outside and inside. The chance event is rain or no rain. The tree would look like this (no lines were included):

Now assess the subjective value of the ultimate alternatives: there are four, so on an ascending scale, outside-no rain-comfort would rate "4," while outside-rain-disaster is last and least.

You also have a quantified probability to add into the chance event: 60-40 against rain. When you have multiplied the subjective value by the probability of the alternative, the completed tree looks like this:

There is, then, a slight quantified edge (2.8 vs. 2.4) to holding the party outdoors. You, as decision maker, have been told something subjective by me as an analyst. By means of a simple graphic device, you not only know where I have been subjective, but what impact that subjectivity has had on the recommended outcome. In short, you have no misunderstanding about my reasoning and weighting processes.

There are few cut and dried means of assuring the inclusion of all alternatives, and the best advice seems to be to build a likely model and then study the results, seeking the impact of certain alternatives and the relationship among alternative courses of action. If it is possible to assign appropriate probabilities to the various branches, the result is both a decision-making tool and an effective vehicle for the communication of analysis.

Author's Note: This summary only includes the information from the article that is most applicable to our discussion of decision trees.

Decision Tree Analysis: Choosing Between Options By Projecting Likely Outcomes

MindTools.com

Summary
Decision Trees are useful for helping decision-makers to choose between several courses of action. Their structure allows decision-makers to explore their options and investigate the possible outcomes of those options. Additionally, Decision Trees help decision-makers to form a balanced picture of the risks and rewards associated with each possible course of action. To aid in the decision making process, Decision Trees provide a framework to quantify the values of outcomes with the probabilities of achieving them.

How To Make A Decision Tree:
1.) Draw a small square to represent a decision to be made on the left hand side of a large piece of paper, half way down the page.
2.) From this box, draw lines out towards the right for each possible solution, and write a short description of the solution along the line.
3.) At the end of each line, consider the potential/likely results. If the result taking that particular decision is uncertain, draw a small circle. If this results in another decision needing to be made, draw another square. Squares represent decisions and circles represent uncertain outcomes.
4.) Starting from the new decision square, draw lines out representing the potential options that could be selected. From the circles, draw lines representing possible outcomes.
5.) Repeat steps 2-4 until all possible decisions and outcomes are illustrated.

To begin the decision making process, start by assigning a score to each possible outcome. This score is an estimate of how beneficial the result is. Next, look at each circle and estimate the probability of each outcome.

Then, calculate the value of the uncertain outcomes (multiply the value of the outcomes by their probability). Start on the right hand side of the Decision Tree and work back towards the left. Only record the result to each respective square or circle from each set of calculations.

To evaluate each decision node, write down the cost of each option on each decision line. Then subtract the cost from the outcome value previously calculated. This value represents the benefit of that decision. Once all calculations are complete, choose the option that has the largest benefit (the final decision).

Enhancing Deliberation Through Computer Supported Argument Mapping

Tim van Gelder
Department of Philosophy, University of Melbourne, Australia; and Austhink


Summary
Tim van Gelder defines deliberation as "a form of thinking in which we decide where we stand on some claim in light of the relevant arguments." Although this is a common and important process, it is complicated and often conducted poorly. Gelder contends that deliberation can be improved by mapping out arguments, especially when the methodology utilizes the new computer tools available. An argument map is a presentation of reasoning in which the evidential relationships among claims are made wholly explicit using graphical or other non-verbal techniques. Argument mapping is producing such maps.

This fairly minimal or broad definition recommended by Gelder allows for enormous variety in argument maps. The point of an argument map is to present complex reasoning in a clear and unambiguous way, and mappers should use whatever resources work best. Currently, argument maps are mostly comprised of "box and arrow" diagrams. With technology expanding, other presentations are likely to count as argument mapping. For example, somebody may develop a way to present arguments in virtual 3D or through a virtual reality environment.

According to Gelder, at least four main factors explain the superiority of argument maps. These points concern the limitations of prose which are partly or wholly overcome by argument maps. 1) In prose, the reader has to figure out what the relationships among the claims are. In an argument diagram, in contrast, all relationships are made completely explicit using simple visual conventions. In practice, this relieves a huge burden. Readers can devote their mental energy to thinking about the argument itself rather than trying to figure out what the argument is. 2) Prose is a monochrome stream of words, sentences, and paragraphs. Prose does not use any color, shape, line, or position in space to convey information about the structure of the argument. We know, however, that our brains can process huge amounts of color, shape, and space information very quickly. In an argument map, color can be used to indicate in a matter of milliseconds whether a claim is being presented as reason or an objection. 3) Prose is sequential in nature. However, arguments are fundamentally not sequential. Arguments are more than just one thing after another; they are more complicated. 4) Using diagrams, we can to some extent take advantage of the way humans learn and understand. "We can place all the reasons over here and all the objections over there, or we can make stronger reasons bigger, or place them underneath (supporting) the conclusion."

Until now, argument maps have not really taken off as a practical tool for argument deliberation. Creating these diagrams by hand can be quite difficult. However, new computer software (both free and commercial) is making this method easier. New argument mapping pieces of software include Araucaria, Athena, and Reason!Able.

Argument Maps Improve Critical Thinking

Charles R. Twardy
Revised draft for publication in Teaching Philosophy
School of Computer Science and Software Engineering
Monash University, Australia

Summary
When Charles R. Twardy, a professor at Monash University, first heard about Tim van Gelder's Reason!Able argument mapping software, Twardy was quite skeptical about the effectiveness of the methodology. Rumors circulated that the new software had the ability to drastically increase the quality of critical thinking by van Gelder's students. Twardy contacted van Gelder and the two professors agreed that Twardy should visit van Gelder's university and teach one of his classes to see if students' critical thinking skills really do improve with the Reason!Able software (argument mapping) or whether the students benefit from the "founder effect."

The Reason!Able software for argument mapping amazed Twardy. He saw a significant improvement in the abilities of his students to think critically about arguments after taking a course on the Reason!Able software and the argument mapping methodology. Twardy concluded that "Computer-based argument mapping greatly enhances student critical thinking, more than tripling absolute gains made by other methods." (The gains, or scores, Twardy is referring to are those from the California Critical Thinking Skills Test)

The most significant advantage that argument mapping provides students is the ability to show precisely how students make errors in their reasoning, making it much easier for them to fix their errors. Specifically, argument maps help us to understand how arguments are structured. Typically, we do not make the distinction between two claims forming part of a single reason or whether they are parts of separate reasons. Prose does not force students to know the structure of arguments. Even if you understand an argument, you may not understand the argument's structure.

The second benefit to argument mapping is the methodology's versatility. Argument mapping is a general skill that can be applied to all kinds of arguments.

The major negative to Reason!Able and argument mapping is that users really need a class and significant practice to master the skill. Almost anyone who is asked to map a two-paragraph argument fails to do so correctly. Twardy argues that "practice is clearly important; argument mapping without practice would not much improve critical thinking."

Socratic Method

Learn UNC, From The UNC School Of Education

Summary
Developed from Plato’s Socratic Dialogues, the Socratic approach challenges learners to develop their own critical thinking skills and engage in analytic discussion. “Socratic questioning is a systematic process for examining the ideas, questions, and answers that form the basis of human belief. It involves recognizing that all new understanding is linked to prior understanding.”

A group leader (or questioner) engages participants by asking open-ended questions that require generative answers. Ideally, the answers to the questions serve as a beginning for further analysis and research. The questioning process requires participants to consider how they rationalize about a particular topic.

The goal and benefit of the Socratic Method is to aid participants in processing information and engage in a deeper understanding of a particular topic. Most importantly, rather than engaging in a competitive debate, the Socratic Method allows participants to dialogue and discuss the topic in a collaborative and open-minded manner.

Unfortunately, the success of the Socratic methodology often depends on the quality of the initial question that initiates the investigative discussion. As a result, the first question posed by the questioner to the participants must:
*arise from the curiosity of the leader
*not have a single "right" answer
*be structured to generate dialogue that leads to a clearer understanding of the topic
*require participants to refer to concrete data or textual resources

The Socratic Method

Communities Resolving Our Problems, Western Carolina University

Summary
The Socratic Method is a chain of questions that seek the truth of some topic. Although the methodology may include summarizing ideas, in its purest form, the Socratic Method only includes questions. The questions allow users to utilize their critical thinking skills to find false paths and dead ends in the reasoning process. As a result, the Socratic methodology is a problem solving methodology.

To help develop the proper questions for a Socratic analysis, the discussion group should consider playing the game 20 Questions. This game allows players to see the value of some underlying analytical strategy.

The Socratic Method does not have a concrete methodology for generating the chain of questions. One person in the discussion group should serve as the lead questioner, engaged in analysis and in breaking things down into logical parts. Typically, the initial question must get at what the group already knows about the topic at hand. After this phase, there is the option of pausing to summarize the conclusions found once the group reaches a certain level of complexity. The lead questioner should formulate questions that will move the group into the next area of the topic that the group needs to know. Once the group becomes familiar with the process, all members can be free to pose questions and direct the process’s path.

Law schools often utilize this process to reveal contradictions to invalidate initial assumptions (a handy skill in legal cases). As a cautionary note, thinkers caught in their own illogical concepts may become irritated or even angered by such an approach. As a result, it is very important to develop an egalitarian attitude among all members of the group so that everyone feels comfortable with this process.

How To Do A SWOT Analysis

SWOT is a planning tool used to understand strengths, weaknesses, opportunities, and threats involved in a project or in a business. It involves identifying the internal and external factors that are supportive or unfavorable to achieving an objective. SWOT analysis can be graphically represented with a matrix or a grid. Although SWOT appears to be an easy model, an effective and meaningful SWOT analysis requires time and resources. One person cannot do this method effectively; it requires a team effort. SWOT is not an analysis; rather it is summary of a previous set of analyses (mini-brainstorming activities).

A SWOT analysis produces information that is helpful in pairing an organization’s goals and programs with the social environment in which it operates.

*Strengths—internal attributes within an organization’s control
*Weaknesses—within the organization’s control but detract from its ability
*Opportunities—external factors that present opportunities within the environment
*Threats—external factors that place the organization at risk

SWOT’s strength as a model lies in its flexibility and experienced application. For example, a SWOT analysis can be used for workshops, brainstorming, problem solving, planning, evaluation, and competitor evaluation. The analytic method aims to reveal a company’s competitive advantages, analyze prospects for sales, prepare the company for future problems, and allow for the development of contingency plans.

To conduct a SWOT analysis:
1) Collection information—list all strengths and weaknesses
2) List all opportunities that might exist in the future as well as all threats that may exist
3) Review the SWOT matrix to create an action plan to address the four areas.

Due to SWOT’s subjective characteristics, two people rarely draft the same final version of a SWOT analysis. In order to strengthen a SWOT analysis, be realistic about a company’s strengths and weaknesses, avoid gray areas, avoid complexity, and always analyze in relation to competitors. Other capabilities needed to complete an effective SWOT analysis include trust in group members, team diversity, and time.

http://www.rapidbi.com/created/how-to-do-a-swot-analysis.html

Case Study: SWOT Analysis In Action At Škoda

Škoda, a small car company originating in Czechoslovakia in 1895, needed to seek out a strong foreign partner to aid the company amid economic hard times. Škoda chose Volkswagen AG due to its reputation for strength, quality, and reliability. Volkswagen AG comprises Volkswagen, Audi, Škoda, SEAT, Lamborghini, Bentley, and other brands. To improve its performance, Škoda conducted a brand positioning examination (establishing a distinctive image) by obtaining market research data from both internal and external audits, allowing Škoda to conduct a SWOT analysis.

SWOT Analysis stands for:
*Strengths—the internal elements of the business that contribute to growth
*Weaknesses—the attributes that will hinder a business or make it vulnerable
*Opportunities—the external conditions that could enable future growth
*Threats—the external factors which could negatively affect business

Strengths
To identify its strengths, Škoda gathered research from customers and reliable independent surveys. Škoda found that the company excelled at satisfying its customers when it focused on the “owner experience” rather than on sales alone. Almost all of Škoda’s customers would recommend Škoda to a friend, meaning that Škoda had a clearly identifiable strength. As a result, Škoda manufactured cars that their customers could enjoy, which is different from simply maximizing sales. Škoda branded themselves as a quality product that satisfies its customers.

Weaknesses
Škoda’s analysis showed that in order to grow the business needed to address questions about how the small company (1.7% market share) fit into the highly competitive market. An out-dated perception of the Škoda brand, related to the company’s Eastern European origins, contributed to the business’ small size. By 1999, Volkswagen AG ownership changed this negative attitude about Škoda. However, Škoda still lacked a strong appeal. Škoda realized that the company needed to cease defensive campaigns illustrating what the brand was not and begin new campaigns illustrating what Škoda had to offer. The change was simple: Škoda new that its owners were happy with their cars.

Opportunities
Škoda realized that its competitors’ marketing approaches focused on the product (car) itself. Škoda, conversely, focused its attention on emphasizing the owner’s experience with their cars and the customers’ satisfaction with Škoda vehicles. This SWOT analysis helped Škoda to differentiate its product from its competitors.

Threats
In the UK market, there are 50 different car makers selling 200 models. In this large and competitive market, Škoda needed to ensure that its message would not be lost or drowned out within the crowded environment. As a result, Škoda manufactured seven different cars, each one appealing to a different segment of the market (city car, luxurious car, family car, etc) with subsequent levels of pricing.

Conclusion
Škoda’s SWOT analysis helped the company to discover that Škoda customers were happy with their cars, the brand was no longer seen as a poor, outdated car, the company was able to operate within a niche in the market, and that a change in public perception was vital to Škoda’s ability to expand within a highly competitive market.

SWOT analysis brings order and structure to random information. The SWOT model helps managers to look internally and externally. It examines that key internal weaknesses and focuses on strengths managers can utilize to seize opportunities and combat threats.

Author's Note: This case study simply provides a real world example of a company who used SWOT analysis successfully to redefine its market strategy. The case study did not provide a critique of the structured method.

http://www.thetimes100.co.uk/downloads/skoda/skoda_13_full.pdf