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However, the SWOT analysis by itself is frequently a mere listing of internal strengthsAfter that first stage in which the SWOT analysis is used for

EVALUATION OF POTENTIAL OF THE SHIPBUILDING CLUSTER IN THE SPLIT-DALMATIA COUNTY 1BY SWOT ANALYSIS AND AHP METHOD

     Ivica Veža, Zoran Babić, Marko Hell, Nikša Nikolić

    University of Split, Croatia

    ABSTRACT

    This paper deals with the cluster efficiency evaluation in the shipbuilding industry of the Split-Dalmatia

    County.

    The global trend of interconnecting businesses into clusters to enhance productivity and competitiveness

    results in a shipbuilding cluster including over 50 companies. To evaluate the potential of the cluster we use the

    hybrid method A’WOT, which is a combination of two decision support tools: the AHP and SWOT analysis.

    In the first step, the survey conducted among the eminent experts directly involved in the process of

    cluster formation is the basis for identification of internal strengths and weaknesses of the shipbuilding cluster

    and external opportunities and threats coming from its environment. In the second step, the AHP method is used

    to rank the importance of each particular element and to select among the four proposed cluster development

    strategies the most efficient one.

    Key words: shipbuilding, cluster, SWOT, AHP

    1. INTRODUCTION

    The restructuring and privatization of the Croatian shipbuilding industry are the critical elements of

    transitional reform and development policy of the entire country. One causative factor making these changes

    necessary is competition on the global level. Additionally, due to the importance of the shipbuilding industry in

    Croatia’s economic structure, this process definitively affects the transformation of the income-generating

    principle prevailing in socialism into the principle of profit dominating in the market-based economy.

    Forming a shipbuilding cluster is a very demanding decision making problem. To evaluate the realization

    of such a complex project this study involves the SWOT analysis ([3], [16]) which should help the decision-

    makers in their final selection of the implementation scenario. However, the SWOT analysis by itself is

    frequently a mere listing of internal strengths and weaknesses and external opportunities and threats. Therefore it

    can only be the first step in a more sophisticated procedure.

     1 For useful comments and suggestions we would like to thank the anonymous reviewers and the discussants at

    the 2008 B&ESI Conference in Lugano.

    In this work the data collected by the survey conducted among the experts directly involved in the process

    of cluster formation are the basis for identification of internal strengths and weaknesses of the shipbuilding

    cluster and external opportunities and threats coming from its environment.

    After that first stage in which the SWOT analysis is used for identification and definition of the basic

    elements, in the second phase the AHP method is used to rank the influence of each particular element and to

    select the most efficient shipbuilding cluster development strategy of the four proposed.

    This paper is organized as follows: following this Introduction, the Section 2 presents a short overview of

    development and usage of the combination of the two decision support tools, SWOT and AHP, which is known

    as A’WOT method. In the Section 3, we present the methodology and the way of using of the AHP method in the given problem. The Section 4 presents the application of the proposed methodology on the shipbuilding

    cluster in the Split-Dalmatia County. The Section 5 summarizes the paper and indicates the possible directions

    for further research.

    2. REVIEW OF RESEARCH CARRIED OUT TO DATE

    This work uses a hybrid method, i.e. a combination of SWOT analysis with one of the most frequently

    used multicriteria decision making methods Analytical Hierarchical Process (AHP). The combination of these

    two methods is frequently called A’WOT and for the first time it was applied in the analysis of the forest

    industry in Finland (Kurttila et al. [6]) and then in selection of management scenario in the Finnish Forest and

    Park Service (Pesonen et al. [9]). Very soon this approach was also used in selection of the forest industry

    investment strategies for Finnish companies in North America (Pesonen et al. [8]).

     Shortly after these first applications of the A’WOT concept on the Finnish forest industry the same or

    similar methodology was applied in tourist management (Kajanus et al. [4]), in exploring the potential of

    silvopasture adoption in south-central Florida (Shretha et al. [13]). Stewart et al. [14] applied exactly the same

    A’WOT version as before in an information technology management case study.

    The basic A’WOT methodology was developed and enhanced. Thus Kajanus et al. in their above

    mentioned work [4] instead of the AHP use SMART (Simple Multi-Atribute Rating Technique) in combination

    with the SWOT analysis.

    Leskinen et al [7] used the statistical analyses to produce information concerning the uncertainties

    included in the priority calculations of the SWOT factors. Yuksel and Dagdeviren [17] went a step further.

    Namely, they assumed that the SWOT factors presented in the hierarchical structure were not mutually

    independent. In that case the AHP model has some shortcomings, so they propose an extension of the original

    A’WOT approach by using the Analytic Network Process (Saaty [11]) which allows interdependence of

    hierarchical elements working out their feedbacks and carries out the final calculation for the composite value of

    a particular scenario or alternative. Zadnik-Stirn [18], [19] enhances the A’WOT procedure evaluating the

    possible strategies by fuzzy logic, using the surveys carried out on the set of 50 experts and their evaluations of

    possible strategies.

    The use of hybrid methods in practical applications has been lately increasingly supported by researchers

    and practitioners. Such approaches most frequently use two or more MCDM methods or a combination of the

    MCDM methods and other decision support approaches. Belton and Stewart [2] and Schmoldt et al. [12] point to

the need for such integrated approach, as applying hybrid methods, or multiple different methods simultaneously

    to the same decision problem, might well serve the purpose from the behavioural and educational point of view.

    3. PROBLEM FORMULATION

    A’WOT is an example of hybrid method, namely a combination of two decision support tools: the AHP

    and SWOT analysis. The main aim in applying two different approaches in the one and the same planning

    process is to make use of their advantages in a compatible manner, but it also serves in adopting ideas of

    multiple-criteria support to practical planning problems (Kangas et al. [5]). In this approach SWOT forms the

    general framework and the AHP is applied within this framework in order to bring quantitative analysis into the

    planning process.

    The idea in utilizing the AHP within a SWOT framework is to systematically evaluate SWOT factors and

    make them commensurable as regards their intensities. The AHP’s qualities can be regarded to be valuable

    characteristics in SWOT analysis. Additional value from a SWOT analysis can be achieved by performing

    pairwise comparison between the SWOT factors and then analyzing them by means of the eigenvalue technique

    as applied in the AHP. After carrying out the comparisons, useful quantitative information can be obtained about

    the decision making situation. For example it can be analyzed if there are some weaknesses requiring all of the

    attention, or if the company is expected to be faced with future threats exceeding the company’s combined

    opportunities (Kurtilla et al. [6]). Besides that using A’WOT enables choice alternatives or strategies to be evaluated with respect to each SWOT group, and when the importance of all SWOT groups has also been

    determined, the choice strategies can be prioritized with respect to the strategic choice situation as a whole.

    A’WOT model provides the possibility of improving the usability of SWOT analysis. SWOT can provide a good basis for successful strategy/alternative formulation, but it lacks the possibility of comprehensively

    appraising the strategic decision making situation. It identifies the factors in strength, weakness, opportunity and

    threat groups, but does not find the most significant group. In addition, it does not asses the fit between SWOT

    factors and decision alternatives, and finally SWOT is mainly based on the qualitative analysis and expertise of

    the persons participating in the evaluation and decision process (Zadnik [18]).

    Due to this, to yield analytically determined priorities for the SWOT factors and to make them

    commensurable the Saaty’s decision analysis method, the analytic hierarchy process (AHP), and its eigenvalue

    calculation method were integrated with SWOT analysis.

    Pairwise comparisons between SWOT factors within each SWOT group and between four SWOT groups

    are carried out. Finally, the composite values of the alternatives (strategies) are calculated using the surveys

    carried out among experts familiar with the problems of the shipbuilding industry.

    In most of the studies using A’WOT analysis it was pointed out that the four SWOT groups are not

    directly measurable by themselves, but are presented by factors which are found at the second level. The factor

    with the highest priority is then chosen from each group to represent a group. These four factors are then

    compared and their relative priorities are calculated by AHP. These are the scaling factors of the four SWOT

    groups and they are used to calculate the overall (global) priorities of the independent factors within them. This

    work uses a slightly different methodology. As a comprehensive survey has been carried out among the process

participants, the factors of each SWOT group also generate quite well the importance of the entire group. These

    factors define the cumulative effect of the SWOT group. Hence, their impacts on the group to which they belong

    must be aggregated. The composite value of objective (SWOT group) is measured based on a number of

    attributes (factors) and their priorities. Simple method of aggregation involving the linear combination of all

    factors and groups is used. Zadnik-Stirn [19] does it in a similar way, but she uses fuzzy numbers to define the

    composite value of the alternatives. We will use alternatives as the third level of hierarchy. If in the second level (SWOT factors) too many factors exist we can divide them in two or more subgroups. Namely, the number of

    pairwise comparisons needed in the analysis increases very rapidly if the number of factors within SWOT group

    increases.

    For the pairwise comparisons between alternatives/strategies (at the last level) we will use the results of the questionnaires but not in fuzzy manner as in [19] but rather obtaining evaluations of alternatives per each

    SWOT factor from the performed survey, where all the ratings are transformed into a benefit form, i.e. the higher

    number means that the strategy is more acceptable.

    Composite values of all strategies are then calculated through the hierarchy.

    4. CASE STUDY

    Based on the SWOT analysis carried out in the study “Shipbuilding industry development concept in

    Split-Dalmatia County” [15], this work proposes four possible development strategies for the shipbuilding

    cluster. The strategies were formulated in consultancy with a number of experts from Croatian shipyards and

    universities (professors, top management and supervisory boards).

    The four strategies proposed are:

    A1 Production programme within the cluster remains unchanged (tankers, bulk-carriers, etc.) A2 Production programme is extended by including production of special vessels (fishing boats, passenger

    liners, off-shore platforms, etc.)

    A3 In addition to shipbuilding, new products are introduced (information-communication technology,

    automated systems, vehicles, etc.)

    A4 Production programme is extended to include repair and other services within shipbuilding industry and

    beyond it.

    When forming the evaluation model for particular strategies we must have in mind that for the idea of cluster formation, disregarding which strategy is implemented, all the SWOT factors and SWOT groups need not

    be equally important. Due to that, the above mentioned competent experts in shipbuilding industry were

    surveyed, who by pairwise comparison and AHP were comparing both the weights of the SWOT groups

    (strength, weakness, opportunity, threat) and individual SWOT factors within each single group. The

    questionnaries were developed in standard AHP manner using the Expert Choice software.

    On the first hierarchy level there are four criteria C (k = 1,…, 4), or four SWOT groups: k

    C Strengths, 1

    C Weaknesses, 2

    C Opportunities and 3

    C Threats. 4

On the second hierarchy level we have 24 SWOT factors which are divided into four SWOT groups in

    this way:

    Strengths:

    S - Shipbuilding tradition and experience 1

    S - Possession of a niche in the global market 2

    S - Appreciated and recognisable global product built and tailored to customer’s needs 3

    S - Long lasting participation in the global market offering good projects and quality 4

    S - Lower price in comparison to renowned European producers 5

     Weaknesses:

    W - Insufficient efficiency of the operating system 1W - Indebtedness and operation financing problems 2W - Low technological level of production facilities 3W - Comparative lagging in productivity 4W - Staff structure inadequately adapted to new technologies 5W - Semi-skilled labour and high turnover of qualified workforce 6W - Weak horizontal and vertical integration into the broader environment 7

     Opportunities:

    O - Stabilized global market and possibility to make new contracts 1

    O - Favourable position of the Government towards shipbuilding as a strategic industry (maritime 2

    orientation)

    O - Synergy effects within Croatian shipbuilding industry 3

    O - Export oriented industry 4

    O - Opportunity to create entrepreneurial zones for business partners 5

     O - Opportunity of financing from EU-accession funds 6

     Threats:

    T - Globalized market of ship space 1

    T - Increasing competition through globalisation, emergence of new shipbuilding countries with low labour 2

    costs

    T - Delays in creation of national shipbuilding strategy 3

    T - Government obligations in terms of Stabilization and Association Agreement 4

    T - European competitors in the Croatian market 5

    T - Problem of qualified workforce (at the local and regional level) and lack of permanent personnel 6

    training.

    By the AHP methodology ratings of effects on the shipbuilding cluster formation for each SWOT group

    were obtained. Based on the survey of 10 experts pairwise comparisons were obtained (Saaty scale) which, after

    taking the geometrical mean of these judgments, resulted in weights for each particular SWOT group. The

    results are shown in the Figure 1.

    From the Figure 1 it can be seen that ? = 0.224, ? = 0.301, ? = 0.188 and ? = 0.288, which represents 1234the effect of a particular SWOT group on the idea of shipbuilding cluster formation. It is obvious that the

    surveyed experts perceived that in the current situation members of the shipbuilding cluster have more

    significant weaknesses and threats than strengths and opportunities.

     Figure 1. Weight ratings of SWOT groups (?) and SWOT factors (x) kj

    As stated above, within each SWOT group, individual SWOT factors were identified. Pairwise

    comparisons were carried out again to obtain the rating for each single SWOT factor within its SWOT group.

    Twenty-four different SWOT factors were identified: 5 strengths, 7 weaknesses, 6 opportunities and 6 threats. In

    that way, the factor weights (x, j = 1,…,24) were obtained within each SWOT group, that are also shown in the j

    Figure 1. Here it is important to note that in the final review the SWOT factors are ordered by importance. If the

    marks S = {1, …,5}, W = {6,…,12}, O = {13,…,18} and T = {19,…,24} are introduced, it can be easily seen that:

     x?x?x?x?1 (1) ????jjjj

    j?Sj?Wj?Oj?T

    As already stated, four different strategies were designed for the problem of cluster formation A i

    (i = 1,…,4). By surveying a group of experts, ratings for each single strength, weakness, opportunity and threat

    were obtained. Each strategy was marked from 1 to 5 considering the way how it can use the existing strengths

and opportunities, and how well it can eliminate weaknesses and threats. The higher mark meant that the selected

    strategy can better use strengths and opportunities or eliminate weaknesses and strengths. The average marks of

    these strategies were marked with a (i = 1,…,4; j = 1,…,24). ij

    Based on the weights of each SWOT factor (x) each alternative obtains its mark b for the corresponding jik

    SWOT group, i.e.

     ? i-strategy rating in terms of the considered strengths ax?b?ijjis

    ?jS

     ? i-strategy rating in terms of the considered weaknesses, ax?b?ijjiw

    j?W

     ? i-strategy rating in terms of the considered opportunities, ax?b?ijjio

    j?O

     ? i-strategy rating in terms of the considered threats. ax?b?ijjit

    j?T

    These ratings are shown in the Table 1.

    Table 1. Ratings of SWOT factors in particular strategies

     AAAA1 2 3 4

    b Strength 4.688 3.783 2.150 2.939 is

     bWeakness 1.830 3.528 3.987 3.257 iw

     bOpportunity 3.405 4.134 3.953 3.658 io

     bThreat 1.987 3.144 4.272 3.745 it

    The final evaluation of each single alternative (cumulative value) was obtained by weighting the ratings

    obtained by single alternatives in terms of each SWOT group (b) with weights of each single SWOT group (?), ikk

    i.e.

    CV(A) = b?? + b?? + b?? + b?? . (2) iis1iw2io3it4

    Thus calculation for the first strategy is:

    CV(A) = 4.688 ? 0.223 + 1.830 ? 0.302 + 3.405 ? 0.189 + 1.987 ?0.286 = 2.8099 1

    And analogously

    CV(A) = 3.5896, 2

    CV(A) = 3.6524, 3

    CV(A) = 3.4014. 4

    Consequently, it is obvious that the first strategy (the existing production programme) is completely

    unacceptable, and that the best alternatives are strategies A and A. 32

    5. CONCLUSION

    As cluster formation is a very complex task that has to be carefully prepared, it requires the use of new

    methods. In this paper the authors perform the evaluation of the most efficient shipbuilding cluster development

    strategy by using one of the latest hybrid methods for multicriteria decision making, i.e. the A’WOT method

    which is a combination of SWOT analysis and analytical hierarchy process. Using the assessment of the eminent

    experts directly involved in the process of cluster formation the authors evaluate the four possible development

    strategies:

    A1 Production programme within the cluster remains unchanged

    A2 Production programme is extended by including production of special vessels

    A3 In addition to shipbuilding, new products are introduced

    A4 Production programme is extended to include repair and other services within shipbuilding industry and

    beyond it.

    Having carried out the A’WOT procedure the authors conclude that the best alternatives are strategies A 3

    and A. 2

    This paper shows that the methodology presented here can be well used in evaluation of strengths and

    weaknesses in a great number of decision making problems. SWOT analysis is a very familiar method for many

    decision makers and its extension by multicriteria analysis allows a new, more complex insight into action that is

    to be taken (after perceiving strengths, weaknesses, opportunities and threats) in the given decision making

    problem.

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