SWOT Analysis

 

SWOT Analysis
is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The technique is credited to Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s using data

Strategic Use: Orienting SWOTs to An Objective

If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless. A SWOT analysis may be incorporated into the strategic planning model. An example of a strategic planning technique that incorporates an objective-driven SWOT analysis is SCAN analysis. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.

If a clear objective has been identified, SWOT analysis can be used to help in the pursuit of that objective. In this case, SWOTs are:

Strengths: attributes of the organization that are helpful to achieving the objective. Weaknesses: attributes of the organization those are harmful to achieving the objective. Opportunities: external conditions those are helpful to achieving the objective. Threats: external conditions that is harmful to achieving the objective. Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective are to be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.

Creative Use of SWOTs: Generating Strategies

If, on the other hand, the objective seems attainable, the SWOTs are used as inputs to the creative generation of possible strategies, by asking and answering each of the following four questions, many times:

Ideally a cross-functional team or a task force that represents a broad range of perspectives should carry out the SWOT analysis. For example, a SWOT team may include an accountant, a salesperson, an executive manager, an engineer, and an ombudsman.

Evidence on the Use of SWOT
SWOT analysis may limit the strategies considered in the evaluation. "In addition, people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate strategies."

  • How can we Use each Strength?
  • How can we stop each Weakness?
  • How can we exploit each Opportunity?
  • How can we defend against each Threat?

Avoiding Errors:
Conducting a SWOT analysis before defining and agreeing upon an objective (a desired end state). SWOTs should not exist in the abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participants may have different end states in mind and the results will be ineffective.

Opportunities external to the company are often confused with strengths internal to the company. They should be kept separate. SWOTs are sometimes confused with possible strategies. SWOTs are descriptions of conditions, while possible strategies define actions. This error is made especially with reference to opportunity analysis. To avoid this error, it may be useful to think of opportunities as "auspicious conditions".

Internal and external factors
the aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. SWOT analysis groups key pieces of information into two main categories:

  • Internal factors – The strengths and weaknesses internal to the organization.
  • External factors – The opportunities and threats presented by the external environment.

he internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.

Examples of SWOTs

  • Strengths and weaknesses
  • Resources: financial, intellectual, location
  • Cost advantages from proprietary know-how and/or location
  • Creativity (ability to develop new products)
  • aluable intangible assets: intellectual capital
  • Competitive capabilities
  • Effective recruitment of talented individuals

Opportunities and threats

  • Expansion or down-sizing of competitors
  • Market trends
  • Economic conditions
  • Expectations of stakeholders
  • Technology
  • Public expectations
  • All other activities or inactivities by competitors
  • Criticisms by outsiders
  • Changes in markets
  • All other environmental conditions

Use of SWOT Analysis
The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has been defined. Examples include: non-profit organizations, governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis management.

Corporate planning
As part of the development of strategies and plans to enable the organization to achieve its objectives, then that organization will use a systematic/rigorous process known as corporate planning. SWOT alongside PEST/PESTLE can be used as a basis for the analysis of business and environmental factors.[5]

Set objectives – defining what the organisation is intending to do Environmental scanning Internal appraisals of the organisations SWOT, this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organization Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change Establish critical success factors – the achievement of objectives and strategy implementation Preparation of operational, resource, projects plans for strategy implementation Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies

Human resources
A SWOT carried out on a Human Resource Department may look like this.

Strengths :
Developed techniques for dealing with major areas of HR, job evaluation, psychometric testing and basic training.

Weaknesses:
Reactive rather than pro-active; needs to be asked rather than developing unsolicited ideas

Opportunities:
New management team, wanting to improve overall organizational effectiveness through organizational development and cultural management programmes.

Threats:
HR contribution not recognised by top management who by-pass it by employing external consultants

In SWOT, strengths and weaknesses are internal factors. For example: strength could be:

  • Your specialist marketing expertise.
  • A new, innovative product or service.
  • Location of your business.
  • Quality processes and procedures.
  • Any other aspect of your business that adds value to your product or service.
  • A weakness could be:
  • Lack of marketing expertise.
  • Undifferentiated products or services (i.e. in relation to your competitors).
  • Location of your business.
  • Poor quality goods or services.
  • Damaged reputation.

In SWOT, opportunities and threats are external factors. For example: An opportunity could be:

  • A developing market such as the Internet.
  • Mergers, joint ventures or strategic alliances.
  • Moving into new market segments that offer improved profits.
  • A new international market.
  • A market vacated by an ineffective competitor.

A threat could be:

  • A new competitor in your home market.
  • Price wars with competitors.
  • A competitor has a new, innovative product or service.
  • Competitors have superior access to channels of distribution.
  • Taxation is introduced on your product or service.

A word of caution, SWOT analysis can be very subjective. Do not rely on SWOT too much. Two people rarely come-up with the same final version of SWOT. TOWS analysis is extremely similar. It simply looks at the negative factors first in order to turn them into positive factors. So use SWOT as guide and not a prescription.

Simple rules for successful SWOT analysis.

  • Be realistic about the strengths and weaknesses of your organization when conducting SWOT analysis.
  • SWOT analysis should distinguish between where your organization is today, and where it could be in the future.
  • SWOT should always be specific. Avoid grey areas.
  • Always apply SWOT in relation to your competition i.e. better than or worse than your competition.
  • Keep your SWOT short and simple. Avoid complexity and over analysis
  • SWOT is subjective.

Once key issues have been identified with your SWOT analysis, they feed into marketing objectives. SWOT can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. So SWOT is a very popular tool with marketing students because it is quick and easy to learn. During the SWOT exercise, list factors in the relevant boxes. It's that simple. Below are some FREE examples of SWOT analysis - click to go straight to them.

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