SWOT analysis is a strategic planning and strategic management technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning. It is sometimes called situational assessment or situational analysis. Additional acronyms using the same components include TOWS and WOTS-UP.
This technique is designed for use in the preliminary stages of decision-making processes and can be used as a tool for evaluation of the strategic position of organizations of many kinds (for-profit enterprises, local and national governments, NGOs, etc.). It is intended to identify the internal and external factors that are favourable and unfavourable to achieving the objectives of the venture or project. Users of a SWOT analysis often ask and answer questions to generate meaningful information for each category to make the tool useful and identify their competitive advantage. SWOT has been described as a tried-and-true tool of strategic analysis but has also been criticized for its limitations, and alternatives have been developed.
Overview of SWOT Analysis
The name is an acronym for the four components the technique examines:
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- Strengths: characteristics of the business or project that give it an advantage over others
- Weaknesses: characteristics that place the business or project at a disadvantage relative to others
- Opportunities: elements in the environment that the business or project could exploit to its advantage
- Threats: elements in the environment that could cause trouble for the business or project
Results of the assessment are often presented in the form of a matrix, or simply as paragraphs. Strengths and weaknesses are usually considered internal, while opportunities and threats are usually considered external. The degree to which the internal strengths of the firm matches with the external opportunities is expressed by the concept of strategic fit.
Internal factors are viewed as strengths or weaknesses depending upon their effect on the organization’s objectives. What may represent strengths concerning one objective may be weaknesses (distractions, competition) for another objective. The factors may include personnel, finance, manufacturing capabilities, and all of the marketing mix’s 4Ps.
External factors include macroeconomics, technological change, legislation, and sociocultural changes, as well as changes in the marketplace. Several authors advocate assessing external factors before internal factors.
Use of SWOT Analysis
SWOT analysis has been used at different levels of analysis in many areas, not just in profit-seeking organizations. Examples include non-profit organizations, governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis management. SWOT analysis may also be used in creating a recommendation during a viability study/survey. Subscription databases that are available in many libraries, regularly produce new SWOT analyses of companies.
Strategy building
SWOT analysis can be used to build organizational or personal strategies. Steps necessary to execute strategy-oriented analysis involve identification of internal and external factors (often using the popular 2 × 2 matrices), selection and evaluation of the most important factors, and identification of relations existing between internal and external features.
For instance, strong relations between strengths and opportunities can suggest good conditions in the company and allow using an aggressive strategy. On the other hand, strong interactions between weaknesses and threats could be analyzed as a potential warning and advice for using a defensive strategy.
One form of TOWS matrix combines each of the four components with another to examine four distinct strategies:
- WT strategy (mini–mini): Faced with external threats and internal weaknesses, how to minimize both weaknesses and threats?
- WO strategy (mini–maxi): Faced with external opportunities and internal weaknesses, how to minimize
- weaknesses and maximize opportunities?
- ST strategy (maxi–mini): Faced with external threats and internal strengths, how to minimize threats and maximize strengths?
- SO strategy (maxi–maxi): Faced with external opportunities and internal strengths, how to maximize both opportunities and strengths?
Matching and converting
One way of using SWOT is matching and converting. Matching is used to find competitive advantage by matching the strengths to opportunities. Another tactic is to convert weaknesses or threats into strengths or opportunities. An example of a conversion strategy is to find new markets. If the threats or weaknesses cannot be converted, a company should try to minimize or avoid them.
Corporate planning
As part of the development of strategies and plans to enable an organization to achieve its objectives, 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 internal and environmental factors.
Marketing
In competitor analysis, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor’s cost structure, sources of profits, resources and competencies, competitive positioning and product differentiation, degree of vertical integration, historical responses to industry developments, and other factors.
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