What Is SWOT Analysis?
SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a
company’s competitive position and to develop strategic planning.SWOT analysis assesses internal and external factors, as well as current and future potential.
A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization, initiatives, or within its industry.The organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on real-life contexts.Companies should use it as a guide and not necessarily as a prescription.
Key Takeaways
– SWOT analysis is a strategic planning technique that provides assessment tools.
– Identifying core strengths, weaknesses, opportunities, and threats leads to fact-based analysis, fresh perspectives, and new ideas.
– A SWOT analysis pulls information internal sources (strengths of weaknesses of the specific company) as well as external forces that may have uncontrollable impacts to decisions (opportunities and threats).
– SWOT analysis works best when diverse groups or voices within an organization are free to provide realistic data points rather than prescribed messaging.
– Findings of a SWOT analysis are often synthesized to support a single objective or decision that a company is facing.
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SWOT Analysis
Understanding SWOT Analysis
SWOT analysis is a technique for assessing the performance, competition, risk, and potential of a business, as well as part of a business such as a product line or division, an industry, or other entity.
Using
internal and external data, the technique can guide businesses toward strategies more likely to be successful, and away from those in which they have been, or are likely to be, less successful.
Independent SWOT analysts, investors, or competitors can also guide them on whether a company, product line, or industry might be strong or weak and why.
SWOT analysis was first used to analyze businesses.Now, it’s often used by governments, nonprofits, and individuals, including investors and entrepreneurs.There is seemingly limitless applications to the SWOT analysis.
Components of SWOT Analysis
Every SWOT analysis will include the following four categories.
Though the elements and discoveries within these categories will vary from company to company, a SWOT analysis is not complete without each of these elements:
Strengths
Strengths describe what an organization excels at and what
separates it from the competition: a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on.For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results.It must then decide how to use those results to attract new investors.
Weaknesses
Weaknesses stop an organization from performing at its optimum level.They are areas where the business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital.
Opportunities
Opportunities refer to favorable external factors that could give an organization a competitive advantage.For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and
market share.
Threats
Threats refer to factors that have the potential to harm an organization.For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield.Other common threats include things like rising costs for materials, increasing competition, tight labor supply.and so on.
SWOT Table
Analysts present a SWOT analysis as a square segmented into four quadrants, each dedicated to an element of SWOT.
This visual arrangement provides a quick overview of the company’s position.Although all the points under a particular heading may not be of equal importance, they all should represent key insights into the balance of opportunities and threats, advantages and disadvantages, and so forth.
The SWOT table is often laid out with the internal factors on the top row and the external factors on the bottom row.
In addition, the items on the left side of the table are more positive/favorable aspects, while the items on the right are more concerning/negative elements.
How to Do a SWOT Analysis
A SWOT analysis can be broken into several steps with actionable items before and after analyzing the four components.In general, a SWOT analysis will involve the following steps.
Step 1: Determine Your Objective
A SWOT analysis can be broad, though more value will likely be generated if the analysis is pointed directly at an objective.
For example, the objective of a SWOT analysis may focused only on whether or not to perform a new product
rollout.With an objective in mind, a company will have guidance on what they hope to achieve at the end of the process.In this example, the SWOT analysis should help determine whether or not the product should be introduced.
Step 2: Gather Resources
Every SWOT analysis will vary, and a company may need different data sets to support pulling together different SWOT analysis tables.A company should begin by understanding what information it has access to, what data limitations it faces, and how reliable its external data sources are.
In addition to data, a company should understand the right combination of personnel to have involved in the analysis.Some staff may be more connected with external forces, while various staff within the
manufacturing or sales departments may have a better grasp of what is going on internally.
Having a broad set of perspectives is also more likely to yield diverse, value-adding contributions.
Step 3: Compile Ideas
For each of the four components of the SWOT analysis, the group of people assigned to performing the analysis should begin listing ideas within each category.Examples of questions to ask or consider for each group are in the table below.
Internal Factors
What occurs within the company serves as a great source of information for the strengths and weaknesses categories of the SWOT analysis.Examples of internal factors include financial and
human resources, tangible and intangible (brand name) assets, and operational efficiencies.
Potential questions to list internal factors are:
– (Strength) What are we doing well?
– (Strength) What is our strongest asset?
– (Weakness) What are our detractors?
– (Weakness) What are our lowest-performing product lines?
External Factors
What happens outside of the company is equally as important to the success of a company as internal factors.
External influences, such as
monetary policies, market changes, and access to suppliers, are categories to pull from to create a list of opportunities and weaknesses.
Potential questions to list external factors are:
– (Opportunity) What trends are evident in the marketplace?
– (Opportunity) What demographics are we not targeting?
– (Threat) How many competitors exist, and what is their market share?
– (Threat) Are there new regulations that potentially could harm our operations or products?
editorial policy.
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The Coca-Cola Company: A Short SWOT Analysis.”
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Home Depot SWOT Analysis & Recommendations.”.
