Swot analysis involves the collection and portrayal of information about internal and external factors which have, or may have, an impact on business.[2] Show
SWOT is a framework that allows managers to synthesize insights obtained from an internal analysis of the company’s strengths and weaknesses with those from an analysis of external opportunities and threats.[3] Understanding the toolWhat is SWOT analysis? The answer to the question is simple: it’s a tool used for situation (business or personal) analysis! SWOT is an acronym which stands for: Strengths: factors that give an edge for the company over its competitors. Strengths and weaknesses are internal to the company and can be directly managed by it, while the opportunities and threats are external and the company can only anticipate and react to them. Often, swot is presented in a form of a matrix as in the illustration below: Swot is widely accepted tool due to its simplicity and value of focusing on the key issues which affect the firm. The aim of swot is to identify the strengths and weaknesses that are relevant in meeting opportunities and threats in particular situation. [4] BenefitsSwot tool has 5 key benefits:
LimitationsAlthough there are clear benefits of doing the analysis, many managers and academics heavily criticize or don’t even recognize it as a serious tool.[2] According to many, it is a ‘low-grade’ analysis. Here are the main flaws identified by a research:[2][5]
How to perform the analysis?Swot can be done by one person or a group of members that are directly responsible for the situation assessment in the company. Basic swot analysis is done fairly easily and comprises of only few steps: Step 1. Listing the firm’s key strengths and weaknesses Strengths and WeaknessesStrengths and weaknesses are the factors of the firm’s internal environment. When looking for strengths, ask what do you do better or have more valuable than your competitors have? In case of the weaknesses, ask what could you improve and at least catch up with your competitors? Where to look for them?Some strengths or weaknesses can be recognized instantly without deeper studying of the organization. But usually the process is harder and managers have to look into the firm’s:
Strength or a weakness?Often, company’s internal factors are seen as both, strengths and weaknesses, at the same time. It is also hard to tell if a characteristic is a strength (weakness) or not. For example, firm’s organizational structure can be a strength, a weakness or neither! In such cases, you should rely on: Clear definition. Very often factors which are described too broadly may fit both strengths and weaknesses. For example, “brand image” might be a weakness if the company has poor brand image. However, it can also be a strength if the company has the most valuable brand in the market, valued at $100 billion. Therefore, it is easier to identify if a factor is a strength or a weakness when it’s defined precisely. Benchmarking. The key emphasize in doing swot is to identify the factors that are the strengths or weaknesses in comparison to the competitors. For example, 17% profit margin would be an excellent margin for many firms in most industries and it would be considered as a strength. But what if the average profit margin of your competitors is 20%? Then company’s 17% profit margin would be considered as a weakness. VRIO framework. A resource can be seen as a strength if it exhibits VRIO (valuable, rare and cannot be imitated) framework characteristics. Otherwise, it doesn’t provide any strategic advantage for the company. Opportunities and threatsOpportunities and threats are the external uncontrollable factors that usually appear or arise due to the changes in the macro environment, industry or competitors’ actions. Opportunities represent the external situations that bring a competitive advantage if seized upon. Threats may damage your company so you would better avoid or defend against them. Where to look for them?PESTEL. PEST or PESTEL analysis represents all the major external forces (political, economic, social, technological, environmental and legal) affecting the company so it’s the best place to look for the existing or new opportunities and threats. Competition. Competitor’s react to your moves and external changes. They also change their existing strategies or introduce new ones. Therefore, the company must always follow the actions of its competitors as new opportunities and threats may open at any time. Market changes. The most visible opportunities and threats appear during the market changes. Markets converge, starting to satisfy other market segment needs with the same product. New geographical markets open up allowing the firm to increase its export volumes or start operations in a new country. Often niche markets become profitable due to technological changes. As a result, changes in the market create new opportunities and threats that must be seized upon or dealt with if the company wants to gain and sustain competitive advantage. Opportunity or threat?Most external changes can represent both opportunities and threats. For example, exchange rates may increase or reduce the profits gained from exports. This depends on the exchange rate, which may rise (opportunity) or fall (threat) against the home country currency. The organization can only guess the outcome of the change and count on analysts’ forecasts. In such cases, when organization cannot identify if the external factor will affect it positively or negatively, it should gather unbiased and reliable information from the external sources and make the best possible judgement. Guidelines for successful SWOTThe following guidelines are very important in writing a successful swot analysis. They eliminate most of swot limitations and improve it’s results significantly:
SWOT analysis example AThis is a basic example of the analysis:
You can find an extensive list of strengths, weaknesses, opportunities and threats by looking at our examples of swot analyses, which include Alphabet (Google) swot, Amazon.com swot, Apple Inc. swot, The Coca Cola Company swot, Ford Motor Company swot, McDonald’s Corporation swot, PepsiCo Inc. swot, Samsung Electronics swot, Starbucks Corporation swot, Wal-Mart Stores, Inc. swot and many more swot analyses. Advanced SWOTAt the most, swot is considered to be only a reference to further analysis as it has too many limitations and cannot be used alone in the situation analysis. The previous guidelines identified in this article meet the most of swot limitations except one: “prioritization of factors”. An advanced swot goes a step further and eliminates this important drawback. In a simple swot, strengths and weaknesses or opportunities and threats are equal to each other, therefore a minor weakness can balance a major strength. Without prioritization, some factors might be given too much or too little emphasis and the most relevant factors might simply be overlooked. The aim of advanced swot is to identify the most significant factors of the analysis from all the items listed on it. How to perform it? Step 1. Identify strengths, weakness, opportunities and threats. (The first step was discussed earlier so please refer to it when doing advanced swot analysis. See example B when reading further instructions.) PrioritizationStrengths and weaknesses are evaluated on 3 categories:
Opportunities and threats are prioritized slightly differently than strengths and weaknesses. Their evaluation includes:
SWOT analysis example BThis swot example is adopted from the previous example and additionally includes prioritization. Highlighted cells point to the most significant factors affecting the organization. Advanced SWOT of Company X
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