SWOT analysis

SWOT analysis  is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, andThreats 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 achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.

Setting the objective should be done after the SWOT analysis has been performed. This would allow achievable goals or objectives to be set for the organization.

            Strengths: characteristics of the business, or project team that give it an advantage over others.

            Weaknesses (or Limitations): are characteristics that place the team at a disadvantage relative to others.

            Opportunities: external chances to improve performance (e.g. make greater profits) in the environment.

            Threats: external elements in the environment that could cause trouble for the business or project 

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may 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.

One way of utilizing SWOT is matching and converting.

        Matching is used to find competitive advantages by matching the strengths to opportunities.

       Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities. An example of conversion strategy is to find new markets. If the threats or weaknesses cannot be converted a company should try to minimize or avoid them.[1]

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. These come from within the company's unique value chain. 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 to the organization.

The 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.

Downside to SWOT analysis

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 therefore advisable to combine a SWOT analysis with portfolio analyses such as the GE/McKinsey matrix  or COPE analysis.

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.

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.[7]

Set objectives – defining what the organization is going to do.

Environmental scanning - Internal appraisals of the organization's 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.

The SWOT approach will allow you to list in simple terms

    Where the best opportunities for growth exist. 

    Any possible current and future threats to your business in the market segments in which it operates in. 

    Your company's differential strength and weakness in comparison to your competitors.

References