The word SWOT is an abbreviation of Strengths, Weaknesses, Opportunities and Threats. The SWOT analysis combines internal and external factors to offer an overview of a company’s state of affairs. The underlying idea is that management should use combinations of strengths and opportunities and avoid combinations of weaknesses and threats. The model is useful in analysis for business strategy.
The SWOT analysis
The SWOT analysis reveals four categories of factors in an orderly array.
- Strengths: Characteristics of the organization that give it an advantage over others. For example good informal relations with politicians, distinct elements of the organization or a unique value proposition.
- Weaknesses: Characteristics that place the organization at a disadvantage relative to others. For example absence of clear communication, high employee absenteeism or low reputation.
- Opportunities: Elements that the organization could exploit to its advantage. For example the advent of a new technology, consumer trends or an untapped market.
- Threats: Elements in the environment that could cause trouble for the organization. For example the introduction of a new brand by competitors, new legislation with stricter rules or material scarcity.
Strengths are positive internal factors with the company’s control. Questions to ask:
- What does the organization do well?
- Why do customers buy with the organization?
- What kind of financial resources does the company have?
- Are there any intellectual properties like patents?
- Is the organization capable of growing in ways the competition can’t?
Weaknesses are internal factors that take away from the organization or leaves it at a disadvantage. Questions to ask:
- In what areas does the organization struggle?
- Are there reasons customers buy with competitors instead of with the organization?
- Is a lack of financial resources holding the organization back?
- Are there any intellectual properties that are in jeopardy?
- Are competitors capable or growing in ways the organization can’t?
Opportunities are external factors presented by the environment that the organization could exploit to its advantage. Questions to ask:
- What current ongoing trends are there?
- What is the current market missing?
- Is the competition failing to service their customers?
- Does the organization’s reputation help to get funding?
Threats are external factors that could cause trouble to the organization. Questions to ask:
- Are their any negative factors in the current market?
- Which competitors can pose a threat in the future?
- Is their political instability that can hurt the organization?
- Are their any legislations that could hurt the organization?
From SWOT analysis to strategies
The last step in the process is converting the main issues to actionable strategies. In practice it means that the matrix presents four possibles strategies:
- Strengths-Opportunities: Use internal strengths to take advantage of opportunities.
- Strengths-Threats: Use strengths to minimize threats.
- Weaknesses-Opportunities: Improve weaknesses by taking advantage of opportunities.
- Weaknesses-Threats: Work to eliminate weaknesses to avoid threats.