SWOT analysis

A SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture or in any other situation of an organization or individual requiring a decision in pursuit of an objective. It involves monitoring the marketing environment internal and external to the organization or individual. The technique is credited to Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s using data from the Fortune 500 companies.

Performing the SWOT Analysis

SWOT analysis is part of the Harvard Policy Model, which has been developed as part of the business policy courses taught at the Harvard Business School since the 1920s. "The main weaknesses of the Harvard model are that it does not draw attention to strategic issues or offer specific advice on how to develop strategies, except to note that effective strategies will build on strengths, how to take advantage of opportunities, and how to overcome or minimize weaknesses and threats." The cited weakness can easily be remedied by basing the SWOT analysis on the agreed upon objective, as explained directly below.

If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless. A SWOT analysis may be incorporated into the strategic planning model. An example of a strategic planning technique that incorporates an objective-driven SWOT analysis is SCAN analysis. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.

If a clear objective has been identified, SWOT analysis can be used to help in the pursuit of that objective. In this case, SWOTs are:

Strengths: attributes of the organization that are helpful to achieving the objective.

Weaknesses: attributes of the organization that are harmful to achieving the objective.

Opportunities: external conditions that are helpful to achieving the objective.

Threats: external conditions that are harmful to achieving the objective.

See the SWOT diagram. Correct identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective are to 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.

If, on the other hand, the objective seems attainable, the SWOTs are used as inputs to the creative generation of possible strategies, by asking and answering the following four questions:

1. How can we Use each Strength?

2. How can we Stop each Weakness?

3. How can we Exploit each Opportunity?

4. How can we Defend against each Threat?

Ideally a cross-functional team or a task force that represents a broad range of perspectives should carry out the SWOT analysis. For example, a SWOT team may include an accountant, a salesperson, an executive manager, an engineer, and an ombudsman.

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 of the organization or individual. 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.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. They may represent strengths with respect to one objective 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.

It should be noted that 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 really 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 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.

Examples

Strengths and Weaknesses

• Resources: financial, intellectual, locational
• Customer service
• Efficiency
• Competitive advantages
• Infrastructure
• Quality
• Staff
• Management
• Price
• Delivery time
• Cost
• Capacity
• Strong relationships with key industry customers

Opportunities and Threats

• Political/Legal
• Economic condition
• Expectations of stakeholders
• Technology
• Public expectations
• Competitors and competitive actions

Errors to Be Avoided

The following errors have been observed in published accounts of SWOT analysis:

1. Conducting a SWOT analysis before defining and agreeing upon an objective (a desired end state). SWOTs should not exist in the abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participants may have different end states in mind and the results will be ineffective.

2. Opportunities external to the company are often confused with strengths internal to the company. They should be kept separate.

3. Another error is to confuse SWOTs with possible strategies. SWOTs are descriptions of conditions, while possible strategies define actions. This error is made especially with reference to opportunity analysis. To avoid this error, it may be useful to think of opportunities as "auspicious conditions".

External links

• Analysis of Forest & Forest Case
• Customer-centric SWOT
• Time to use SWOT
• Interactive SWOT Tool