SWOT Analysis 101

Revision as of 19:12, 7 April 2023

Abstact

The SWOT analysis categorized as “Uncertainty” under how to anticipate if something happens is a versatile strategic planning tool used to assess an organization's internal and external factors. The SWOT analysis is a method of anticipating uncertainty, as it evaluates the strengths, weaknesses, opportunities, and threats.

The four elements of SWOT analysis include strengths, which are internal factors that give a competitive advantage, weaknesses, which are internal factors that hinder performance, opportunities, which are external factors that can improve performance, and threats, which are external factors that could negatively impact a business.

Using the SWOT analysis can be useful in many ways, the method can be good for identifying areas needing improvement, making key strategic decisions, performance overhauls, development of products, market competition overview, and more. Using the SWOT analysis requires one to identify both the internal and external factors and to evaluate them based on the four elements: strengths, weaknesses, opportunities, and threats. These four elements are then used to create a strategic plan. Furthermore, the method can be used alongside other strategic planning tools.

Despite the SWOT analysis being a popular tool, it is not without limitations and criticisms. The downsides of the tool include its oversimplifying of key factors and its subjective nature. Nonetheless, SWOT analysis remains a useful tool for organizations to inform and plan their strategic decisions for improved performance.

Introduction

A SWOT analysis is a strategic planning tool that looks at strengths, weaknesses, opportunities, and threats for an organisation. The tool is a versatile method to anticipate uncertainty and assess an organisation's internal and external factors. The SWOT analysis has its roots in the 1960s, when Albert Humphrey developed it as part of a project at the Stanford Research Institute. This project involved over 500 companies and aimed to identify the reasons behind the success and failure of corporate planning. Today, the SWOT analysis is a well-established and widely used tool for assessing internal and external environments, helping organisations achieve their objectives by analysing the four key factors: strengths, weaknesses, opportunities, and threats.

A SWOT analysis consists of four elements: strengths (internal factors providing competitive advantage), weaknesses (internal factors hindering performance), opportunities (external factors improving performance), and threats (external factors negatively impacting a business). By looking upon these four elements, an organisation can identify areas that are in need of improvement, make new and informed strategic plan decisions, and gain key insights into market competition and new product development.

While a SWOT analysis may offer many benefits, it is not without its advantages, disadvantages and limitations. An example could be that the method easily can oversimplify complex factors and become subjective in its interpretations/nature. Furthermore, the tool only creates a "snapshot" of how the company is in its current position and not for future positions. However, a SWOT analysis remains a valuable tool for organisations when looking to inform and plan their strategic decisions for improved performance and opportunities. By evaluating their strengths, weaknesses, opportunities, and threats, organisations can make informed decisions, capitalise on their organisational strengths, exploit new opportunities, and minimise threats that could impact overall success.

Origin

The SWOT analysis is from the 1960s, the man who was recognised for the analysis was a business consultant named Albert S. Humphrey. Albert Humphrey developed the SWOT analysis framework during a project at Stanford Research Institute (SRI), where over 500 companies funded a project to identify and find reasons behind the success and failure of corporate planning. Over the decades the analysis tool has matured and evolved even more making it the tool widely used today for business strategy and management.

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Definition and explanation of SWOT analysis as a tool for strategic planning

The SWOT analysis is a strategic planning tool used to assess internal and external environments, mainly in organisations. The tool is segmented up into four sections that revolve around identifying and evaluating strengths, weaknesses, opportunities, and threats regarding an organisation and the environment it currently resides in both externally and internally. This way the tool is used to achieve objectives by analysing these four factors to gain key insight into the current competitive position and what strategy is currently needed to take to grow/improve the organisation's current standing. In summary, by evaluating the strengths, weaknesses, opportunities, and threats, informed decisions can be made to capitalize on the company's strengths, exploit opportunities, and minimize threats that could impact the organization.

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Figure 1: SWOT table

The four elements of SWOT analysis: Strengths, Weaknesses, Opportunities, and Threats

Strengths

Strengths are positive internal attributes (as showcased in green on Figure 1) that give an organization a competitive advantage. Some strengths could be skilled personnel, a strong brand reputation, unique products or services, or efficient processes. By identifying these strengths, it is possible to help an organization capitalize on advantages and develop new or better strategies to maintain or increase its market position.

Weaknesses

Weaknesses are negative internal attributes (as showcased in yellow on Figure 1) that hinder an organization's performance or opportunity which puts it at a competitive disadvantage. Some weaknesses could include a lack of resources, outdated technology, high employee turnover, or a weak supply chain. Organizations can develop plans to address and overcome these challenges by recognising these weaknesses and considering them when planning.

Opportunities

Opportunities are positive external attributes (as showcased in blue on Figure 1) that an organization can exploit to its own advantage. Some opportunities could include new or unexpected changes in the market, new technological advancements, new consumer preferences and needs, or new regulations from legislation. These opportunities allow organisations to identify opportunities and for them to adapt their strategies and to seize on new opportunities arriving.

Threats

Threats are negative external attributes (as showcased in red on Figure 1), and these external challenges can create risks to an organization and its success. Some threats could include economic downturns, increased competition, regulatory changes, or changing markets. By recognizing these threats an organizations can develop contingency plans and mitigate risks for the future.

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How to SWOT 101

But how do you conduct the SWOT analysis exactly?

Start by setting a goal for an organisation that has a specific objective in mind, this will create a clear direction for what they aim to accomplish by the end of the process.

Next, start gathering resources and identifying internal factors meaning Strengths and Weaknesses.

When assessing strengths, common questions to ask include:

• What areas are we excelling in?
• What is our greatest asset?

When evaluating weaknesses, typical questions to ask might include:

• What factors are holding us back?
• Which product lines are underperforming?

here some examples:

Strengths: Resources within that provide a positive effect on the organisation

• What does the company provide that others do not?
• Does the organisation have a strong brand?
• Other benefits that the organisation internally have that create its market share?

Weaknesses: Internal limitations or challenges that create a negative effect on the organisation

• Outdated technology
• Poor management
• Insufficient financial resources

Next, identify external factors meaning Opportunities and Threats, here some examples:

Opportunities:

External factors that can be taken advantage of for the benefit of the organisation

• New market trends
• New technological advancements
• New consumers/stakeholder needs

Threats: External challenges or risks that could negatively affect the organisation,

• Economic downturns such as recessions,
• Increased competition (Increased red ocean environment)
• Changes in regulations for the legislation

Lastly, evaluate all the elements and assess the significance of the identified areas within the four SWOT categories, a great way to help yourself is by visualising the different areas in a table (A table template can be seen in Figure 1). Weight the importance/impact of the different areas with main focus on how it impacts the organisation and develop a strategic plan with the findings that capitalises on the organisation's strengths and opportunities while addressing its weaknesses and mitigating its threats.

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Discussion of Advantages and Disadvantages

To begin with, the purpose of a SWOT analysis is to provide a comprehensive overview of a company's or organisation's current position by evaluating its internal/external positive/negative factors. The analysis may have its limitations but, overall By evaluating their strengths, weaknesses, opportunities, and threats, it is possible to develop clear overviews of competitive advantages and disadvantages. Moreover, SWOT analysis assists in narrowing down areas for growth and improvement, enabling better decisions. This process helps to align an organisation's resources and capabilities with market opportunities, in the end driving success for the organisation.

Advantages

Some advantages of conducting a SWOT analysis include:

Simple and easy to understand:

• The SWOT framework is straightforward and relatively easy to grasp, because of this it is quite accessible to individuals at all levels of an organization.

Versatile:

• It is a versatile tool and can be applied to almost any industry, or organization.

Encourages collaboration:

• A SWOT analysis is easy to use in groups, and because of this it promotes teamwork and open discussion among team members increasing effectivity.

Identifies areas of improvement need:

• A SWOT analysis helps organizations identify areas where improvement is needed for growth.

Disadvantages and Limitations

Despite its benefits, a SWOT analysis also has some disadvantages and limitations:

Subjective interpretation:

• The SWOT analysis is often based on subjective opinions and perceptions, which can lead to biased results.

Static "snapshot":

• A SWOT analysis only provides a "snapshot" of the organization (Meaning the current situation selected), because of this the method may not account for future changes in the environment or within the organization.

Lack of prioritization:

• The SWOT analysis does not always give clear guidance on which factors are the most critical for the organisation, assigning priority and importance in a SWOT analysis depends on the perspectives of the individuals involved. However, this can quickly become challenging due to varying opinions and viewpoints. Creating overlooked factors and other issues.

Overemphasis on internal factors:

• A SWOT analysis may focus more on internal factors (strengths and weaknesses) rather than considering external factors (opportunities and threats) that could have a significant impact on the organization.

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Examples of use

Examples of how businesses and organizations can use SWOT analysis to make strategic decisions and improve performance

Comparison

A method that can be compared to the SWOT analysis is the PESTLE/PEST analysis.

PESTLE or Political, Economic, Social, Technological, Legal, and Environmental factors. Is a method used to analyze the external macro-environmental factors that may impact an organization or industry.

The big difference here is that the SWOT analysis focuses on both internal and external factors, while the PESTLE analysis specifically only looks upon the broader external factors that may influence an organisation or industry. Meaning the PESTLE analysis concentrates on the "macro-environmental"^[7], factors affecting an organization, while the SWOT analysis specifically looks at the opportunities and threats arising from the external environment. PESTLE analysis provides a broader understanding of the external context, whereas SWOT analysis offers a more focused approach, linking external factors to the organization's internal strengths and weaknesses.

Nonetheless, these tools might differ in use, but they do complement each other, as both cover topics that the other doesn't. Because of this, it would be recommended to actually use both of these tools together since they complement each other so well.

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References

1. ↑ ^{1.0 1.1 1.2} British Library, "What is SWOT analysis?", https://www.bl.uk/business-and-ip-centre/articles/what-is-swot-analysis (April 07, 2023)
2. ↑ ^{2.0 2.1 2.2} Investopedia, "SWOT Analysis: How To With Table and Example", https://www.investopedia.com/terms/s/swot.asp (February 12, 2023)
3. ↑ WordStream, "How to Do a SWOT Analysis (And Why It Matters)", https://www.wordstream.com/blog/ws/2017/12/20/swot-analysis (Accessed on April 7, 2023)
4. ↑ CIPD, "SWOT analysis: a key organisational development tool", https://www.cipd.co.uk/knowledge/strategy/organisational-development/swot-analysis-factsheet (Accessed on April 7, 2023)
5. ↑ Pestle Analysis, "5 Surprising Disadvantages of SWOT Analysis", https://pestleanalysis.com/5-surprising-disadvantages-of-swot-analysis/ (Accessed on April 7, 2023)
6. ↑ Komnitsas, K. and G. Bartzas, "A SWOT analysis of environmental management practices in Greek Mining and Mineral Industry", ResearchGate, https://www.researchgate.net/publication/222334808_A_SWOT_analysis_of_environmental_management_practices_in_Greek_Mining_and_Mineral_Industry (Accessed on April 7, 2023)
7. ↑ Monash University, "Macro Environment" https://www.monash.edu/business/marketing/marketing-dictionary/m/macro-environment (Accessed on April 7, 2023)
8. ↑ City University of Seattle Library, "SWOT Analysis", https://library.cityu.edu/researchguides/business/swot (Accessed on April 7, 2023)
9. ↑ Lucidchart, "SWOT Analysis vs. PEST Analysis: What's the Difference?", https://www.lucidchart.com/blog/swot-analysis-vs-pest-analysis (Accessed on April 7, 2023)