SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. By definition, Strengths (S) and Weaknesses (W) are considered to be internal factors over which the management has some measure of control. In contrast, Opportunities (O) and Threats (T) are considered to be external factors over which the management has no control.
SWOT Analysis is a tool used to conduct environmental scanning and analysis to find out the overall strategic position of the business concerning its environment; key purpose being the identification and alignment of an organization’s resources and capabilities to the requirements of the environment in which the firm operates. The model evaluates the internal potential and limitations and the probable/potential opportunities and threats from the external environment. It views all positive and negative factors inside and outside the firm that affect firms’ success. A consistent evaluation of the firm’s environment helps forecast and predict the changing trends, hence influencing the decision-making process. The four factors are discussed as under:
Strengths – Strengths are the positive attributes, qualities, and capabilities that potentially enable the firm to accomplish its mission. They are the basis of sustainable competence and succession in an organization. Strengths describe the unique factors that the company is well endowed or versed with, either tangible or intangible. Strengths could be vested in:
- Human competencies
- Process capabilities
- Financial resources
- Products and services
- Customer goodwill
- Brand loyalty
Examples of organizational strengths are enormous financial resources, broad product line, Lean process, Highly skilled and motivated employees, etc.
Weaknesses – Weaknesses are the qualities that hinder us from achieving our full potential hence accomplishing our mission. These are internal factors that act as barriers to organizational success and growth. The essence of identifying the weaknesses is to minimize or eliminate them since they are within the organization’s control Weaknesses could be in the form of:
- Depreciating machinery
- Insufficient research and development facilities
- Narrow product range
- High leverage
- Bureaucracy
Opportunities are external factors presented by the organization’s environment to tap and maximize for its own and stakeholders’ benefit. Organizations usually gain a competitive advantage by being keen and making good use of opportunities as soon as they present themselves. Opportunities favor business growth and success and maybe vested in:
- Market
- Competition
- Government decisions
- Technology
- Deregulation
Threats are external factors that jeopardize the reliability and profitability of the business by compounding its vulnerability. Threats are uncontrollable by the management hence affect the stability and survival of the firm. Examples of threats are:
- Industrial unrest among employees
- New technology
- Cut throat competition
- Price wars
- Frictional unemployment
SWOT Analysis Framework
SWOT Analysis is a critical guiding tool in strategy formulation and selection. Successful businesses build on their strengths to recognize and exploit new opportunities, minimize and correct their weakness while protecting themselves against external threats. SWOT Analysis has the following advantages
- It is a crucial source of information for strategic planning purposes.
- Identifies organization’s strengths allowing focus on building same.
- Enables working towards alleviating or reducing organizational weaknesses.
- Helps in identifying, tapping, and Maximizing opportunities.
- Helps organization in identifying possible threats hence measures to thwart and overcome.
- Help identify core competencies of the firm therefore positioning.
- It helps in setting SMART objectives for strategic planning purposes.
The model has its fair share of limitations which include:
- Highly affected by subjectivity as it majorly relies on human judgment.
- The model is oversimplified, and key components might easily be left out.
- It doesn’t provide solutions, neither does it offer alternative decisions. Only identifies
- Doesn’t prioritize issues
- Can produce a lot of information, some of which might be irrelevant
- Lacks decision-making criteria, doesn’t guide on the best decision.