SWOT analysis
is a useful tool for any type of company. Its usage has become a standard for any business plan. The SWOT analysis provides an easy way of looking at the various environmental factors that may affect a company and provides a structure for creating strategies to manage those factors effectively.
Basics of SWOT analysis
SWOT Analysis is a simple framework for evaluating the internal and external environments affecting a company. These environmental factors can be divided into four categories, from which SWOT analysis derives its name. The categories are: strengths, weaknesses, opportunities and threats.
In order to perform a SWOT analysis, begin by drawing a 2x2 table and assign each square one of the aforementioned categories. Ordering of the categories is a personal choice; however, most people assign the categories left to right as shown in the graph below.
Strengths and weaknesses are related to the internal environment while opportunities and threats are related to the external environment. The category headings themselves are somewhat self-explanatory. Examples of each category are: strengths (patents, brand image, efficient production and/or distribution); weaknesses (high costs of holding/distribution, lack of adequate resources/relationships); opportunities (potential niche markets, complementary products, technology developments); and, threats (new regulations, substitute products, shifting trends).
Uses
SWOT analysis is used to critically evaluate the environment in which the company operates. It also has the important function of identifying opportunities that take advantage of firm strengths and involve weaknesses minimally. To develop a matrix that takes into account the interaction of the environmental factors identified, another simple 2x2 table is created, as shown in the graph below.
S-O strategies are those that represent a good fit with the strengths of the company. In contrast, W-O strategies represent those opportunities that require the company to overcome its weaknesses in order to be taken advantage of. S-T strategies are those that maximize the strengths of the company to mitigate threats. Lastly, W-T strategies are those that the firm develops to prevent its weaknesses from making it vulnerable to perceived threats.
Considerations
As easy as a SWOT analysis, and matrix, may appear to produce, it actually requires a great deal of work in order to be effective; generalities simply will not make the grade. When brainstorming environmental factors that affect the company, be highly specific, even to the point of redundancy. Specificity is key to creating any good piece of analysis. Also, the SWOT analysis is best performed as part of a group brainstorming session. One idea stimulates another and the inclusion/exclusion of a factor can be critiqued. Likewise, the development of the SWOT matrix is also benefited from group collaboration.
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