What is SWOT analysis?
A SWOT analysis is a method used to assess the competitive position of the company by determining the strengths, weaknesses, opportunities, and threats.
SWOT analysis or SWOT matrix is a strategic planning technique that is used to help a business organization to find out the strengths, weaknesses, opportunities, and threats related to the business competition or business planning. The main aim of SWOT analysis is to specify the objectives of the business venture and identifying the internal and external factors responsible to accomplish goals. The users of SWOT analysis often ask and answer questions to produce useful and meaningful information.
The strengths and weaknesses are related internally and the opportunities and threats have a common focus on the external environment.
- Strengths- characteristics of the business that will give an advantage over others
- Weaknesses- characteristics of the business that will give a disadvantage
- Opportunities- elements in the environment that the business could exploit to its advantage
- Threats- elements in the environment that could cause trouble for the business
Purpose of SWOT Analysis
The main purpose of SWOT analysis is to study the internal and external environments of the business organization by identifying and analyzing the strengths and weaknesses of the organization and opportunities and threats to which it is exposed.
Another purpose of SWOT analysis is the identification of the factors that influence the functioning of the organization by providing useful details in the strategic planning process. A SWOT analysis can be divided into two parts: the internal environment where strengths and weaknesses are known and the analysis of the external environment, where the threats and opportunities are determined.
Following are some of the objectives of SWOT analysis:
- To prepare a detailed summary of external and internal factors
- To find out the essential elements for the management of the organization
- To prepare strategic options: risks and problems to face
- To conduct a sales forecast with the market conditions
How is SWOT analysis conducted
As discussed earlier, a SWOT analysis is a tool that is used for identification of the internal strengths and weaknesses in the business and external opportunities and threats. This information can be used at the time of business planning in order to achieve organizational goals.
Following are the steps involved in conducting a SWOT analysis:
- Decide the objective of a SWOT analysis
In order to get the maximum out of the SWOT analysis, you should have a particular question or objective in your mind right at the beginning. For instance; a SWOT analysis could be used to help in deciding, if a new product needs to be introduced or if the process needs to be changed.
- Research your business, industry, and market
Proper research needs to be conducted to know and understand your business, industry, and market before you start with the SWOT analysis. Talk to your staff and team, business partners and clients and get different outlooks. Your research must also involve the market research that will help you to find out about your competitors.
- List the Strengths of the business
The initial step is to identify and make a list of the strengths of your business. You may include strengths related to the employees, financial resources, the location of the business, cost-effectiveness and competitiveness. At this point of SWOT analysis, it is not important for the list to be definitive.
- Make a list of the business weaknesses
After you have prepared a list of the strengths of your business, now, you have to list down the weaknesses that you consider in your business. The absence of new products or clients, staff absenteeism, lack of intellectual property, the decline in the share of the market and distance to market are some of the weaknesses that could be included. The number of weaknesses reflects the way your business has grown or decreased with the passage of time.
- Prepare a list of potential opportunities of the business
Find out the possible external opportunities of your business. Of course, these won’t be identical to the internal strengths of the business and are also not definite. For one business, an aspect may act as an opportunity and for another one, it may be a threat. Opportunities may involve new technology, training programs, partnerships, and change in the government.
- Prepare a list of possible threats of the business
Make a proper list of the external factors that may be the threats or cause issues for the business. The rising rate of unemployment, the rise in the competition, increased interest rates and uncertainty of the global markets can be included in the threats.
- Establish priorities from SWOT
After performing the above-mentioned steps, you will be ready with 4 separate lists. By going through the lists you will have a clear picture of how your business is running and the problems and issues that tend to rise. You need to work out on the issues that can cause major damage to the business.
- Create a strategy to address issues in SWOT
Get answers to the following 4 questions:
- How can the strengths of the business be used to take advantage of the opportunities?
- How can the strengths be used to overcome the threats?
- How can the opportunities help in development of business?
- What method should be adopted to overcome the weaknesses?
- How can the weaknesses of the business be minimized?
Once, you have got answers to these questions, SWOT analysis can be used to develop string strategies in order to accomplish business objectives.