SWOT Analysis

S.W.O.T. is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats.

A SWOT analysis is an organized list of a company’s strengths, weaknesses, opportunities, and threats. The analysis is designed as a structured planning method to identify, separate, and evaluate internal and external factors of a business. Strengths and weaknesses are internal aspects to the company such as reputation, services, products, patents, equipment, and location. These are factors that can be directly managed by the company. Opportunities and threats are external influences such as competitors, suppliers, social trends, regulations, and economy. These are factors a company cannot change, however, they can anticipate and react to them.

S.W.O.T.

Strengths: Factors or characteristics of the business that give it an advantage over its competitors

Weaknesses: Factors or characteristics that place the company at a disadvantage relative to its competitors

Opportunities: Favorable elements or situations in the market environment that can become a competitive advantage

Threats: Unfavorable elements or situations in the market environment that can negatively affect the business

The Goal of a SWOT analysis

The goal of a SWOT analysis is to help companies recognize growth opportunities, leverage resources, optimize performance, and minimize risk. The analysis can help a company develop a solid business strategy by matching its resources and capabilities to the competitive environment in which it does business.

Advantages and disadvantages of SWOT Analysis

Advantages

Simple and easy to complete
Very little cost to complete
Easy to understand
Visual guide
Focuses on the key internal and external factors affecting a company
Assists in the strategic planning process
Helps to identify future goals and objectives
Helps in decision making process for future endeavors
Helps recognize company’s core strengths and position in the market

Disadvantages

No prioritization of factors
No mechanism to rank the significance of one factor versus another
Factors can be very subjective
Factors are often opinions not facts

Only single simple level analysis
Often vague description of factors
No suggestions for solving issues

Completing a SWOT Analysis

Completing a SWOT analysis is very simple. It can be done by an individual or a group of people. However, it is best be completed as a brainstorming session.

The SWOT analysis is typically presented as a grid or matrix. It is comprised of four quadrants, one for each of the SWOT headings: Strengths, Weaknesses, Opportunities, and Threats.

A basic SWOT analysis is completed in few steps:

Step 1. Create a grid with the four quadrants

Step 2. Label each quadrant (i.e. Strengths, Weaknesses, etc…)

Step 3. Identify and list the company’s key strengths

Step 4. Identify and list the company’s weaknesses

Step 5. Identify and list opportunities in the market environment

Step 6. Identify and list threats in the market environment

Analyzing Each Quadrant

Strengths

Strengths are the company’s positive internal attributes. These are things completely under the company’s control. The company decides how to utilize them and how to benefit from them.

Examples of strength may include;

products or services
patents
strong brand names
equipment
intellectual property
good reputation
favorable access to distribution networks
knowledge and expertise
efficiencies in processing tasks

Weaknesses

Weaknesses are a company’s negative internal attributes. They are factors that are within the company’s control. However, even though they are within the company’s control, they adversely affect the performance of the company. These factors need to be improved upon so they no longer a disadvantage.

Examples may include;

lack of technologies
lack of capital
lack of resources
lack of patent protection
weak brand name
poor reputation
high cost structure
lack of access to key distribution channels
unskilled labors

Opportunities

Opportunities are the positive external factors that may affect a company. These external forces are beyond a company’s control. Opportunities reflect the potential positive direction for a business to grow. They represent possibilities that if taken advantage of can significantly enhance its performance.

Examples include;

trends in the economic market
social trends
weather conditions
new technologies
loosening of governmental regulations
removal of trade barriers

Threats

Threats are the negative external factors that may affect the company. Since they are external factors, the company has no control over them. These can be very detrimental to the company’s growth and stability. However, the company can develop plans to minimize risks.

Examples include;