SWOT analysis

SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.

Contents
1 Strategic and Creative Use of SWOT Analysis 1.1 Strategic Use: Orienting SWOTs to An Objective 1.2 Creative Use of SWOTs: Generating Strategies 2 Matching and converting o 2.1 Evidence on the Use of SWOT 3 Internal and external factors 4 Use of SWOT Analysis 5 SWOT-landscape analysis 6 Corporate planning o 6.1 Marketing 7 See also 8 References 9 External links
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Strategic and Creative Use of SWOT Analysis

Strategic Use: Orienting SWOTs to An Objective
llustrative diagram of SWOT analysis A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. An example of a strategic planning technique that incorporates an objective-driven SWOT analysis is Strategic Creative Analysis (SCAN). Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.
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Strengths: attributes of the person or company that are helpful to achieving the objective. Weaknesses: attributes of the person or company that are harmful to achieving the objective. Opportunities: external conditions that are helpful to achieving the objective. Threats: external conditions which could do damage to the objective.

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs. First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated. The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development.

Creative Use of SWOTs: Generating Strategies

If, on the other hand, the objective seems attainable, the SWOTs are used as inputs to the creative generation of possible strategies, by asking and answering each of the following four questions, many times:
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How can we Use and Capitalize on each Strength? How can we Improve each Weakness? How can we Exploit and Benefit from each Opportunity? How can we Mitigate each Threat?

Ideally a cross-functional team or a task force that represents a broad range of perspectives should carry out the SWOT analysis. For example, a SWOT team may include an accountant, a salesperson, an executive manager, an engineer, and an ombudsman.

Matching and converting

Another way of utilizing SWOT is matching and converting. Matching is used to find competitive advantages by matching the strengths to opportunities. Converting is to apply conversion strategies to convert threats or weaknesses into strengths or opportunities. An example of conversion strategy is to find new markets. If the threats or weaknesses cannot be converted a company should try to minimize or avoid them.

Evidence on the Use of SWOT

SWOT analysis may limit the strategies considered in the evaluation. "In addition, people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate strategies." Findings from Menon et al. (1999) and Hill and Westbrook (1997) have shown that SWOT may harm performance. As an alternative to SWOT, J. Scott Armstrong describes a 5-step approach alternative that leads to better corporate performance.

These criticisms are addressed to an old version of SWOT analysis that precedes the SWOT analysis described above under the heading "Strategic and Creative Use of SWOT Analysis." This old version did not require that SWOTs be derived from an agreed upon objective. Examples of SWOT analyses that do not state an objective are provided below under "Human Resources" and "Marketing."

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company's unique value chain. SWOT analysis groups key pieces of information into two main categories:
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Internal factors The strengths and weaknesses internal to the organization. External factors The opportunities and threats presented by the external environment to the organization. - Use a PEST or PESTLE analysis to help identify factors

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix. SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats. It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.

Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has been defined. Examples include: non-profit organizations, governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis management. SWOT analysis may also be used in creating a recommendation during a viability study.

SWOT-landscape analysis

The SWOT-landscape grabs different managerial situations by visualizing and foreseeing the dynamic performance of comparable objects according to findings by Brendan Kitts, Leif Edvinsson and Tord Beding (2000). Changes in relative performance are continuously identified. Projects (or other units of measurements) that could be potential risk or opportunity objects are highlighted. SWOT-landscape also indicates which underlying strength/weakness factors that have had or likely will have highest influence in the context of value in use (for ex. capital value fluctuations).

Corporate planning
As part of the development of strategies and plans to enable the organization to achieve its objectives, then that organization will use a systematic/rigorous process known as corporate planning. SWOT alongside PEST/PESTLE can be used as a basis for the analysis of business and environmental factors.
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Set objectives defining what the organization is going to do Environmental scanning o Internal appraisals of the organization's SWOT, this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors Strategic Issues defined key factors in the development of a corporate plan which needs to be addressed by the organization Develop new/revised strategies revised analysis of strategic issues may mean the objectives need to change Establish critical success factors the achievement of objectives and strategy implementation Preparation of operational, resource, projects plans for strategy implementation Monitoring results mapping against plans, taking corrective action which may mean amending objectives/strategies.

Marketing
Main article: Marketing management In many competitor analyses, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor's cost structure, sources of profits, resources and competencies, competitive positioning and product differentiation, degree of vertical integration, historical responses to industry developments, and other factors. Marketing management often finds it necessary to invest in research to collect the data required to perform accurate marketing analysis. Accordingly, management often conducts market research (alternately marketing research) to obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more common include:
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Qualitative marketing research, such as focus groups Quantitative marketing research, such as statistical surveys Experimental techniques such as test markets Observational techniques such as ethnographic (on-site) observation Marketing managers may also design and oversee various environmental scanning and competitive intelligence processes to help identify trends and inform the company's marketing analysis.

Using SWOT to analyse the market position of a small management consultancy with specialism in HRM.[11]

Strengths

Weaknesses

Opportunities

Threats

Reputation in marketplace

Shortage of consultants Well established at operating level position with a well rather than partner defined market niche. level

Large consultancies operating at a minor level

Expertise at partner level in HRM consultancy

Unable to deal with Identified market for multi-disciplinary consultancy in areas assignments because of other than HRM size or lack of ability

Other small consultancies looking to invade the marketplace

Track record successful assignments

Analysis.

The SWOT model

A SWOT analysis process generates information that is helpful in matching an organisation or groups goals, programs, and capacities to the social environment in which it operates. The SWOT itself is only a data capture exercise - the analysis follows later.

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Strengths: positive tangible and intangible attributes, internal to an organisation and within the organisations control. Weaknesses: internal factors within an organisations control that detract from the organisations ability to attain the desired goal. Which areas might the organisation improve? Opportunities: external attractive factors that represent the reason for an organisation to exist and develop. What opportunities exist in the environment, which will propel the organisation? Identify them by their time frames. Threats: external factors beyond the organisations control which could place the organisation mission or operation at risk. The organisation may benefit by having contingency plans to address them if they should occur. Classify them by their severity and probability of occurrence.

It is important to note the strengths and weaknesses are intrinsic value-creating skills or assets, or the lack of, relative to competitive forces. Opportunities and threats are external factors which are not created by the organisation, but emerge as a result of the competitive dynamics caused by future gaps in the market.

Internal factors Strengths Positive factors Opportunities Weaknesses Threats Negative or potential to be negative

External factors

PRIMO-F provides the data for the strengths and weaknesses (internal factors) and PESTLE for the opportunities and threats (external environment) parts of the model. For more information on PESTLE analysis, see our factsheet on that topic.

Go to our factsheet on PESTLE analysis

The SWOT process

Doing a SWOT analysis can be very straight forward, but its strengths lie in its flexibility and experienced application.

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Decide how the information is to be collected and by whom (often a team approach is much more powerful than one persons view). Identify appropriate sources of information. Gather the information - it is useful to use a template as the basis for exploring the factors and recording the information. An example of such a practical and ready-to-use template created to accompany this factsheet can be found on the RapidBI website. o Go to the template Plot the findings.

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Identify the most important issues. Identify strategic options. Write a report. Disseminate the findings. Decide which activities are a priority in the context of the organisations goals and values: Look at the factors identified - where they appear in more than one area, use the table below as an action agenda.

Strengths

Weaknesses

Opportunities

Make the most of these

Watch competition closely

Threats

Restore strengths

Strategic turn around required

Applications and when to use it

A SWOT analysis can be used for:

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workshop sessions brainstorm meetings problem solving planning strategic planning (with PESTLE & PRIMO-F) product evaluation competitor evaluation (with Porters five forces see Useful links and Further reading below) personal development planning decision making (with force field analysis see Useful links below).

Using SWOT in a team meeting

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Invite contributors to participate in the SWOT process. Explain the process and establish ground rules. Identify strengths using the PRIMO-F listed above. Identify weaknesses - using the PRIMO-F listed above. Identify or list the opportunities and threats this may well have been identified from a PESTLE analysis previously. Establish priorities from your mission, vision and values work. Question each list. Plan for action.

Advantages and disadvantages of using SWOT analysis

Advantages
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Simple four box framework. Facilitates an understanding of the strengths and weaknesses of the organisation. Encourages the development of strategic thinking. Enables a management team to focus on strengths and build opportunities. Can enable an organisation to anticipate future business threats and take action to avoid or minimise their impact. Can enable an organisation to spot business opportunities and exploit them fully. Flexible.

Disadvantages
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Some users over simplify the amount of data used for decisions it is easy to use scant data. To be effective this process needs to be undertaken on a regular basis. The best reviews require different people being involved each having a different perspective. Access to quality internal data sources, this can be time consuming and politically difficult (especially in more complex organisations parent company etc). The pace of change makes it increasingly difficult to anticipate developments that may affect an organisation in the future. The risk of capturing too much data is that it may make it difficult to see the wood for the trees and lead to paralysis by analysis. The data used in the analysis may be based on assumptions that subsequently prove to be unfounded (good and bad). Lacks detailed structure so easy to miss key elements.

Examples
A SWOT analysis can be used in many ways. Two case studies are offered below to illustrate what a SWOT analysis might look like in different situations: a more detailed level, using a soft drinks manufacturer as an example, and a simpler level, using a childrens charity by way of example. In any particular situation, the style and detail of the analysis will depend on the goal.

Case study 1: a detailed SWOT analysis

Company A has one major competitor in the marketplace, a soft drinks manufacturer called Soft Drink Co. To understand where Company A stands compared to their competition, they conduct a SWOT analysis on Soft Drink Co using publicly available information.

Strengths

Our competitor has been a complex part of American culture for over a century. The product's image is loaded with over-romanticizing, and this is an image many people have taken deeply to heart. The competitor image is displayed on T-shirts, hats, and collectible memorabilia. This extremely recognizable branding is one of competitor's greatest strengths. According to independent research, our competitor bottling system is one of their greatest strengths. It allows them to conduct business on a global scale while at the same time maintain a local approach. The bottling companies are locally owned and operated by independent business people who are authorized to sell products of the competitor. Because they do not have outright ownership of its bottling network, its main source of revenue is the sale of concentrate to its bottlers.

Weaknesses

Although domestic business as well as many international markets are thriving, our competitor has recently reported some declines in unit case volumes in the far east due to reduced consumer purchasing power. According to an article in Business magazine, in India, unit case sales fell 4% in the second quarter...scary because while India generates around 5% of worldwide volume, it contributes three times as much to profits. Latin America, Southeast Asia, and India account for about 35% of our competitors volume and none of these markets are performing to expectation. Our competitors product also causes long term health concerns due to the concentration of sugar. Being addicted to the product also is a health problem, because drinking of the product daily has an effect on your body after few years.

Opportunities

Brand recognition is the significant factor affecting their competitive position. The brand name is known well throughout the world today. The primary concern over the past few years has been to get this name brand to be even better known. Packaging changes have also affected sales and industry positioning, but in general, the public has tended not to be affected by new products. Their bottling system also allows the company to take advantage of infinite growth opportunities around the world. This strategy gives them the opportunity to service a large geographic, diverse, area.

Threats

Currently, the threat of new viable competitors in the carbonated soft drink industry is not very substantial. The threat of substitutes, however, is a very real threat. The soft drink industry is very strong, but consumers are not necessarily married to it. Possible substitutes that continuously put pressure on both major competitors include bottles water, tea, coffee, juices, milk, and hot chocolate. Even though the main players control nearly 40% of the entire drinks market, the changing healthconsciousness of the market could have a serious affect. Of course, both the main players have already diversified into these markets, allowing them to have further significant market shares and offset any losses incurred due to fluctuations in the market. Consumer buying power also represents a key threat in the industry. The rivalry between the two main competitors has produced a very slow moving industry in which management must continuously respond to the changing attitudes and demands of their consumers or face losing market share to the competition. Furthermore, consumers can easily switch to other beverages with little cost or consequence.

Case Study 2: a simpler SWOT analysis

This might result from a simpler analysis of a childrens charity.

Strengths
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Creativity and imagination of staff. Active support of children and parents. Good track record in engaging children and play-based work. Experience of community work and working with difficult to reach communities.

Weaknesses
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Staff turnover. Short-term funding. Few IT resources/skills. Organisational infrastructure. Inexperience in financial management.

Opportunities
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Potential future funding. Real funding for play and developmental work. Improved guidance to meet requirements of regulation. More external support for play, e.g. opportunities for training.

Threats
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Future funding not guaranteed or secured. Competition from other providers (public and private). Increasing regulation (impacting play, staff and buildings).

SWOT analysis dos and donts

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DO get other people involved. DO exploit any expertise and resources that are already available within the organisation. DO use SWOT analysis in conjunction with other techniques, such as PESTLE analysis, PRIMO-F analysis, Porter's five forces, competitor analysis or scenario planning etc. DO incorporate your analysis within an ongoing process for monitoring changes in the business environment. DONT try to do this on your own. DONT jump to conclusions about the future based on the past or the present. DONT get bogged down in collecting vast amounts of detailed information without analysing your findings appropriately.

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The final analysis

The value of SWOT lies mainly in the fact that it constitutes a self-assessment for management. The problem, however, is that the elements appear deceptively simple. Actually deciding what the strengths and weaknesses of an organisation are, as well as assessing the impact and probability of opportunities and threats, is far more complex than appears at first sight. The inherent risk of making incorrect assumptions when assessing the SWOT elements often causes management to procrastinate when it comes to deciding between various strategic alternatives, frequently resulting in unnecessary and undesirable delays. SWOT is an infinitely flexible framework, which is made easier to apply when PESTLE is used to review and shortlist external factors and PRIMO-F to review and prioritise internal factors.

Business SWOT Analysis

What makes SWOT particularly powerful is that, with a little thought, it can help you uncover opportunities that you are well placed to exploit. And by understanding the weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unawares. More than this, by looking at yourself and your competitors using the SWOT framework, you can start to craft a strategy that helps you distinguish yourself from your competitors, so that you can compete successfully in your market.

How to Use the Tool

To carry out a SWOT Analysis, start by downloading our free template. Then answer the following questions: Strengths:
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What advantages does your company have? What do you do better than anyone else? What unique or lowest-cost resources do you have access to? What do people in your market see as your strengths? What factors mean that you "get the sale"?

Consider this from an internal perspective, and from the point of view of your customers and people in your market. Be realistic: It's far too easy to fall prey to "not invented here syndrome". (If you are having any difficulty with this, try writing down a list of your characteristics. Some of these will hopefully be strengths!) In looking at your strengths, think about them in relation to your competitors - for example, if all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity. Tip: For help finding your company's Unique Selling Proposition (USP) or crafting your competitive edge, read our USP Analysis article. Weaknesses:
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What could you improve? What should you avoid? What are people in your market likely to see as weaknesses? What factors lose you sales?

Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any unpleasant truths as soon as possible.
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Where are the good opportunities facing you? What are the interesting trends you are aware of?

Useful opportunities can come from such things as:

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Changes in technology and markets on both a broad and narrow scale. Changes in government policy related to your field. Changes in social patterns, population profiles, lifestyle changes. Local events.

A useful approach for looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could create opportunities by eliminating them. Threats:
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What obstacles do you face? What is your competition doing that you should be worried about? Are the required specifications for your job, products or services changing? Is changing technology threatening your position? Do you have bad debt or cash-flow problems? Could any of your weaknesses seriously threaten your business?

Carrying out this analysis will often be illuminating both in terms of pointing out what needs to be done, and in putting problems into perspective. Strengths and weaknesses are often internal to your organization. Opportunities and threats often relate to external factors. For this reason the SWOT Analysis is sometimes called InternalExternal Analysis and the SWOT Matrix is sometimes called an IE Matrix Analysis Tool. You can also apply SWOT Analysis to your competitors. As you do this, you'll start to see how and where you should compete against them.

Tip 1: Make sure you visit our next article 'PEST Analysis' - this tool is useful for understanding the 'big picture' of the environment you are operating in and will help you identify the opportunities and threats within it. Tip 2: SWOT can be used in two ways as a simple icebreaker helping people get together and "kick off" strategy formulation, or in a more sophisticated way as a serious strategy tool. If you're using it as a serious tool, make sure you're rigorous in the way you apply it:
y y y y y Only accept precise, verifiable statements ("Cost advantage of US$10/ton in sourcing raw material x", rather than "Good value for money"). Ruthlessly prune long lists of factors, and prioritize factors so that you spend your time thinking about the most significant factors. Make sure that options generated are carried through to later stages in the strategy formation process. Apply it at the right level for example, at product or product line level, rather than at the much vaguer whole company level. Supplement it with other option-generation tools none is likely to be completely comprehensive.

Example
A start-up small consultancy business might draw up the following SWOT matrix: Strengths:
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We can respond very quickly as we have no red tape, no need for higher management approval. We can give really good customer care, as the current small amount of work means we have plenty of time to devote to customers. Our lead consultant has strong reputation within the market. We can change direction quickly if our approach isn't working. We have little overhead, so can offer good value to customers.

Weaknesses:
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Our company has no market presence or reputation. We have a small staff with a shallow skills base in many areas. We are vulnerable to vital staff being sick, leaving. Our cash flow will be unreliable in the early stages.

Opportunities:
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Our business sector is expanding, with many future opportunities for success. Our local council wants to encourage local businesses with work where possible.

Our competitors may be slow to adopt new technologies.

Threats:
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Will developments in technology change this market beyond our ability to adapt? A small change in focus of a large competitor might wipe out any market position we achieve.

The consultancy may therefore decide to specialize in rapid response, good value services to local businesses. Marketing would be in selected local publications, to get the greatest possible market presence for a set advertising budget. The consultancy should keep up-to-date with changes in technology where possible. You can see this analysis in diagram format in figure 1 below.

Key PointsSWOT Analysis is a simple but powerful framework for analyzing your company's Strengths and Weaknesses, and the Opportunities and Threats you face. This helps you to focus on your strengths, minimize threats, and take the greatest possible advantage of opportunities available to you.