Importance of SWOT Analysis

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SWOT analysis is a strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning. It is designed for use in the preliminary stages of decision-making processes and can be used as a tool for evaluation of the strategic position an organization. It is intended to specify the objectives of the business venture or project and identify the internal and external factors that are favorable and unfavorable to achieving those objectives. Users of a SWOT analysis often ask and answer questions to generate meaningful information for each category to make the tool useful and identify their competitive advantage. SWOT has been described as the tried-and-true tool of strategic analysis, but has also been criticized for its limitations.

Strengths and weakness are frequently internally-related, while opportunities and threats commonly focus on the external environment. The name is an acronym for the four parameters the technique examines:

  • Strengths: characteristics of the business or project that give it an advantage over others.
  • Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others.
  • Opportunities: elements in the environment that the business or project could exploit to its advantage.
  • Threats: elements in the environment that could cause trouble for the business or project.

The degree to which the internal environment of the firm matches with the external environment is expressed by the concept of strategic fit. Identification of SWOTs is important because they can inform later steps in planning to achieve the objective. First, decision-makers should consider whether the objective is attainable, given the SWOTs. If the objective is not attainable, they must select a different objective and repeat the process.

Internal and external factors

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SWOT analysis aims to identify the key internal and external factors seen as important to achieving an objective. SWOT analysis groups key pieces of information into two main categories:

  1. Internal factors: the strengths and weaknesses internal to the organization
  2. External factors: the opportunities and threats presented by the environment external to the organization

Analysis may view the internal factors as strengths or as weaknesses depending upon their effect on the organization’s objectives. What may represent strengths with respect to one objective may be weaknesses (distractions, competition) for another objective. The factors may include all of the 4Ps (product, price, place, and promotion) as well as personnel, finance, manufacturing capabilities, and so on.

The external factors may include macroeconomic matters, technological change, legislation, and sociocultural changes, as well as changes in the marketplace or in competitive position. The results are often presented in the form of a matrix.

How To Use SWOT Analysis

Strategy building

SWOT analysis can be used to build organizational or personal strategy. Steps necessary to execute strategy-oriented analysis involve identification of internal and external factors (using the popular 2×2 matrix), selection and evaluation of the most important factors, and identification of relations existing between internal and external features.

For instance, strong relations between strengths and opportunities can suggest good conditions in the company and allow using an aggressive strategy. On the other hand, strong interactions between weaknesses and threats could be analyzed as a potential warning and advice for using a defensive strategy.

Matching and converting

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

Corporate planning

As part of the development of strategies and plans to enable the organization to achieve its objectives, 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.

  • Set objectives—defining what the organization is going to do
  • Environmental scanning
    • 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 lifecycle
  • Analysis of existing strategies—this should determine relevance from the results of an internal/external appraisal. This may include gap analysis of environmental factors
  • Strategic Issues defined—key factors in the development of a corporate plan that the organization must address
  • 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 all results—mapping against plans, taking corrective action, which may mean amending objectives/strategies

Marketing

In many competitor analysis, 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:

  • 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.

Below is an example SWOT analysis of a market position of a small management consultancy with specialism in HRM.

StrengthsWeaknessesOpportunitiesThreats
Reputation in marketplaceShortage of consultants at operating level rather than partner levelWell established position with a well-defined market nicheLarge consultancies operating at a minor level
Expertise at partner level in HRM consultancyUnable to deal with multidisciplinary assignments because of size or lack of abilityIdentified market for consultancy in areas other than HRMOther small consultancies looking to invade the marketplace
    

Benefits and advantages

The SWOT analysis in social work practice framework is beneficial because it helps organizations decide whether or not an objective is obtainable and therefore enables organizations to set achievable goals, objectives, and steps to further the social change or community development effort. It helps organizations gather meaningful information to maximize their potential.

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