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Subscribe to notifications Your'e subscribed to notifications SWOT Analysis SWOT is the acronym for Strengths (S), Weaknesses (W), Opportunities (O), and Threats (T). By definition, strengths and weaknesses are considered to be internal factors over which there are some measures of control. On the other hand, by definition, opportunities and threats are considered to be external factors over which there are essentially no controls. SWOT is a strategy analysis tool. It combines the study of the strengths and weaknesses of an organization, a geographical area, a sector, an industry, a product or a project with the study of the opportunities and threats to their environment. SWOT analysis is a simple but powerful tool for sizing up the organizational resource capabilities and deficiencies, its market opportunities, and the external threats to its future. It is also referred to as SWOT matrix and can also be formulated as TOWS analysis or Weihrich’s TOWS matrix. TOWS matrix identifies potential tactical strategies which can be deployed for the purpose of exploiting opportunities or defending against threats through the leverage of the existing strengths and the reduction of weaknesses. The TOWS matrix seeks to develop tactical strategies based on four different positions. These are SO strategies, WO strategies, ST strategies, and WT strategies and shown in Fig 1. SWOT analysis technique is credited to Albert Humphrey, who led a research team at the Stanford Research Institute. SWOT analysis came from this research which was conducted from 1960 to 1970. The research was funded by the Fortune 500 companies to find out what had gone wrong with corporate planning and to create a new system for managing change. SWOT analysis is shown in Fig 1. Fig 1 SWOT analysis and TOWs matrix SWOT analysis is an important strategic management tool for carrying out the external and internal analysis. By conducting an external analysis, the organizational management identifies the critical threats and opportunities in its competitive environment. It also examines how competition in this environment is likely to evolve and what implications that evolution has for the threats and opportunities the organization is facing. While external analysis focuses on the environmental threats and opportunities facing an organization, internal analysis helps the organizational management identify its organizational strengths and weaknesses. It also helps the organization understand which of its resources and capabilities are likely to be sources of competitive advantage and which are less likely to be sources of such advantages. Based on SWOT analysis, the organizational management chooses the appropriate strategy. Strengths and opportunities are helpful to achieve the organizational objectives. They are favourable for the organization. Weaknesses and threats are harmful to achieving the organizational objectives. They are unfavourable for the organization. Hence, underlying any successful selection of strategies is an analysis of the organization’s internal strengths and weaknesses which are posed by internal environment and the opportunities and threats which are posed by the external environment. In other words, the management role is to try to ‘fit’ the analysis of externalities and internalities, to balance the organizational strengths and weaknesses in the light of environmental opportunities and threats. SWOT analysis is a useful tool which can help in handling both ordinary and unusual situations by exploring both internal and external factors which can be influencing. It is a structured planning method for strategy formulation. It involves specifying the objective and identifying the internal and external factors which are favourable and unfavourable for achievement of the objectives. SWOT analysis normally starts with defining of a desired end state or objective. Strengths are the attributes which are helpful in achievement of the objective. Weaknesses are the attributes which are harmful in achieving the objective. Opportunities are the external conditions which are helpful in achievement of the objectives. Threats are the external conditions which can do damage to the objectives. Thus strengths and weaknesses are the internal factors over which there are some measures of control while opportunities and threats are external factors over which there are essentially no controls. To understand SWOT analysis, it is necessary to understand the four factors of SWOT analysis. These are explained below. Strengths – These are the qualities which enable to accomplish the organizational mission. These are the basis on which continued success can be made and sustained. Strengths can be either tangible or intangible. These are in what the organization is well-versed in or what it has expertise in. It includes the traits and qualities the employees possess (individually or as a team) and the distinct features which give the organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of the organization. It includes human competencies, process capabilities, financial resources, products and services, customer goodwill, and brand loyalty. Examples of organizational strengths are huge financial resources, diversified product line, zero debt, and committed employees etc. Weaknesses – Weaknesses are the qualities which prevent the organization to accomplish its mission and to achieve its full potential. These weaknesses have deteriorating influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards which are to be normally met. Weaknesses in the organization can be depreciated machinery, insufficient research and development facilities, narrow product range, and poor decision making capabilities etc. Weaknesses are controllable. They are required to be minimized and eliminated. For example, to overcome obsolete technology and machinery, new technology and machinery can be procured and installed. Other examples of organizational weaknesses are huge debts, high employee turnover, complex decision making process, narrow product range, and large wastage of raw materials etc. Opportunities – Opportunities are presented by the environment within which the organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies which enable it to become more successful in its operations. Organization can gain competitive strength by making use of opportunities. Organization is to be careful and recognize the opportunities and grasp them whenever they arise. Selection of the targets which serves the stakeholders while getting the desired results is a difficult task. Opportunities can arise from market, competition, industry / government, and technology. Threats – Threats arise when conditions in external environment endanger the reliability and profitability of the organization. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are – unrest among employees, ever changing technology, increasing competition leading to excess capacity, price wars, and reduction in the industry profits etc. SWOT analysis is not only useful to the profit seeking organization but it can also be used in any decision making situation where an objective has been defined. SWOT analysis can provide (i) a framework for identifying and analyzing the strengths, the weaknesses, the opportunities and the threats, (ii) an impetus for analyzing a situation and developing suitable strategies and tactics, (iii) a basis for assessing core competencies and capabilities, (iv) an evidence for and a key to change, and (v) a stimulus for participating in a group. Steps for SWOT analysis The following are the steps employed in SWOT analysis.
Advantages of SWOT analysis The making of plans or decisions is a concept that is critical to the management and the employees of the organization. SWOT analysis is a very popular method used for strategic management and marketing. It is a tried-and-true tool of strategic analysis. It is possible to mention many characteristics which affect the preferability and usability of SWOT analysis. These characteristics which can be considered as advantages are listed below.
Limitations of SWOT analysis SWOT analysis is one of the most widely used techniques of the strategic management process. There are certain criticisms associated to SWOT analysis in spite of its wide use as an analysis tool. In this regard, the criticisms include that it is not effective enough as a part of organizational strategy, it cannot go beyond making a definition regarding the current situation, and for this reason it is not to be accepted as an analysis technique. Some people prefer TOWS matrix over SWOT analysis, since as per them; the only logical starting point for analysis is with opportunities and threats. They are outside the organization, largely beyond its control, and are to be managed using the organizational strengths and weaknesses. Systematic and comprehensive assessment of external and internal factors determines current competitive position and growth potential of an organization. The criticisms of SWOT analysis are described below.
Based on the above criticisms, it is possible to conclude that SWOT analysis is an analysis technique which has some limitations. By listing the organizational attributes, management has the raw material needed to perform more in-depth strategic analysis. However SWOT analysis cannot show the management how to achieve a competitive advantage. The management is not to make SWOT analysis an end in itself, temporarily raising awareness about important issues but failing to lead to the kind of action steps necessary to enact strategic change. The important limitations of SWOT analysis are given below.
In general, SWOT analysis is a very popular and useful in management tool. It has much to offer, but only as a starting point. SWOT analysis is a situation analysis and it can also be used as the starting point for a more comprehensive review. It is important since it can inform later steps in planning to achieve the organizational objectives. SWOT analysis is a summary tool, frequently featured in organizational planning which can be applied and used beneficially in any decision-making process or to analyze a situation. It can be a valuable planning tool. |