Definition of SWOT Analysis
SWOT analysis is a method for identifying an organization’s strengths, weaknesses, opportunities, and threats. A SWOT analysis is a strategic option that evaluates what an organization can or cannot do in terms of internal and external factors. This analysis uses environmental data and forms an evaluation on the position of a company. Conducting a SWOT analysis determines the factors that will assist the firm in achieving its objectives. SWOT also identifies the factors that must be minimized or overcome to attain the desired result.
After gaining an insight into the meaning of SWOT analysis, let’s look at the elements of SWOT analysis.
Elements of SWOT Analysis
The following are the elements of this analysis:
Strengths are factors in which the company holds expertise and contribute to the continued success of the organization. These are the basis for the continued success of the organization and will assist in gaining the organization’s mission. These factors could include strong capabilities of the organizations in spheres such as process capabilities, brand loyalty, customer goodwill, human competencies, financial resources, no debt, broad product line, and many others.
Weaknesses are factors that prevent an organization from meeting its mission and achieving its full potential. These weaknesses hamper organizational success and growth. These factors do not meet the required standards of the organization. Weaknesses could include factors such as insufficient research and development facilities, narrow product range, poor decision-making, and depreciating machinery.
The environment within which our organization operates offers opportunities. An organization can identify such opportunities and enjoy benefits arising from them by planning and executing required strategies. Recognizing and grasping these strategies well in time will help the organization gain a competitive advantage. Opportunities may arise from factors such as government/industry, technology, and competition.
Threats are factors existing in the external environment that jeopardize the profitability and reliability of the organization. Such threats are uncontrollable and prove to be a risk to the stability and survival of the organizations. Threats could include factors such as ever-changing technology, unrest among employees, price wars, reducing industry profits, and increasing competition.
The factors included lead to several benefits and limitations. Let us see all of them in detail.
Benefits of SWOT Analysis
A SWOT analysis involves negligible cost, and anyone understanding the business will be able to prepare the analysis. This analysis addresses complex situations, finds means towards improvement and holds several more advantages.
The following are the benefits of this analysis:
- Capitalize on opportunities
- Address weaknesses
- Understand your business better
- Deter threats
- Develop business goals and strategies for achieving them
- Take advantage of your strengths
Limitations of SWOT Analysis
The SWOT analysis is only a single stage of the business planning process. Complex issues will require more in-depth research and thorough analysis before the decision-making process. This analysis holds limited coverage of the issues faced by the organization. A number of more limitations are associated with this form of analysis.
The following are the limitations of the SWOT analysis:
- It doesn’t provide solutions or offer alternative decisions
- Doesn’t prioritize issues
- It can produce a lot of information, but not all of it is useful
- It can generate too many ideas but not help you choose which one is the best
After gaining a deep insight into the SWOT analysis, look at the example to clarify the concept further.
Example of SWOT Analysis
In the year 2015, a SWOT analysis was prepared for The Coca-Cola Company. Strengths such as the brand’s name and vast distribution network, and opportunities like emerging markets were noted. Weaknesses and threats such as growing taste for ‘healthy’ beverages, foreign currency fluctuations, and subsequent competition were analyzed. Coca-Cola then based its future activities on this SWOT analysis and ramped up its advertising, promotional activities, and marketing. The company also branched out into other beverage categories. Coca-Cola realized benefits within a year as its earnings per share rose from $.33 to $.35. The stocks of the company increased from $39 to $46. The SWOT analysis led the company towards improvement, thereby heading towards wealth maximization.
A SWOT analysis provides a bird’s-eye view of a company’s position. It also suggests the feasibility of a concept or strategy planned by the organization. SWOT analysis plays a very important role. This tool has gained popularity due to its flexibility in evaluating a number of ideas and strategies. However, this analysis is never the complete solution and only leads the path to further analysis and discussions.
We recommend you read “What Actions Organizations Take When their Strengths are Underutilized?” for more gainful insights.