Corporate Strategy: SWOT Analysis
What is SWOT
SWOT Analysis
SWOT analysis is a useful tool for analysing an organization’s overall situation. The analysis of an organisation is aimed to better understand who the organisation is, what strengths they have, what challenges they face and how well they are positioned in the market/industry to make a success of the future.
This approach attempts to balance the internal strengths and weaknesses of the organization with the external opportunities and threats.Strengths and weaknesses are internal factors. Opportunities and threats are external factors of an organization.
| Environment | Positive Factors | Negative Factors |
|---|---|---|
| Internal | STRENGTHS | WEAKNESSES |
| Resources efficiently utilised | Resources are wasted | |
| External | OPPORTUNITIES | THREATS |
| Favourable competitive position | Weaken competitive position |
Strength
The first indicator of SWOT analysis is a strength. Strengths are internal, positive attributes of your company that are within your control. It enables an organisation to achieve a particular advantage in the marketplace.
- What business processes are successful?
- What assets do you have in your team, such as knowledge, education, network, skills, and reputation?
- What physical assets do you have, such as customers, equipment, technology, cash, and patents?
- What competitive advantages do you have over your competition?
Weakness
The second indicator of SWOT analysis is a weakness. Weakness places the organization at a drawback. as it indicates a limitation or constraint. These are things that you might need to improve on to be competitive.
- Things that your business needs to be competitive, e.g. old technology that hinders production
- Business processes that need improvement?
- Are there tangible assets that your company needs, such as money or equipment?
- Are there gaps on your team? e.g. untrained executives
- Is your location ideal for your success?
Opportunities
Opportunity is the third one of SWOT analysis. Opportunities are a favourable condition in an organisations external environment that it may grab for growth and profitability and enables profitable growth and indicates the potential for competitive advantage.
- Trends that will encourage people to buy more of what you are selling?
- Events happening that your company may be able to take advantage of to grow the business?
- Deregulation or other regulatory policy changes of government
- If your business is up and running, do customers think highly of you?
- Reduction of taxes on imported raw materials or government subsidy on products
Threats
The final aspect SWOT analysis is, threats which are external factors that you have no control over. You may want to consider putting in place contingency plans for dealing them if they occur.
- Potential competitors who may enter your markets?
- Will suppliers always be able to supply the raw materials you need at the prices you need?
- How do technological developments impact on how you do business?
- Consider market trends or changing consumer behaviour that could become a threat?
Additional Resources
Importance of SWOT Analysis
SWOT provides insights into an organisations actual resources, capabilities, external opportunities, and external threats. Continually updating a SWOT analysis guides the organisation about its competitive capabilities and what possible strategic actions could be taken. SWOT can further assist on how weakness can be improved and threats can guarded against it.
SWOT Actions
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Factors that make SWOT Analysis ineffective
| Factors | Comments |
|---|---|
| Lack of Rigour | Produced quickly and impractically. Verifying validity or accuracy. |
| Rose-Tinted | Human nature to over-emphasise the good and to ignore the bad. There must be a balance between the positive and the negative. |
| Over-Estimating Strengths | Strengths are only real, if sustainable competitive advantage is due to weakness by the competitor in the same. |
| Under-Utilisation Of Opportunities | There must be commitment plus resources to take advantage of opportunities. |
| Blind Acceptance | SWOT cannot be accepted blindly given most are written by “specialists” or consultants. Verify the facts. |
| Time Horizon | SWOT analysis maybe a five-year, ten-year etc. Period. Greater the timeframe the less accurate it becomes. The future holds no guarantees. |
| Not Specific | Goals are not clear. SWOT requirements and exclusions must be specific and understood by everyone, statements must be tested by facts. |
| Interrelated Whole | SWOT provides a generic picture. Different divisions and departments have different SWOT elements which are not reflected. |
| Bottom Up | Conduct separate SWOT for different divisions and departments. Common themes can be included in the Corporate SWOT analysis. |
| Creativity Before Criticism | Management need to allow time for SWOT ideas to be presented prior to criticism. |
| Evaluate | Time is required to validate statements against SWOT elements. The following must be questioned: RelevanceBenefit or harm to organisationSignificance when compared to otherWhat if it is ignored?Most appropriate action to deal with |
SWOT Scorecard
SWOT analysis is dynamic and there should be a periodic review to determine changes from one period to another. A basic scorecard is an effective tool to assess the SWOT elements. Example:
- Some count the number of strengths, weaknesses, etc. at different given periods as per figure below
- Some allocate different weightings to different strengths, weaknesses, etc.
- Irrespective of the approach, the aim is to determine how each of the SWOT elements has increased or decreased over time.
A SWOT scorecard is only effective if compared with a prior period. The following questions will assist in this comparison.
Quizzes
