SWOT is an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a specific company.
A SWOT analysis should not only identify a corporation’s core competencies, but also identify opportunities that the firm is not currently able to take advantage of due to a lack of resources.
The SWOT analysis framework has gained widespread acceptance because it is both simple and powerful for strategy development. However, like any planning tool, a SWOT is only as good as the information it contains. Thorough market research and accurate information systems are essential for the SWOT analysis to identify key issues in the environment.
Internal Strengths and Weaknesses
The Internal Analysis of strengths and weaknesses focuses on internal factors that give an organization certain advantages and disadvantages in meeting the needs of its target market. Since the needs of the organization’s target market are of primary importance, it is beneficial to look at your company through the eyes of your customers. However, being customer focused when analyzing strengths and weaknesses does not mean that non-market oriented strengths and weaknesses should be forgotten. Rather, it suggests that all firms should tie their strengths and weaknesses to customer requirements.
Strengths refer to core competencies that give the firm an advantage in meeting the needs of its target markets. Any analysis of company strengths should be market oriented/customer focused because strengths are only meaningful when they assist the firm in meeting customer needs. Only those strengths that relate to satisfying a customer need should be considered true core competencies.
Weaknesses refer to any limitations a company faces in developing or implementing a strategy. Weaknesses should also be examined from a customer perspective because customers often perceive weaknesses that a company cannot see.
Look into the following areas to gain insight into strengths and weaknesses
- Product quality
- Brand associations
- Existing overall brand
- Relative cost of new products
- Employee capabilities
Questions to ask
- What do we do best?
- How are we different from the competition?
- What are our company resources – assets, intellectual property, and people?
- What are our company capabilities (functions)?
External Opportunities and Threats
The External Analysis examines opportunities and threats that exist in the environment. Both opportunities and threats exist independently of the firm. The way to differentiate a strength or weakness from an opportunity or threat is to ask: Would this issue exist if the company did not exist? If the answer is yes, it should be considered external to the firm.
Opportunities refer to favorable conditions in the environment that could produce rewards for the organization if acted upon properly. That is, opportunities are situations that exist but must be acted on if the firm is to benefit from them.
Threats refer to conditions or barriers that may prevent the firms from reaching its objectives.
Consider the following analyses to gain insight into opportunities and threats:
- Customer analysis: Segments, motivations, unmet needs
- Competitive analysis: Identify completely, put in strategic groups, evaluate performance, image, their objectives, strategies, culture, cost structure, strengths, weakness
- Market analysis: Overall size, projected growth, profitability, entry barriers, cost structure, distribution system, trends, key success factors
- Environmental analysis: Technological, governmental, economic, cultural, demographic, scenarios, information-need areas Goal: To identify external opportunities, threats, trends, and strategic uncertainties
Questions to ask
- What new needs of customers could you meet?
- What economic trends could affect your organization?
- Are there political or social changes that could impact our business?
- How do recent technological developments affect us?