What is a SWOT analysis?SWOT analysis is a framework for identifying and analyzing an organization's strengths, weaknesses, opportunities and threats. These words make up the SWOT acronym. Show
The primary goal of SWOT analysis is to increase awareness of the factors that go into making a business decision or establishing a business strategy. To do this, SWOT analyzes the internal and external environment and the factors that can impact the viability of a decision. Businesses commonly use SWOT analysis, but it is also used by nonprofit organizations and, to a lesser degree, individuals for personal assessment. SWOT is also used to assess initiatives, products or projects. As an example, CIOs could use SWOT to help create a strategic business planning template or perform a competitive analysis. The SWOT framework is credited to Albert Humphrey, who tested the approach in the 1960s and 1970s at the Stanford Research Institute. SWOT analysis was originally developed for business and based on data from Fortune 500 companies. It has been adopted by organizations of all types as a brainstorming aid to making business decisions.
When and why should you do a SWOT analysis?SWOT analysis is often used either at the start of, or as part of, a strategic planning process. The framework is considered a powerful support for decision-making because it enables an organization to uncover opportunities for success that were previously unarticulated. It also highlights threats before they become overly burdensome. SWOT analysis can identify a market niche in which a business has a competitive advantage. It can also help individuals plot a career path that maximizes their strengths and alert them to threats that could thwart success. This type of analysis is most effective when it's used to pragmatically recognize and include business issues and concerns. Consequently, SWOT often involves a diverse cross-functional team capable of sharing thoughts and ideas freely. The most effective teams would use actual experiences and data -- such as revenue or cost figures -- to build the SWOT analysis. A SWOT analysis matrix is made up of these four elements.Elements of a SWOT analysisAs its name states, a SWOT analysis examines four elements:
A SWOT matrix is often used to organize the items identified under each of these four elements. The matrix is usually a square divided into four quadrants, with each quadrant representing one of the specific elements. Decision-makers identify and list specific strengths in the first quadrant, weaknesses in the next, then opportunities and, lastly, threats. Organizations or individuals doing a SWOT analysis can opt to use various SWOT analysis templates. These templates are generally variations of the standard four-quadrant SWOT matrix. How to do a SWOT analysisA SWOT analysis generally requires decision-makers to first specify the objective they hope to achieve for the business, organization, initiative or individual. From there, the decision-makers list the strengths and weaknesses as well as opportunities and threats. Various tools exist to guide the decision-making process. They frequently provide questions that fall under each of the four SWOT elements. For example, participants might be asked the following to identify their company's strengths: "What do you do better than anyone else?" and "what advantages do you have?" To identify weaknesses, they may be asked "where do you need improvement?" Similarly, they'd run through questions such as "what market trends could increase sales?" and "where do your competitors have market share advantages?" to identify opportunities and threats. Example of a SWOT analysisThe end result of a SWOT analysis should be a chart or list of a subject's characteristics. The following is an example of a SWOT analysis of an imaginary retail employee:
How to use a SWOT analysisA SWOT analysis should be used to help an entity gain insight into its current and future position in the marketplace or against a stated goal. Organizations or individuals using this analysis can see competitive advantages, positive prospects as well as existing and potential problems. With that information, they can develop business plans or personal or organizational goals to capitalize on positives and address deficiencies. Once SWOT factors are identified, decision-makers can assess if an initiative, project or product is worth pursuing and what is needed to make it successful. As such, the analysis aims to help an organization match its resources to the competitive environment. A SWOT analysis can be used to assess and consider a range of goals and action plans, such as the following:
SWOT analysis is similar to PEST analysis, which stands for political, economic, social and technological. PEST analysis lets organizations analyze external factors that affect its operations and competitiveness. SWOT analysis pros and consAmong the advantages of using a SWOT approach are the following:
Although a SWOT snapshot is important for understanding the many dynamics that affect success, the analysis does have limits, such as the following:
Learn how to assess an organization's needs and implement a technology strategy in this step-by-step guide. This was last updated in March 2022 Continue Reading About SWOT analysis (strengths, weaknesses, opportunities and threats analysis)
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Why should successful managers recognize opportunities and threats in their company's external environment?It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats.
Why must company managers be aware of a company's external environment?External environment factors are important because they can cause direct and indirect effects on business operations, personnel and revenue. The external environment of a company changes constantly in ways beyond the company's control, but executives and managers can track these changes and minimize their consequences.
Which of the following are examples of advantages some existing competitors might have that are independent of size or economies of scale?Cost advantages independent of size – Proprietary technology, access to raw material, and desirable geographic location are all examples of cost advantages not directly associated with size (and economies of scale).
Which of the following threaten an industry by forcing down prices bargaining for higher quality or more services and playing competitors against each other?The presence of powerful buyers reduces the profit potential in a given industry. Buyers increase competition within an industry by forcing down prices, bargaining for improved quality or more services, and playing competitors against one another.
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