What is SWOT Analysis?
SWOT analysis is the study of strengths, weaknesses, opportunities, and threats that an organization has to capitalize on and face during the course of its business activities. It is an assessment process of these four aspects of the business before making a strategic plan. After assessing clearly it provides a clear of the organization’s position in the market.
SWOT stands for Strengths, Weaknesses, Opportunities and, Threats. These aspects are common in every organization. And, these four are assessed to formulate a strategic plan.
The SWOT analysis framework is credited to Albert S. Humphrey, who tested the approach in the 1960s and 1970s at the Stanford Research Institute. Developed for business and based on data from Fortune 500 companies, the SWOT analysis has been adopted by organizations of all types as an aid to making decisions.
SWOT analysis is most commonly used by business entities. SWOT analysis is the primary stage of strategic planning. It concentrates on collecting information from the environment. It is a process of matching organizational strengths and weaknesses with environmental opportunities and threats to determine the organizational right niche. It focuses on organizational missions and objectives.
The top-level manager needs to collect information from the environment before formulating a strategic plan. This information helps managers to identify organizational strengths, weaknesses, opportunities, and threats that aid in better decision-making.
The SWOT analysis provides useful information to the manager that will be helpful to formulate and implement a strategic plan. It helps the manager to grab a competitive position in the market.
Strengths and weaknesses are internal factors of the organization that can be controlled and improved by the organization itself. Such as skilled staff, company image, etc. And, these strengths and weaknesses are the inherent features of every organization as it comes from the birth of the organization.
Opportunities and threats are the external factors of the organization which are created by outside forces and these factors and can not be controlled by the organization. Such as media, press, price of raw materials, etc.
Strengths and opportunities are the positive aspects for an organization, it secures the future of the organization. Whereas, weaknesses and threats are the negative aspects of an organization that may hamper the future of the organization.
Four Components of SWOT Analysis
Let’s describe individually,
Strengths are the internal factors and positive aspects of an organization that can secure the future of the organization. Strength is the competitive position of the organization in terms of resources. Resources maybe
- Sufficient Capital
- Skilled Man Power
- Brand Image
- Advanced Technology
- Market Leadership
- Business Alliances
- Organizational Network
Strength gives advantages to an organization as compared to its competitors in the business. Thus the strength position should be capitalized on to meet the organizational objectives.
Weaknesses are internal factors and negative attributes of an organization that can hamper the position of the organization. Weakness is the deficiency or shortcoming of the resources to meet the organizational mission and objectives. Weaknesses are:
- Lack of Sufficient Capital
- Lack of Skilled Man Power
- lack of Brad Image
- Lack of Advanced Technology
- Lack of Strong Leadership
- Lack of Business Alliances
- Lack of Insfractures
It is the responsibility of the management, as far as possible, to improve weaknesses to meet the defined objectives. And it is necessary to modify the present mission and objectives if it is not possible to improve the weaknesses.
Opportunities are outside factors and positive attributes for an organization. Opportunity is created by the outside environment. It is a favorable situation created by the external environment of an organization. If such an opportunity is exploited it may generate high performance. Opportunity for an organization is created by the favorable change in the environment which involves following,
- Decrease in Competition
- Creation of New Market
- High Economic Growth Rate
- Change in technology
- Change in Government Policy
It is the responsibility of a manager to grab such opportunities to meet the organizational goals.
Threats are the external and negative attributes of an organization. It is created by the outside forces of the organizations. The threat is an unfavorable situation created by the external environment to the organization. The threat is created by an unfavorable change in the environment which involves
- Increase in Competition
- Losing Market Share
- Low Economic Growth Rate
- Change in Technology
- Change if Government Policy
- Increase in Bargaining Power of Suppliers
- Increase in Bargaining Power of Customers
If such a threat is not identified properly it may generate low performance of the organization. Thus the manager needs to develop a new strategy to cope with new challenges.
How to Do a SWOT Analysis?
There is no hard and fast rule for conducting a SWOT analysis. Doing a SWOT analysis is very easy. While doing it, it is necessary to identify the current situation of respective organizations’ strengths, weaknesses, opportunities, and threats. After identifying it, make a strategic plan to improve the shortfalls of the respective organization, if there were any. That’s it.