SWOT analysis is a marketing planning method used to understand and evaluate the Strengths and Weaknesses of your business or project, and to identify both the Opportunities open to you and the Threats you face. SWOT analysis should distinguish between where your organization is today, and where it could be in the future. It involves specifying the objective of the business venture or project and clarifying the internal and external factors that are favourable and unfavourable to achieve that objective. Actually, setting the objective should be done after the SWOT analysis has been performed.
The technique is credited to Albert Humphrey, who led a convention at the Stanford Research Institute in the 1960s and 1970s using data from Fortune 500 companies. (As you know, the Fortune 500 is an annual list compiled and published by Fortune magazine that ranks the top 500 U.S. publicly and privately-held companies for which revenues are publicly available.)
Strengths are characteristics of the business, or project team that give it an advantage over others. Your strength could be a new, innovative or unique product or service; your great experience in marketing or sales in near past; prices that you can offer, quality processes and procedures; location of your business or any other aspect of your business that adds value to your product or service.
Weaknesses (or Limitations) are characteristics that place your business or your team at a disadvantage relative to others. It could be: your products or services that are not different from your competitors; location of your business; lack of marketing experience; lack of manpower; damaged reputation; poor quality of goods or services and so on.
Opportunities: external chances to improve performance (e.g. make greater profits) in the environment. It could be anything: moving into new market segments, the Internet, a market vacated by an ineffective competitor or a new location in residential developments; mergers, joint ventures or strategic alliances; releasing a new product or service.
Threats: external elements in the environment that could cause trouble for the business or project. Threat could be: a new competitor in your home market; price battles with your competitors; introducing an innovative product or service by your competitor; lack of channels of distribution; new taxation, etc.
Use of SWOT analysis
Users of SWOT analysis need to ask and answer questions that generate meaningful information for each category (strengths, opportunities, weaknesses, and threats) in order to maximize the benefits of this evaluation and find their competitive advantage. Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.
The SWOT analysis is an extremely useful tool for decision-making for all sorts of situations that can occur in your business. It provides a good framework for example, for reviewing marketing strategy, or any other idea. Completing the SWOT analysis templates is very simple, and is a good subject for workshop sessions, brainstorming meetings or for team building games. You can use SWOT analysis for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports.
The usefulness of SWOT analysis is not limited to profit-seeking businesses. SWOT analysis may be used in any decision-making situation when a desired objective has been defined. It may also be used in pre-crisis planning and preventive crisis management.
One way of utilizing SWOT is matching and converting. Matching is used to find competitive advantages by matching the strengths to opportunities. Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities. An example of conversion strategy is to find new markets. If the threats or weaknesses cannot be converted you should try to minimize or avoid them.
Internal and external factors
The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the goal. These come from within the company’s unique value chain. SWOT analysis groups key pieces of information into two main categories:
- Internal factors – The strengths and weaknesses internal to the organization.
- External factors – The opportunities and threats presented by the external environment to the organization.
The internal factors may be viewed as strengths or weaknesses depending upon their impact on the business objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4Ps – Product, Price, Promotion, Place; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.
SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.
So, try to be reasonable and thoughtful. Be realistic about the strengths and weaknesses of your business. Be specific. Avoid grey areas. Keep your SWOT short and simple. And please remember, SWOT analysis can be very subjective. Two people rarely come-up with the same final version of SWOT.
Do not rely on SWOT too much and use it as a guide and not a prescription.