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SWOT Analysis

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SWOT Analysis

How can a business figure out what its strengths and weaknesses are? How can it possibly foresee future opportunities in the market and possible external threats? By conducting a SWOT analysis. A SWOT analysis examines both internal factors (strengths and weaknesses) and external factors (opportunities and threats), making it a useful preliminary tool for formulating business strategy.

The four quadrants of SWOT analysis

SWOT analysis is a tool that assists you to assess the Strengths, Weaknesses, Opportunities, and Threats involved in any organization. It can aid you to obtain insights from prior situations and figure out possible outcomes to prevailing or potential problems.

Internal factors: are those factors that the organization can control for instance: strength and weakness

External factors: are those factors that the organization cannot control for instance: Opportunities and threats

Helpful factors: are those that support the success of the organization, for example, strength and opportunities

Harmful factors: are those that hinder the success, for example, weakness and threats.

Strengths, Weaknesses, Opportunities and Threats are the four quadrants that make up the SWOT analysis. Let's take a look.

Strengths are internal and helpful for an organization. They help a company support opportunities or incapacitate a threat. Strengths include for example:

  • Financial strengths

  • Developments in technology (plant & equipment, machinery)

  • Human resource (talented and skilled employees)

Weaknesses are internal and harmful for an organization. These factors do not let the company benefit from an opportunity or make the company exposed to a threat. Weaknesses include:

  • Old-fashioned or unyielding technology or practices

  • Skills deficiency

  • Weak customer service, example: longer delivery time/ inadequate customer communication

Opportunities are external and helpful factors that cannot be controlled but could be beneficial. Opportunities result from several sources, for instance:

  • Latest societal trends

  • Innovations in technology

  • Rivals exiting/entering the market

  • Restraining regulations can be considered as an opportunity if it becomes a threat to rivals

Threats are external and harmful factors that cannot be controlled. Threats can be tangible as well as intangible. A tangible threat could be:

  • Aggressive takeover proposition

  • New rivals

  • Theft

Intangible threat:

  • Prospective loss to reputation

  • Brand detrimental factors

SWOT analysis example

Let's take a look at McDonald's as an example.

Strengths:

  • McDonald's customer base is in several countries in comparison to its rivals in the fast-food industry

  • Sizable economies of scale

  • Highly identified brand

  • Has a competitive price

Weaknesses:

  • Elevated turnover of employees

  • Doesn’t have a lot of adaptations in seasonal products

  • Adverse publicity as the opinion of it of an unhealthy

Opportunities:

  • Being open to changes in trends as people shift to healthier eating

  • Opportunity to grow to other countries

  • Corporate social responsibility

Threats:

  • Increasing customers consciously shifting to healthy eating

  • Threats from rivals in various countries

  • The threat of economic recession

Recommendations for SWOT analysis

It should be employed before a company commits to any kind of action, either its discovering new initiatives, giving a face-lift to internal policies, evaluating opportunities, or changing a plan halfway through its implementation. At times it is significant to conduct a general SWOT analysis just to examine the present landscape of the business so that the operations can be improved according to the need. The analysis can show the main areas where the company has optimal performance and which operations need to be adjusted.

The importance of SWOT analysis

It is vital to understand that an organization does not function in a vacuum and it should evaluate internal as well as external factors. A SWOT diagram will provide a full understanding of where the organization lies within the wider market and recognize probable opportunities to avail.

Advantages:

  • It is uncomplicated to understand as it’s an easy diagram with no calculations.

  • It can be applied to different levels in a company i.e., from an individual to a business strategy.

  • It’s greatly visual therefore making it easier to convey it to the stakeholders.

  • It presents a transparent image of the most significant internal and external factors.

  • It assists to ascertain future goals and constructs a strategy to accomplish them.

Drawbacks of SWOT analysis

The drawbacks include the following:

  • Lists of a company’s strengths, weaknesses, opportunities, and threats are usually very long and might have too much overlap of information

  • The description of the factors can be either very narrow or broad, hence making it challenging to develop a real strategy

  • Doesn’t present actionable solutions

  • Without the prioritization of factors, it is difficult to focus resources

  • Helps to brainstorm plenty of ideas but doesn’t assist to select the best option

  • It's not simple to identify factors that may be both strengths as well as weaknesses. For example, good locations but increased rent.

Does SWOT analysis result in a strategy?

SWOT on its own cannot result in a strategy. It is an analysis as well as a development tool. The management nevertheless has to work on the interpretation of the analysis and hence make decisions. When it is exercised properly, it is a useful tool to assist your thinking. It is equally easy to conduct a SWOT analysis that will not lead to a strategy. Generally, the failure is due to two reasons: usually because of not comprehending what a strategy is, and employing SWOT incorrectly.

What is the difference between PESTEL and SWOT analysis?

PESTEL is an acronym for Political, Economic, Social, Technological, Environmental and Legal. It is a tool to understand the external environment and how it affects the business. SWOT and PESTEL analysis are used to make efficient and thorough assessments of a new plan, project, or business. The process presents enhanced awareness to decision-makers of the fluctuations that may arise and the consequences of the organization.

SWOT Analysis - Key takeaways

  • A SWOT analysis is an easy and useful framework for classifying strengths, weaknesses, opportunities, and threats which an organization faces.
  • It is significant to increase strengths, decrease threats and benefit from the opportunities that are offered.
  • Performing a SWOT analysis is effective to make strategic plans and to determine the goals of the organization, however, should not be the only tool used to make important decisions.
  • SWOT analysis is uncomplicated to understand and great visual and it assists to ascertain future goals and construct a strategy, etc.
  • The drawback of SWOT analysis is that the description of the factors can be either very narrow or broad, Doesn’t present actionable solutions, etc.

Frequently Asked Questions about SWOT Analysis

SWOT analysis is a tool that assists you to assess the Strengths, Weaknesses, Opportunities, and Threats involved in any organization.

By assessing internal, external, helpful, and harmful factors.  

Strength, weakness, opportunity, and threat. 

SWOT analysis is used for making strategic decisions. 

Albert Humphrey created the SWOT analysis. 

Final SWOT Analysis Quiz

Question

 Is SWOT analysis merely enough to make strategic plans?


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Answer

It is a simple tool to have an overview of the company's internal and external factors. An organization’s strategic plans need deep understanding to reach a certain decision with the help of other tools as well. Therefore, SWOT analysis alone cannot be the foundation of a strategic decision.

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Question

What are internal and external factors?


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Answer

 Internal factors are those factors that the organization can control for instance: strength and weakness. External factors are those factors that the organization cannot control for instance: Opportunities and threats.

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Question

 What are helpful and harmful factors?


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Answer

Helpful factors are those that support the success of the organization, for example: strength and opportunities. Harmful factors are those that hinder the success, for example: weakness and threats.

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Question

What are some of the components that can be considered as strength?


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Answer

Financial strengths, developments in technology, human resource, etc.

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Question

What are tangible and intangible threats?


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Answer

Tangible threats could be aggressive takeover propositions, new rivals, theft. Intangible threat could be prospective loss to reputation, brand detrimental factors, etc.

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Question

With an example describe the factors which are in control of an organization?


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Answer

An organization has control over its internal factors such as strengths and weaknesses. Example: McDonald’s strength could be its increasing customer base in different countries and weakness is that there is no adaptation in meals according to the seasonal products.

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Question

With an example describe the factors which are out of the control of an organization?


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Answer

An organization cannot control the factors presented by the external environment, therefore, sometimes it offers opportunities which an organization can take advantage of and at times threats. Example: McDonald availing the opportunity to expand in other countries and a threat could be more conscious customers about their healthy eating.

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Question

Give another example of SWOT analysis?


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Answer

Example of an e-commerce business:

  • Strengths: Same day delivery within the city and high exposure of products to customers

  • Weakness: There is no monthly subscription option

  • Opportunities: Optimize the present mobile app for responsiveness and inbuilt feedback, larger target audience

  • Threats: Can operate at a loss to take rivals out of the competition

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Question

Mention two benefits of SWOT analysis?


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Answer

Benefit: Simple to use and easy diagram to understand with no mathematical calculations and it’s greatly visual therefore makes it easier to convey it to the stakeholders.

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Question

Mention two drawbacks of SWOT analysis?


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Answer

It doesn’t prioritize factors so it is difficult to allocate resources and it doesn’t present actionable solutions.

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Question

Can SWOT analysis always lead to a strategy?


Show answer

Answer

SWOT on its own cannot result in a strategy. It is an analysis as well as a development tool.

Show question

Question

What could be the reasons that SWOT analysis might not lead to a strategy?


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Answer

Generally, the failure is due to two reasons: usually because of not comprehending what a strategy is, and employing SWOT incorrectly.

Show question

Question

Why should a company conduct SWOT analysis?


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Answer

It can be performed before initiating any plan or amending the existing plan. SWOT analysis can give an overview of the situation and an organization can better assess its present practices as well if they are benefiting or if the goals are being accomplished as planned.

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Question

What are SWOT and PESTEL analysis used for?


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Answer

SWOT and PESTEL analysis are used to make efficient and thorough assessments of a new plan, project or business.

Show question

Question

How is the process of SWOT and PESTEL analysis helpful?


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Answer

The process presents enhanced awareness to decision-makers of the fluctuations that may arise and the consequences of the organization.

Show question

Question

A tool used to assess areas a business is strong, weak,  might face risks and gain opportunities is called....

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Answer

SWOT

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Question

Strengths and weakness are used to analyse 

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Internal

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Opportunities and threats are used to analyse the...

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External

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Internal factors are factors the organisation can control such as strength and weakness

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Answer

True

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External factors are factors the organisation cannot control such as opportunities and weakness

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Answer

True

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Question

Strength and opportunities are factors that ...... the organisation

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Answer

Support

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Weakness and threats are factors that are..... to the organisation

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Harm

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Question

Examples of opportunities for an organisation are

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Answer

a. Latest social trends

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Question

A strength of an organisation can be 

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Answer

a. Financial strength

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Question

When would you advise a company to use SWOT analysis?

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Answer

aa. Before committing to any action

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Question

The simplicity of SWOT analysis is ad advantage of using this tool 

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Answer

True

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Question

SWOT has been criticised for not presenting actionable solutions

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Answer

True

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SWOT is an analysis tool and ......... tool

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Answer

a. Planning tool

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Question

PESTEL is used to analyse external environment while SWOT is for both internal and external boys

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Answer

True

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