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.

SWOT Analysis SWOT Analysis

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Table of contents

    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.

    SWOT Analysis four quadrant of SWOT analysis StudySmarterFig. 1 - Four quadrants of SWOT analysis

    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

    In this part, we will take a closer look at SWOT analysis example of MacDonald's.

    McDonald's 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

    • It has a competitive price

    McDonald's Weaknesses:

    • Elevated turnover of employees

    • Does not have a lot of adaptations in seasonal products

    • Adverse publicity as the opinion of it of an unhealthy

    McDonald's Opportunities:

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

    • Opportunity to grow to other countries

    • Corporate social responsibility

    McDonald's 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.
    SWOT Analysis SWOT Analysis
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    Frequently Asked Questions about SWOT Analysis

    What is SWOT analysis? 

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

    How to do a SWOT analysis?

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

    what does SWOT analysis stand for?

    Strength, weakness, opportunity, and threat. 

    What is a SWOT analysis used for? 

    SWOT analysis is used for making strategic decisions. 

    Who created the SWOT analysis? 

    Albert Humphrey created the SWOT analysis. 

    Test your knowledge with multiple choice flashcards

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