These frameworks are essential to fundamentally analyzing companies
Key Takeaways
- SWOT analysis is a strategic planning technique that provides assessment tools.
- Identifying core strengths, weaknesses, opportunities, and threats leads to fact-based analysis, fresh perspectives, and new ideas.
- A SWOT analysis pulls information internal sources (strengths of weaknesses of the specific company) as well as external forces that may have uncontrollable impacts to decisions (opportunities and threats).
- SWOT analysis works best when diverse groups or voices within an organization are free to provide realistic data points rather than prescribed messaging.
- Findings of a SWOT analysis are often synthesized to support a single objective or decision that a company is facing.
What Is SWOT Analysis?
SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company’s competitive position and to develop strategic planning. SWOT analysis assesses internal and external factors, as well as current and future potential.
A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization, initiatives, or within its industry. The organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on real-life contexts. Companies should use it as a guide and not necessarily as a prescription.
Components of SWOT Analysis
Every SWOT analysis will include the following four categories. Though the elements and discoveries within these categories will vary from company to company, a SWOT analysis is not complete without each of these elements:
Strengths
Strengths describe what an organization excels at and what separates it from the competition: a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results. It must then decide how to use those results to attract new investors.
Weaknesses
Weaknesses stop an organization from performing at its optimum level. They are areas where the business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital.
Opportunities
Opportunities refer to favorable external factors that could give an organization a competitive advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and market share.
Threats
Threats refer to factors that have the potential to harm an organization. For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats include things like rising costs for materials, increasing competition, tight labor supply. and so on.
Benefits of SWOT Analysis
A SWOT analysis won’t solve every major question a company has. However, there’s a number of benefits to a SWOT analysis that make strategic decision-making easier. Contact Us if you need your SWOT analysis to be completed by one of our consultants.
[contact-form][contact-field label=”Name” type=”name” required=”true” /][contact-field label=”Email” type=”email” required=”true” /][contact-field label=”Website” type=”url” /][contact-field label=”Message” type=”textarea” /][/contact-form]
- A SWOT analysis makes complex problems more manageable. There may be an overwhelming amount of data to analyze and relevant points to consider when making a complex decision. In general, a SWOT analysis that has been prepared by paring down all ideas and ranking bullets by importance will aggregate a large, potentially overwhelming problem into a more digestible report.
- A SWOT analysis requires external consider. Too often, a company may be tempted to only consider internal factors when making decisions. However, there are often items out of the company’s control that may influence the outcome of a business decision. A SWOT analysis covers both the internal factors a company can manage and the external factors that may be more difficult to control.
- A SWOT analysis can be applied to almost every business question. The analysis can relate to an organization, team, or individual. It can also analyze a full product line, changes to brand, geographical expansion, or an acquisition. The SWOT analysis is a versatile tool that has many applications.
- A SWOT analysis leverages different data sources. A company will likely use internal information for strengths and weaknesses. The company will also need to gather external information relating to broad markets, competitors, or macroeconomic forces for opportunities and threats. Instead of relying on a single, potentially biased source, a good SWOT analysis compiles various angles.
- A SWOT analysis may not be overly costly to prepare. Some SWOT reports do not need to overly technical; therefore, many different staff members can contribute to its preparation without training or external consulting.
Source: Investopedia
