SWOT analysis is a simple but useful framework for analysing an organization or individual’s strengths and weaknesses, and identifying the opportunities and threats that are faced1. As such, the tool can be used in both a business and a personal context. Fundamental to this tool is the analysis of both internal and external factors. For example, while strengths and weaknesses are often internal to and organisation, opportunities and threats tend to relate to external factors such as competitors’ actions and changing market dynamics.
SWOT analysis applied to business
Used in the business context, SWOT analysis helps a firm to carve out a defensible niche within a given market. In identifying strengths a business is able to focus and make the most of opportunities that they are well positioned to exploit1. Identifying weaknesses allows a business to manage or eliminate threats. Ultimately the tool helps the organisation to match resources and capabilities to the competitive environment in which it operates2. Therefore, SWOT analysis is useful in formulating strategy that steers a business to its optimal market position within the best suited market niche.
There is a three-phase process to SWOT analysis2:
Phase 1: Identify strategic issues
- Scan the internal and external environment to identify strengths, weaknesses, opportunities and threats
- Identify strengths by asking the question “What does the company do well?’ For example, does the company have an excellent sales force or superior brands?
- Identify weaknesses by asking the question “What does the company not do well?”
- Identify opportunities that may arise as a result of changes in technology, government policy, society and population demographics
- Identify threats that may arise as a result of internally driven weaknesses that threaten the business, or external environmental factors – that also give rise to opportunities
Phase 2: Determine the firm’s strategy
- Identify the firm’s strategic fit in the market given its internal capabilities and external environment
- Formulate alternative strategies that address key issues
- Alternative strategies are then placed in the respective quadrant of the SWOT matrix
- Select an appropriate strategy for the firm
Phase 3: Implement and monitor the strategy
- Develop a plan of action for implementing the strategy
- Allocate responsibilities and formulate budgets
- Monitor and review progress
Source: 1 Van Assen, M; Van der Berg, G; Pietersma, P – “Key Management Models: The 60+ models every manager needs to know” – Harlow – 2009 – Prentice Hall
2 Anonymous – “SWOT Analysis:Discover new opportunities. Manage and eliminate threats” – http://www.mindtools.com/pages/article/newTMC_05.htm – accessed 8 December 2013
3 Anonymous – “SWOT Analysis” – IOD – http://www.iod.com/intershoproot/eCS/Store/en/pdfs/st1swot.PDF – accessed on 26 November 2013