SWOT analysis

• As a Business Management tool, SWOT analysis provides a framework for strategic analysis to allow managers to assess the current situation facing an organization. 

• SWOT stands for strengths, weaknesses, opportunities, and threats. 

• SWOT analysis considers both internal factors (strengths and weaknesses) and the external business environment (opportunities and threats). It is one of the most used business management tools in the corporate world.

• Firms have some degree of control over the internal factors, but not over the external factors.

• Strengths – The things that the organization does well or better in comparison to its competitors, e.g. brand recognition, reputation, market share, cost leadership, profitability, quality, staff retention, well-trained staff, and customer loyalty.

• Weaknesses – The things that the organization does not do so well in relation to its competitors, e.g. low productivity, high staff turnover, outdated technology, liquidity problems, high fixed costs, poor employer-employee relations, skills gap in the organization, overreliance on a product or particular market, or a poor corporate image.

• Opportunities – External factors that provide openings (prospects) for an organization to succeed, e.g. new technologies, favourable demographic trends, economic recovery, and new prospects in overseas markets.

• Threats – External factors that hold back the business, preventing it achieving its organizational goals, e.g. detrimental weather conditions / seasonality factors, changing habits and tastes, increased competition in the industry, price wars, oil crises, natural disasters, the outbreak of infectious diseases, political constraints, environmental laws, greater regulation of the industry, media exposure, and economic recession.

• Note: what might be considered as a strength for a particular organization might be viewed as a weakness for other firms. For example, whilst the coronavirus pandemic caused millions of job losses across the world due to lockdown laws and temporary closure of businesses, many online businesses such as supermarkets thrived. Sales at fashion retailer Zara were up 95 per cent in April 2020 as stores across the globe were closed during the coronavirus lockdown

 Advantages of SWOT analysis

• It is a useful visual management tool with a very broad range of applications in dealing with real-world problems, issues and decisions for managers and decision makers in businesses and organizations.

• It helps managers to develop a better understanding of the organization’s position in the market.

• It enables the organization to reflect on its strengths (to be protected) and weaknesses (to be developed into strengths).

• It encourages decision makers to examine the strategic opportunities for the organization and the possible threats (risks) of certain decisions, such as growth (expansion), diversification, or relocation.

• It facilitates strategic thinking. For example, a SWOT analysis can help managers and decision makers to build on the strengths of the organization and focus on the opportunities or try to protect itself against the risks of weaknesses and threats.

 Disadvantages of SWOT analysis

• It is a static business management tool, i.e. it only provides a snapshot of the current situation for an organization. Changes in internal and external factors could make the SWOT analysis outdated quite quickly. For example, how many business back a the beginning of 2020 would have identified the potential for a prolonged global pandemic in their SWOT analysis?

• It requires the organization to be honest, although it is not always easy to acknowledge or disclose to one's weaknesses or shortcomings.

• Like any business management tool, a SWOT analysis is only as good as the person(s) who compiled it, i.e. there may be errors, biases and/or omissions.

• SWOT analysis does not guarantee that a strategy will be successful, e.g. identifying weaknesses and threats does not necessarily mean that the business has sufficient resources to tackle these risks.

• Hence, a SWOT analysis needs be used in conjunction with other business management tools in order to make more informed decisions.

 Top tip 1!

Although a SWOT analysis can be presented in a table format, all bullet points must be clearly outlined and written in the context of the business organization.

 Top tip 2!

When constructing a SWOT analysis, remember the importance of writing in the context of the organization in question. It can be helpful if students consider the industry in which the organization operates, and the economy in which the business operates.