The internal and external analysis is conducted to identify the critical threats and opportunities to the organization within its competitive environment using SWOT analysis. Internal analysis is used to determine the strengths and weaknesses of the organization, and external analysis to identify the external threats and opportunities to the organization. The article includes details of SWOT analysis, 4 key components of SWOT analysis, its importance in strategic management, and its advantages and disadvantages.
Table of Contents
1. What Is SWOT Analysis?
SWOT analysis is a tool useful for creating organizational strategies and competitive strategies. The organization interacts with two environments one is internal and the other is external. It is essential to analyze this environment to withstand this competitive world. SWOT analysis is a process of examining these environments.
The SWOT analysis is a powerful tool to measure the capabilities and deficiencies of organizational resources and to know the market opportunities and threats to the organization. The SWOT analysis report is represented in the four-quadrant box that gives a brief of the four factors of the model.
The strengths and weaknesses are examined within the environment, and opportunities and threats outside. It provides information about the resources and capabilities utilized by the organization to achieve competitive advantages in the market. To achieve competitive advantages, organizations are investing in the strategic planning process. A strategic plan helps organizations to use resources effectively to increase productivity. Strategic planning is a continuous process of creating and implementing strategies to achieve organizational goals.
The SWOT analysis was first used in the 1960s and is considered a primary element in strategic planning. According to the literature review, the SWOT analysis was developed by Harvard Business, but some give credit to Stanford University. It was the main element in the design school model proposed by Henry Mintzberg. He emphasized the internal and external environment of the schools to identify their strengths and weaknesses. Later, it was used in small organizations to improve business strategies.
2. Four Components Of SWOT Analysis
Strength
The strength of the organization adds value to the organization. It gives favourable outcomes. The strengths are those internal factors that provide competitive advantages. They are financial structure, marketing, technical capacity, research and development, effective management, human resources, and others. Strengths help to create opportunities in the market. The organization should increase its resilience to increase profitability.
Weaknesses
Weaknesses are those characteristics or internal factors that provide losses to the organization over its competitors. The above-defined characteristics of strengths can also become weaknesses in some organizations if not maintained. Weak employees, lack of infrastructure and facilities, outdated technology, limited budget, poor leadership, and poor decisions are some of the weaknesses. The weaknesses should be identified and overcome to transform them into strengths. Otherwise, the organization faces threats from outside.
Opportunities
Opportunities are situations that are favourable to the organization. The time or situation that helps in achieving organizational goals and competitive advantages in the market is opportunities. Opportunities help to maximize the strengths and minimize the weaknesses of the organization. Organizations need to embrace emerging technologies and trends to create new ideas that would help the firm in increasing revenues.
Threats
Threats are situations that incur a loss to the organization. It has negative consequences on business operations, such as cyber-attacks, changes in regulations, economic downtime, and disasters. When the organization is not prepared for external threats, it disrupts the company. Identifying the threats is very important to be prepared for the threats and challenges and minimize the consequences of the threats on the organization. Organizations need to prepare contingency plans to mitigate potential risks.
The external threats and opportunities are identified based on the political, social, economic, technological trends, and cultural environment. The SWOT analysis encourages employees and groups to discuss strategic issues by providing valuable information. It helps organizations discuss the future and create strategic plans to achieve competitive advantages. It can be applied to any level and in every field, such as health, educational institutes, government, countries, non-profit firms, politics, and personal analysis. The qualitative and quantitative techniques help to improve the efficiency of the SWOT analysis model.
3. Advantages Of SWOT Analysis
SWOT analysis is one of the popular tools for strategic planners to create business strategies by assessing internal and external factors of the firm. It is a simple and transparent method that provides a complete overview of the organizational health. Some of the benefits of SWOT analysis are
- SWOT analysis is a tool that provides general solutions to problems, which means it provides information on the problems in the firm but not specific solutions. Other analysis tools, along with SWOT analysis, would help the firm to gain more insights and solutions to specific problems.
- SWOT analysis is a 2X2 matrix that helps organizations focus on positive and negative aspects of the problems.
- It helps to make effective strategic decisions by uncovering threats and opportunities to businesses. Organizations can focus on increasing their brand image by understanding their weaknesses and strengths and their competitors. It is like a thinking model for the management that provides a structure or format for building effective strategic plans.
- SWOT analysis can also be used with theories and models like Porter’s five force model, Nortan balanced scorecards, and others.
- SWOT analysis is used in group discussions and meetings to discuss the strategic issues within the firm, which helps in disseminating information to every employee about the issues and opportunities. It encourages every member to brainstorm and participate in the strategic planning process.
4. Disadvantages Of SWOT Analysis
- SWOT analysis provides a general overview of the business health using past and present factors. It provides solutions to present problems but not the future.
- It is difficult to categorize the variables in four quadrants, as one variable can be both a strength and a weakness.
- SWOT analysis is expensive but has fewer features. It requires the integration of other analysis tools to get more insights into data.
- Organizations face challenges in maintaining qualitative and quantitative data that is required for SWOT analysis.
- The strategies prepared using SWOT analysis are short-term and need revisions every time when there is a change in business factors.
5. Conclusion
SWOT analysis is a general summary tool that is only helpful at the beginning of the strategic planning process. However, it is widely used in strategic management to analyze strengths, weaknesses, threats, and opportunities for business. It provides a road map to problems and solutions. While it has some limitations, pairing SWOT with other analytical tools or enhancing it with data analytics can lead to more accurate and effective strategic planning.
Whether for business or personal development, SWOT remains a practical tool to identify key areas for improvement, growth opportunities, and potential threats. SWOT analysis with other analytic tools will help organizations leverage business decisions.