SWOT ANALYSIS


Business managers are responsible for setting a company’s mission and goals and creating a strategic plan to guide the company to achieve its goals. Managers use a variety of tools and methods to inform decisions during the planning process including SWOT analysis and TOWS analysis, which are closely related brainstorming exercises.

What is a SWOT Analysis?

A SWOT analysis is a strategic planning tool that involves listing a company’s strengths, weaknesses, opportunities and threats, or SWOT. SWOT is the most renowned tool for audit and analysis of the overall strategic position of the business and its environment. Its key purpose is to identify the strategies that will create a firm-specific business model that will best align an organization’s resources and capabilities to the requirements of the environment in which the firm operates.

Strengths and Weaknesses are internal factors. Opportunities and Threats are external factors.

Strengths are things a business does well or advantages it has, such as dedicated workers, an innovative product design or a good retail location, while weakness are things a business does poorly or disadvantages it has.

Threats or external factors that might harm the business, such as competitors and unfavorable government regulations, while opportunities are external factors that the company might benefit the company, including untapped markets or favorable regulations.

After creating a list of strengths, weaknesses, opportunities and threats, managers think of ways the business can maximize strengths and use them to reduce weaknesses; take advantage of opportunities; and avoid or minimize threats.

Strengths

Strengths are the qualities that enable us to accomplish the organization’s mission. These are the basis for continued success can be made and continued/sustained. Strengths can be either tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty. Examples of organizational strengths are huge financial resources, broad product line, no debt, committed employees, etc.

A Swot Analysis Strength could be:

  • Your specialist marketing expertise.
  • A new, innovative product or service.
  • Location of your business.
  • Quality processes and procedures.
  • Any other aspect of your business that adds value to your product or service.

Weaknesses

Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet. Weaknesses in an organization may be depreciating machinery, insufficient research and development facilities, narrow product range, poor decision-making, etc. Weaknesses are controllable. They must be minimized and eliminated. For instance – to overcome obsolete machinery, new machinery can be purchased. Other examples of organizational weaknesses are huge debts, high employee turnover, complex decision making process, narrow product range, large wastage of raw materials, etc.

A Swot Analysis Weaknesses Could be:

  • Lack of marketing expertise.
  • Undifferentiated products or services (i.e. in relation to your competitors).
  • Location of your business.
  • Poor quality goods or services.
  • Damaged reputation.

Opportunities

Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable. Organizations can gain a competitive advantage by making use of opportunities. An organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise from market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue.

A Swot Analysis Opportunity could be:

  • A developing market such as the Internet.
  • Mergers, joint ventures or strategic alliances.
  • Moving into new market segments that offer improved profits.
  • A new international market.
  • A market vacated by an ineffective competitor.

Threats

Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are – unrest among employees; ever-changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.

A Swot Analysis Threat Could be

  • A new competitor in your home market.
  • Price wars with competitors.
  • A competitor has a new, innovative product or service.
  • Competitors have superior access to channels of distribution.
  • Taxation is introduced to your product or service.

Advantages of SWOT Analysis

SWOT Analysis helps in strategic planning in the following manner:

  • It is a source of information for strategic planning.
  • Builds organization’s strengths.
  • Reverse its weaknesses.
  • Maximize its response to opportunities.
  • Overcome organization’s threats.
  • It helps in identifying core competencies of the firm.
  • It helps in the setting of objectives for strategic planning.
  • It helps in knowing past, present, and future so that by using past and current data, future plans can be chalked out.

What Will a SWOT Analysis Do For Your Business?

Periodic assessments of your business are essential to success. Starting a business or operating an existing business and neglecting the task of routine maintenance would be detrimental. The business version of routine maintenance is an audit or analysis of your business practices to ensure they are sound, and one version of a business analysis is called SWOT.

Using SWOT

Conducting a SWOT analysis will give you a full-circle perspective of where your business stands. A SWOT analysis will provide the tools and information necessary to establish goals and objectives for your business. Subsequent SWOT analyses will allow you to measure your progress. The strengths and weaknesses of a business are considered internal factors; the opportunities and threats are considered external factors.

Evaluating Business Strengths

The strength of your business may be based on a number of factors, such as customer loyalty, large client base or geographic proximity for customers’ convenience. Strengths pertaining to customer service, integrity and other inherent characteristics of a successful business that are attributable to employee performance and wise business practices are often the most important strengths. These are the types of strengths that generally are difficult to suddenly lose.

Evaluating Business Weaknesses

Analyzing business weaknesses is just the first step in restructuring business practices. This segment of your SWOT analysis will aid in the decision-making process for strategy designed to improve your business. Identifying weaknesses must lead to proactive measures to minimize these weaknesses. Business weaknesses can include minimal staffing, poor quality of product or service, accessibility of product and charging higher prices than competitors.

Evaluating Business Opportunities

You may be able to employ some of your external business opportunities to resolve your business’ internal weaknesses–for example, a competitor’s business closing. Another example is the internal strength of highly skilled engineers capable of designing a new product that’s on the cutting age of technology. Businesses that conduct a SWOT analysis may recognize that its opportunities can provide for business growth or development of new product lines.

Evaluating Business Threats

Threats to your business may be disguised as weaknesses; however, threats are external and may be short-term circumstances that are resolved relatively quickly. Weaknesses, on the other hand, are internal factors well within your control. Threats may include the determination that the level of success of your competitor is due to price, declining demand for your most popular product, customer-friendly policies used by competitors and a downturn in the economy.

What is a TOWS Analysis?

A TOWS analysis involves the same basic process of listing strengths, weaknesses, opportunities and threats as a SWOT analysis, but with a TOWS analysis, threats and opportunities are examined first and weaknesses and strengths are examined last. After creating a list of threats, opportunistic, weaknesses and strengths, managers examine ways the company can take advantage of opportunities and minimize threats by exploiting strengths and overcoming weaknesses.

SWOT vs. TOWS

SWOT and TOWS analysis involve the same basic steps and likely produce similar results. The order in which managers think about strengths, weaknesses, threats and opportunities may, however, have an impact on the direction of the analysis. Michael Watkins of the “Harvard Business Review” says that focusing on threats and opportunities first helps lead to productive discussions about what is going on in the external environment rather than getting bogged down in abstract discussions about what a company is good at or bad at.

Considerations

SWOT and TOWS use the same factors for analysis, and the terms are sometimes used interchangeably without regard to the order that strengths, weaknesses, threats and opportunities are examined.

SWOT analysis can be very subjective. Two people rarely come-up with the same final version of SWOT. TOWS analysis is extremely similar. It simply looks at the negative factors first in order to turn them into positive factors. So use SWOT as a guide and not a prescription.

What Is the Difference Between a Strategic Plan & a SWOT Analysis?

When talking about higher-level planning in business, the phrases “strategic plan” and “SWOT” come up often. Both involve important data that a business owner or manager must identify and analyze in order to achieve long-term success. Though related, the two concepts are distinct elements of the business planning process.

Strategic Plan

A strategic plan is a very high-level plan that business managers and directors create to give an organization a clear focus. The plan provides a framework for the company’s overall strategy for success. Creating a strategic plan involves analyzing the current business market, setting goals and then charting out a map for how the company will achieve those goals. The plan nunifies employees and managers, giving them clarity about how to operate the business.

SWOT Analysis

To recap, SWOT analysis is a decision-making tool that puts the company’s strengths, weaknesses, opportunities and threats into the proper perspective. Looking at strengths and opportunities gives managers an idea of the advantages they have over the competition, while analyzing weaknesses and threats exposes possible vulnerabilities. A SWOT analysis often compares the company to its competitors.

The Difference

A SWOT analysis is one element of a strategic plan. When plotting out a strategic plan, one of the most important details to explore is how the company will make decisions and manage competition. Therefore a SWOT is a business planning tool while a strategic plan is an overall business proposal for how the company will find its success. Also, a SWOT focuses on a company’s current position while a strategic plan forecasts into the future.

One Versus Many

While a company normally has just one stategic plan (which is updated as needed), it can have multiple SWOT analyses. A SWOT is necessary for many different aspects of business planning, from choosing a marketing strategy and deciding on a new product idea to evaluating a possible partnership with another company. All departments of a business may operate under the same strategic plan but use many different SWOTs to make decisions in the course of business.

Difference Between SWOT and Five-Forces

SWOT and Michael Porter’s Five Forces analysis model are both useful tools in strategic planning. While they both help in assessing your company’s strengths and weaknesses relative to industry opportunities and challenges, a primary difference is that SWOT focuses more on company-specific elements while Five Forces involves a look at five important competitive factors when making a strategic decision.

Five Forces Basics

The Five Forces model includes five factors in a competitive assessment. They include supplier power, buyer power, competitive rivalry, substitution threat and threat of new entry. You use Five Forces analysis to figure out the competitive advantages your business has in each area. As a product reseller, for instance, it helps to know your relative bargaining power with industry suppliers and buyers. The general level of competition may also affect your opportunities. Substitution threats and potential new entries involve analyzing long-term viability if you enter a market.

Level of Specificity

One major distinction between the two is that SWOT is a general, overall assessment, while Five Forces is typically focused on a single growth decision. You might start with SWOT to paint the picture of your company’s current position in the marketplace and then look ahead to future strategic options. Then, Five Forces provides a tool to assess viability of particular product, service or industry expansion. You can weigh diversification into a product category using Five Forces, for instance.

Competition and Time-Orientation

SWOT is about your business and its position, and Five Forces is a tool you use to analyze competitors and how they could inhibit you. Generally, the best opportunities for a business lie in situations where a company’s strengths relative to competition align with its opportunities and less inhibiting competitive factors. Time-orientation is also slightly different with SWOT and Five Forces. With SWOT, you assess your current position and future endeavors. Five Forces is centered mostly on future decisions.

What do you think?

Do you recognize the practical explanation about Goal Setting or do you have more suggestions? What are your success factors for the organizational goal setting and achieving business success?

Share your experience and knowledge in the comments below.

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