In order to analyze and understand the external and internal business environments, organizations turn to SWOT analysis – an acronym for strengths, weaknesses, opportunities, and threats. The idea is simple, the strengths and weaknesses of an organization are matched with the threats and opportunities of the environment to formulate an effective strategy. In this article, we will look at SWOT analysis along with some examples.
In order to create an effective strategy, it is important that the organization capitalizes on the opportunities by using its strengths. Also, it must avoid the threats by reducing the impact of the weaknesses.
Elements of SWOT Analysis
- Strengths – are the aspects of an organization that make it better than its competitors. For example, the strength of a company can be having one of the best technological tools in the market. A thorough analysis can help the company use it to improve its business.
- Weaknesses – areas where the organization needs to improve to remain competitive in the industry. Some examples of weaknesses are high debts, lack of capital, inadequate supply chain, etc.
- Opportunities – are external factors that can help an organization in gaining competitive advantage. For example, if a country changes its import laws, then a car exporter can increase his sales by taking advantage of this opportunity.
- Threats – are factors which have the potential to cause harm to an organization. For example, a drought is a threat to a crop-producing company as it can destroy the crop.
A SWOT Analysis helps an organization identify its core strengths and weaknesses as well as opportunities and threats and create a strategy to achieve success. It can be used for specific segments like production, marketing, and sales.
Executing a SWOT Analysis
Before an organization starts a SWOT analysis, it is important to create a company profile. This is primarily a description of what the business does and who its customers are.
In the case of large organizations, creating a profile for each segment is equally important. Also, outline the perceived strengths, weaknesses, opportunities, and threats.
Once the basics are in place, a management team can get together and start populating the four elements as specified above. As the list gets populated, the team can brainstorm and find ways to increase the opportunities and improve on its strengths.
In a nutshell, a SWOT analysis gives you a bird’s eye view of the current situation of an organization. The most important factor in a SWOT analysis is the quality of data.
Hence, it is important to capture the strengths, weaknesses, opportunities, and threats accurately. Remember, the analysis is merely the beginning of change and improvement.
Solved Question on SWOT Analysis
Q: Explain the concept of a SWOT Analysis.
Answer: SWOT analysis is about an organization using its strengths to capitalize on the opportunities of growth/success available while reducing its weaknesses and avoiding threats.