This article is about SWOT analysis, which has to do with the analysis or evaluation of the strengths, weaknesses; opportunities and threats (SWOT) to an organisation. The strengths and weaknesses deal with the internal circumstances of an organisation while the opportunities and the threats deal with the external environment of the organisation. Strategies need to be formulated to handle the respective outcomes of the SWOT analysis. Strategy identification is essential in tackling future events. To succeed, SWOT analysis must be done with sincerity and honesty. SWOT analysis, however, does not have the in-built mechanism to handle future uncertainties.
Definition
and Meaning of SWOT
This is the analysis and evaluation of strengths,
weaknesses, opportunities and threats (SWOT). This concept of SWOT can be used
to classify and explain any situation. Strengths and weaknesses fall under the
internal environment of an organisation and therefore can describe the internal
circumstances of such an organisation. On the other hand, opportunities and
threats adequately express the circumstances of the external environment.
SWOT analysis is often presented in matrix form
although it is used to explain a complex practical reality. When the two
factors internal and external become more vivid, clear strategic analysis as
described by Weihrich (1982) is adopted.
SWOT Matrix Model
|
Internal |
Opportunities |
Strengths |
Opportunities |
Weaknesses |
|
External |
Threats |
Strengths |
Threats |
Weaknesses |
Table
1 SWOT Matrix Model
You may have to go through the following process to be
able to fill out matrix.
1. Prepare
an enterprise profile showing the kind of business, the geographic domain, the
competitive situation and top management orientation.
2. Identify and evaluate the economic, social, political, demographic, products
and technology, market and competitive factors.
3. Prepare
a forecast; make predictions and assessments of the future
4. Prepare
a strength and weaknesses audit in the management and organisation’s
operations, finance, marketing and other key areas.
6. Make
strategic choices by considering strategic tactics and action.
A careful observation of SWOT analysis
indicates that it defines the relationship between the internal and external
appraisal in strategic analysis. It concerns the identification and analysis of
the environment. When SWOT analysis is properly carried out, and the basic
internal strengths and weaknesses of the organisation are well analysed and
identified, the organisation should be able to know the appropriate strategy or
strategies to adopt. Every
organisation should be able to apply the SWOT analysis to its competitors, suppliers,
customers and even to itself. When this is done, the organisation will be able
to realise its own position within the industry.
Opportunities and
Threats in Business Environment
The external forecast can be used to identify
opportunities and threats in the business environment. These are illustrated as
follows:
Opportunities
These include high growth rate in the served market,
government legislation which increases the need for the organisation’s product,
new raw material which can enhance product quality and weak competitor in a
served market.
Threats
These include new technologies that obsolete the
company’s products, industry overcapacity which increases price competition,
legislation causing major operating changes and aggressive price competition in
a served market.
Strengths and
Weaknesses in Business Environment
Just as in opportunities and threats, external
forecast can be used to identify strengths and weaknesses in the environment.
The analysis of strengths and weaknesses relative to competition require honest
assessment. The task involved is analysis of position in the industry,
determination of the successes factors in the industry, identification of
strengths and weaknesses and assessment of competitive position. At the end of
these, such questions like, where are we? Where have we been? Where are we
going? would have been answered.
To be able to adequately identify strengths and
weaknesses we need to concentrate on the past and the present. Theses strengths
and weaknesses may include:
Strengths
These include leadership in innovative product design,
exceptional employer and employee communication, understanding and
relationship. They also cover highest level of automated production in the
industry, highly motivated field sales force and superior product quality.
Weaknesses
The weaknesses include antiquated manufacturing and
office facilities, out-of-date information systems, cash flow difficulties,
limited supply of some raw materials and limited management in-dept.
A major weakness in an environment may be a very
strong competitor which will obviously necessitate competitor’s analysis. An
analysis of key competitors will provide answers to these questions: Who are
they? What are their resources? Who are their customers? Why are they so
successful?
We should seek to know how competitors will react to
our strategies. For instance, how will they react to market changes? Where are
they most vulnerable? Where are they strongest? Where is the most appropriate
battleground to fight them and how?
We should also know if our weakness arises from our
product lines, particularly with respect to performance trends in
selling prices, labour costs and gross profit.
A company’s weaknesses may also be as a result of the weaknesses in its functional areas such as marketing, engineering design and production, manufacturing, financing and human resources. Different strategies will be required for the different observed and identified weaknesses.
Strategies Indicated by SWOT Analysis
The thrust of these is that there must be a separate strategy to take care of each market segment. The Boston Consulting Group (BCG) matrix categorises businesses as stars, cash cows, question marks and dogs. There are separate strategies for each strategic business unit (SBU).
The various
strategies that are suggested by a good SWOT analysis are hereby presented. The strategies are called by various names by different authors.
Maxi-Maxi
This is a
situation in which the organisation is playing from a position of strength to
an opportunity. So the business objectives are meant to overcome external
threats in order to focus on this segment. It is referred to as exploit by Rowe et al (1994).
Mini-Maxi
The
appropriate strategy for this segment is the one that minimises weaknesses and
maximises the opportunities. Such an
opportunity exists but requires strength where
the organisation currently experiences a weakness. Therefore, a strategic
action is needed to remove the weaknesses and prevent the opportunity from
going to the competitors. Rowe et al (1994) call this segment SEARCH.
Mini-Mini
The strategy for this segment should
be such that the threat and weakness
will be reduced. The
situation is precarious. So the organisation should adopt a strategy
that can avoid this kind of situation. It is termed AVOID by Rowe et al (1994).
Maxi-Mini
An appropriate strategy for this particular business condition is the one
that uses the strength of the organisation in order to defend or avoid the
threat. However, caution
must be exercised in order to avoid unnecessary and costly competitive battles.
Strategic options that circumvent the threat should
first be considered and preferred. Rowe et al. (1994) refer to this
strategic segment as CONFRONT.
Identification of a strategy is essentially about
tackling the future. This must be based on a realistic and factual evaluation
or appraisal of an organisation” s past and present performance.
Identification of opportunities and threats alone are not enough bases for
developing strategies. To do this the organisation’s strategy must consider
organisation”s resources and competitiveness.
The strategy could only
source energy from the results of the combined assessment of the market
attractiveness and business strength. So, it is very crucial to conduct
resource analysis and capabilities. The main aim of such an exercise is to use
the strategy pointers to assist in using existing business strengths to exploit
the opportunity. It is possible to use it to create new opportunities to
counteract the threats and repair the weaknesses.
For strengths to be useful
this way, they must be carefully, realistically and critically identified,
evaluated or assessed. If the organisation uses the same techniques to assess
competitors, the organisation can then capitalize on the weaknesses of the competitors
and avoid going ahead against their strength.
SWOT analysis, especially when it
forms part of environmental analysis, is referred to as the TOWS matrix.
However, Rowe et al. (1994)
refer to it as WOTS-UP analysis and offer some suggestions on each of the
matrix segment. Whichever way we
may look at it, SWOT analysis is a systematic method of matching
environmental threats and opportunities with the organisation’s strengths and
weaknesses.
One critical aspect of SWOT analysis is the tendency
to cover up feared weaknesses resulting in a less than honest appraisal of
SWOT. In such a situation, perceived strengths can be proclaimed rather than
the weaknesses observed. This less than honest SWOT analysis can be used to
generate strategic options and forms part of the strategic choice element.
Limitations of
SWOT Analysis
Although
SWOT is future oriented, it does not have any in-built mechanism for handling
the uncertainly of the future, nor does it give any holistic model of the
organisation. SWOT analysis does not aim at option evaluation or selection. However,
in the process of going through the internal and external analyses and
appraisal, certain objectives and certain performance measures may be reviewed.
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