SWOT analysis is one of the cornerstone analytical tools that assist the organization for the better future. It is the overall evaluation of company’s strengths, weaknesses, opportunities and threats. SWOT is a well established component to strategic planning because it helps decision maker to consider the important aspects of their organizational environment and enables to formulate competitive strategies in line with their environment. The SWOT analysis aims to identify the key internal & external factors which ultimately aid the organization in achieving their objective. The first two letters SW implies for strength and weaknesses are internal to the organization, hence said as internal factors. However, the last two letters OT implies for opportunities and threats which are external factors which are presented by external environment. In other words, SWOT analysis is a strategic balance sheet of an organization. The organization generally develops its vision and strategy only after considering the internal and external contexts.
An effective SWOT Analysis is a five step procedure. It starts with identifying the competitors, identifying the critical customer value, collecting the comparative data, analysing the same & then doing the strategic planning.
Let’s have an overview of all the four factors in detail:
Strength determines the organizational strong point. Strength can be either tangible or intangible & includes human competencies, customer goodwill, brand loyalty, product or service, financial resources etc. The question generally asked here is what do you do well? What advantages do you have over your competition? Do you have strong research and development capabilities?
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The weaknesses deteriorate the organizational success and growth hence must be controllable, either be minimised or eliminated. It could be the lack of integration, weak internal communication system, missing capabilities or inadequate funding. The questions here of concern are: is your business in poor location? What does your business lack? What areas need improvement to accomplish the objectives?
Generally, value chain analysis, critical success factors, business models etc aid in analysis of internal factors.
Opportunities are influenced by external factors and may arise from market, competition, industry/ government and technology. Looking upon your strengths or eliminating the weakness is also a useful approach to looking at opportunities. Here the questions arise what opportunities exist in your market that you can benefit from? How critical are your timings- is your opportunity ongoing? Has there been recent market growth or there been other changes that create an opportunity?
Threat is another external factor which is somewhat uncontrollable. Threat could be due to competitor behaviour or it could be due to changing technology etc. The question arise here is how we can handle it?
Generally, using techniques such as Porter’s five forces helps the organization in understanding the dynamics of the industry economics. In brief, Porter five forces pertains to industry rivalry, threat of new entrants, threat of new substitutes, bargaining power of buyer & bargaining power of supplier. PEST (Political, Economic, social & technological) analysis is also useful in identifying the opportunities & threats.
To conclude, SWOT analysis not only supports the company to keep the track on its own activities and to determine its stand in the market but also aids in taking important business decisions. SWOT analysis is all about identifying the most important issues, setting priorities, appraising the options and taking the actions. SWOT analysis is becoming increasingly important with the tremendous increase in competition as well as the changing market dynamics.
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