Identifying Strengths, Weaknesses, Opportunities and Threats. Explanation of SWOT analysis.

Identifying Strengths, Weaknesses, Opportunities and Threats. Explanation of SWOT analysis.

What is a SWOT analysis? Description

A SWOT analysis is a tool, used in management and strategy formulation. It can help to identify the Strengths, Weaknesses, Opportunities and Threats of a particular company.

Strengths and weaknesses are internal factors that create value or destroy value. They can include assets, skills, or resources that a company has at its disposal, compared to its competitors. They can be measured using internal assessments or external benchmarking.

Opportunities and threats are external factors that create value or destroy value. A company cannot control them. But they emerge from either the competitive dynamics of the industry/market or from demographic, economic, political, technical, social, legal or cultural factors (PEST).

Typical examples of factors in a SWOT Analysis diagram:
Strengths
•Specialist marketing expertise
•Exclusive access to natural resources
•Patents
•New, innovative product or service
•Location of your business
•Cost advantage through proprietary know-how
•Quality processes and procedures
•Strong brand or reputation

Weaknesses
•Lack of marketing expertise
•Undifferentiated products and service (i.e. in relation to your competitors)
•Location of your company
•Competitors have superior access to distribution channels
•Poor quality of goods or services
•Damaged reputation

Opportunities
•Developing market (China, the Internet)
•Mergers, joint ventures or strategic alliances
•Moving into new attractive market segments
•A new international market
•Loosening of regulations
•Removal of international trade barriers
•A market that is led by a weak competitor

Threats
•A new competitor in your own home market
•Price war
•Competitor has a new, innovative substitute product or service
•New regulations
•Increased trade barriers
•A potential new taxation on your product or service

Any organization must try to create a fit with its external environment. The SWOT diagram is a very good tool for analyzing the (internal) strengths and weaknesses of a corporation and the (external) opportunities and threats. However, this analysis is just the first step. To really create the fit with the external environment is often the most difficult work.

Confrontation Matrix
A tool to combine the internal factors with the external factors is the Confrontation Matrix.

Often in reality the two columns of the SWOT diagram are pointing in opposite directions. Strategists must still deal with the paradox of creating alignment. This can be done via Outside-in strategy formulation (market-driven strategy) or Inside-out strategy formulation (resource-driven).

Note: you can also apply a SWOT analysis to competitors, often providing interesting new perspectives.