Definition
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats
An assessment of Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is used within organizations in the early stages of strategic and marketing planning. It is also used in problem solving, decision making, or for making staff aware of the need for change. It can be used at a personal level when examining your career path or determining possible career development
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.
Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors. For example, strength could be your specialist marketing expertise. A weakness could be the lack of a new product.
Opportunities and threats are External factors. For example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.
It is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment. Accordingly, SWOT analysis is best used as a guide and not a prescription. Adding and weighting criteria to each factor increases the validity of the analysis.
Where is S.W.O.T. being applied?
S.W.O.T. Analysis as it may sometimes being called can be performed in a variety of application or situation. It can be used as a situation analysis as an input into a strategic planning process at corporate of company level. It can also apply to evaluate the situation in terms of its capabilities. We use S.W.O.T. as a situation analysis tool.
When do we Perform a S.W.O.T. Analysis?
In common practice, S.W.O.T. Analysis is performed during the Strategic Planning or Business budget session normally done at the end of a financial year. But to perform a S.W.O.T. should not be limited to a yearly affair. You may perform a S.W.O.T. Analysis whenever it is needed to help you to identify causes of a non-conformance and you needed a new solution or strategy.
Who would Perform a S.W.O.T. Analysis?
In most cases, leaders of an organization perform a S.W.O.T. Analysis. However, it should not be limited to this group of people. In fact, anyone who has an interest and trained can perform a S.W.O.T. Analysis for the situation they are in. I have many situations where heads of a department perform a S.W.O.T. Analysis for their own operation issues because they want to develop solutions based on facts.
Why do you need to Perform a S.W.O.T. Analysis?
As it can be seen by now, data gathering is an essential part of S.W.O.T. Analysis. Hence, the information collected is likely to be more factual. Any solution derived from S.W.O.T. will be more realistic and reliable.
How to Perform a S.W.O.T. Analysis?
As data collection is one of the key activities in S.W.O.T. analysis, it should allow enough time to bring back the data. 1-3 month before a S.W.O.T. Analysis session is conducted. Once the data is collected, it should be grouped into the four factors. This can be done individually or in a team.
In summary, with some basic understanding of S.W.O.T. Analysis, the solution derived from it can be value add to the organization.
How SWOT Analysis is used to formulate Strategies
This is perhaps the most powerful usage of SWOT Analysis in the Strategic Planning Process. I am going to show you how to used the four factors of SWOT to develop Strategies
By now, you would have collected several data pertaining to the Strengths, Weaknesses, Opportunities and Threats. Then you will use them to formulate strategy. Not sure how to do it? Don't worry, I take you through the steps.
Step 1 – Evaluate the Surrounding
Let's take a moment to think about both of us as the coach for two teams of football teams.
Before the game starts, you and I have certain strategies that we want the team to follow. As the game progresses, there is sign of difference between the two teams in terms of the game as well as the condition of the team members.
Step 2 – Identify the Strengths, Weaknesses, Opportunities and Threats
Now, it is time to evaluate the teams in the four factors of SWOT. Let’s take the following examples as the result of the evaluation:-
Strengths - Your team full of fighting spirit
Weaknesses - One of your team members is hurt
Opportunities - Your opposition team seems to loose stamina
Threats - Your opposition team is full of energy
Note: Some of these factors seem to be conflicting each other. For the purpose of this step, this conflict is ignored.
Step 3 - Pair the SWOT factors to formulate Strategies
Now, you would start to formulate strategies in the four categories. Namely:-
• SO Strategies (Strengths and Opportunities Strategy)
• ST Strategies (Strengths and Threats Strategy)
• WO Strategies (Weaknesses and Opportunities Strategy)
• WT Strategies (Weaknesses and Threats Strategy)
In this case, your strength is "your team is full of fighting spirit " and paired with your opportunities is " Opposite team is losing stamina" . With this scenario, what would you do? Perhaps you formulate a strategy to " ATTACK ". There it goes, you just formulate a attacking strategy.
Then you do the same procedure for SW Strategies, WO strategies and WT strategies.
Step 4 – Evaluate the Strategic Options
At the end of this paring of SWOT factors, you would have end up several strategic options. Do a quick evaluation of each of these strategies to the extent of meeting the company objectives.
Step 5 – Selecting Strategic Options
At this step, you would have a long list of strategic options. Too many strategies to implement may not be practical. Therefore, you need to shorten the list to perhaps maximum three strategies.
After you have completed all the 5 steps to use SWOT Analysis to Formulate Strategies, you have a list of strategies for you to implement to your business.
Pros and Cons of using SWOT in Strategic Planning
You may have gained some basic understanding of SWOT Analysis. You like to start using it for your work or your personal objectives. Whichever way you do it, it will bring about a your desired outcome because the data you collected for the Four factors of S.W.O.T. is objective and relevant.
If you have put the SWOT Analysis into real life practice, you could have faced with some difficulties in using it. But don't worry too much, as more practice would gain better experience with SWOT Analysis.
In this chapter, I will point out some of the Pros and Cons of using SWOT Analysis in Strategic Planning so you are aware of it. The sample list below should help you to reinforce your understanding of the SWOT Analysis.
PROS
1) Factual data are available to understand external factors as well as internal capabilities
2) Get a chance to evaluate the external opportunities and threats
3) A factual evaluation of own strengths and Weaknesses as compared with competitors
4) Open up a new dimension of competitive position
CONS
1) Time consuming
2) Data collected may not be current (member may take past single even to make conclusion)
3) Differences in opinion due to difference understanding of the SWOT process
4) Form own opinion of an event instead of base on factual information
