What is SWOT analysis? What are the main aspects of SWOT analysis? How to write Good SWOT analysis of a company? Where to find information for SWOT analysis?

SWOT analysis is also known as TOWS analysis.

Environmental opportunities are only potential opportunities unless the organization can utilize resources to take advantage of them and until the strategic leader decides that it is appropriate to pursue the opportunity. It is therefore important to evaluate environment opportunities in relation to the strengths and weaknesses of the organization's resources, and in relation to the organizational culture. Real opportunities exist when there is a close fit between environment, values and resources. An evaluation of an organization's strengths and weaknesses in relation to environmental opportunities and threats is generally referred to as a SWOT analysis. The following report will look closely into the SWOT's concept, its main aspects, and criteria for successful and effective SWOT analysis.

Main Aspects of SWOT Analysis
SWOT has a long history as a tool of strategic and marketing analysis. No one knows who first invented SWOT analysis. It has features in strategy textbooks since at least 1972 and can now be found in textbooks on marketing and any other business disciplines. Its advocates say that it can be used to gauge the degree of "fit" between the organisation's strategies and its environment, and to suggest ways in which the organisation can profit from strengths and opportunities and shield itself against weaknesses and threats (Adams, 2005). However, SWOT has come under criticism recently. Because it is so simple, both students and managers have a tendency to use it without a great deal of thought, so that the results are often useless. Another problem is that SWOT, having been conceived in simpler times, does not cope very well with some of the subtler aspects of modern strategic theory, such as trade-offs (De Witt and Meyer, 1998).

Determine an organisation's strong points. This should be from both internal and external customers. A strength is a "resource advantage relative to competitors and the needs of the markets a firm serves or expects to serve"
(http://www.css.nccu.edu.tw/mepa/mepa_course/2005/kao/ 20060221_1.ppt#1). It is a distinctive competence when it gives the firm a comparative advantage in the marketplace. Strengths arise from the resources and competencies available to the firm.

Determine an organisation's weaknesses. This should be not only from its own point of view, but also more importantly, from those of the customers. Although it may be difficult for an organisation to acknowledge its weaknesses, it is best to handle the bitter reality without procrastination. A weakness is a "limitation or deficiency in one or more resources or competencies relative to competitors that impedes a firm's effective performance" (http://gift.postech.ac.kr/admin/bbs/data/summer_session_2004/ Corporate%20Strategy_ver%5B7%5D_final(1).ppt).

marketplace. After all, opportunities are everywhere, such as the changes in technology, government policy, social patterns, and so on. An opportunity is a major situation in a firm's environment. Key trends are one source of opportunities. Identification of a previously overlooked market segment, changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities for the firm.

No one likes to think about threats, but we still have to face them, despite the fact that they are external factors that are out of our control, for example, the recent economic slump in Asia. It is vital to be prepared and face threats even during turbulent times. A threat is a major unfavourable situation in a firm's environment. Threats are key impediments to the firm's current or desired position. The entrance of new competitors, slow market growth, increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations could represent threats to a firm's success.
Because SWOT is such a familiar and comforting tool, many students use it at the start of their analysis. This is a mistake. In order to arrive at a proper SWOT appraisal, other analyses need to be carried out first.

  • Since opportunities and threats mostly arise from the environment, SWOT analysis needs to take account of the results of a full environmental analysis.
  • It is impossible to gauge what an organisation's real strengths are until you have assessed its strategic resources - in fact, strategic resources and strengths are the same thing. There is a tendency for students to put down anything vaguely favourable that they can think of about a company as a strength. This temptation needs to be resisted - a strength is not a strength unless it makes a genuine difference to an organisation's competitiveness. The same is true of weaknesses.

For example, look at Southwest Airlines and Amazon.com. Both companies have important groups of potential customers to whom they offer poor service. Southwest ignores business passengers, and will not accept transfers from other airlines. Amazon makes people wait days to receive books that they can obtain instantly from their neighbourhood bookstores, and pay a delivery charge for the privilege. Surely, these are major threats. Southwest and Amazon have chosen not to give those customers priority. Serving them would divert resources from the firm's core markets, and dilute service to their main customers. Not serving them is certainly not a weakness; in a paradoxical way, it may be a strength.

The wizardry of SWOT is the matching of specific internal and external factors, which creates a strategic matrix and which makes sense. It is essential to note that the internal factors are within the control of organisation, such as operations, finance, marketing, and other areas. On the contrary, the external factors are out of the organisation's control, such as political and economic factors, technology, competition, and other areas. The four combinations are called the maxi-maxi (strengths/opportunities), maxi-mini (strengths/threats), mini-maxi (weaknesses/opportunities), and mini-mini (weaknesses/threats). Weihrich (1982) describes the four combinations as follows:

  1. Maxi-maxi (S/O). This combination shows the organisation's strengths and opportunities. In essence, an organisation should strive to maximise its strengths to capitalise on new opportunities.
  2. Maxi-mini (S/T). This combination shows the organisation's strengths in consideration of threats, e.g. from competitors. In essence, an organisation should strive to use its strengths to parry or minimise threats.
  3. Mini-maxi (W/O). This combination shows the organisation's weaknesses in tandem with opportunities. It is an exertion to conquer the organisation's weaknesses by making the most of any new opportunities.
  4. Mini-mini (W/T). This combination shows the organisation's weaknesses by comparison with the current external threats. This is most definitely defensive strategy, to minimise an organisation's internal weaknesses and avoid external threats.

How to Write a Good SWOT Analysis
A successfully conducted SWOT involves identifying the following:

  • The things an organisation does particularly well (strengths) or badly (weaknesses) at present.
  • The factors that in the future may give the organisation potential to grow and increase its profits (opportunities) or may make its position weaker (threats). Opportunities and threats normally arise from changes in the environment, but sometimes have their origin inside the organisation - for example, if key machinery or people, functioning very effectively at present, are likely to break down or retire in a few years' time, that is a threat.

It is important to bear in mind what a SWOT is for. It is intended to summarise a strategic situation, with a view to deciding what the organisation should do next. A SWOT analysis should contain sufficient information for any reader to be able to see why a particular issue counts as a strength, weakness, opportunity or threat, and what the implications are for the firm that you are analysing.

For the same reason, there is no room for equivocation in a SWOT analysis - a factor can be a strength or a weakness, but not both. For example, a firm's IT system may provide good management reports but poor production control information. It is pointless to put this down as both a strength and a weakness that partially cancel each other out, since managers have only two choices: either they upgrade the system or they do not (Mintzberg, 1990). This means that you need to come to a definite answer to the question: On balance, is the IT system a strength or a weakness? Perhaps the lack of good production information is important, in which case the system needs to be upgraded. Perhaps it is vital to maintain the flow of management information, in which case the system should not be touched (Thompson, 2002). SWOT analysis aims to differentiate factors from being bad or good for the company's performance. In a SWOT analysis, the strengths and weaknesses of resources must be considered in relative and not absolute terms. It is important to consider whether they are being managed effectively as well as efficiently. Resources, therefore, are not strong or weak purely because they exist or do not exist. Rather, their value depends on how they are being managed, controlled and used.

SWOT analyses should only pick out issues that have a substantial effect on a firm's competitive situation. You should avoid the temptation to put down under "Strengths" almost everything you can think of that is vaguely favourable to the firm, and to classify anything remotely unfavourable as a weakness. It should be rare, to make a genuine difference to the organisations' profitability - a strategic resource. A weakness, similarly, is something that affects the organisation's cost or differentiation advantage. Old-fashioned equipment and authoritarian management styles, for instance, are only weaknesses if they lead to increased costs, poor quality or bad customer service (Thompson, 2002; Adams, 2005).

Lists of strengths and weaknesses should not include factors that are common to every firm in an industry. For example, you could not count "well-known brand" as a strength for a firm in the jeans or cosmetic industries such as L'Oreal, since many brands are equally famous. Instead of writing that main opportunities of the company are overseas expansion and brand extension, it is crucial to replace it with a broader definition and explanation. The example of a more successful explanation could be: "Eastern European markets, with developing spending power and proven appetite for Western consumer brands, represent opportunity. 25% of existing sales in airport outlets are to customers travelling to these countries". Another example could involve: "Competing firms have extended brands to cosmetics, spectacles, jeans and stationery. Likely opportunity for this firm to follow suit" (Adams, 2005).

Instead of saying that the threat of a firm is in exchange rate fluctuations, the statements of: "Appreciation of euro versus dollar likely to lead to reduced value of US profits (25% of total)" or "This is a specific threat that affects this firm because of its high proportion of US sales" could be appropriate (De Witt and Meyer, 1998).

In order to write a good SWOT the following criteria must be taken into account:

  • Make your points long enough, and include enough detail, to make it plain why a particular factor is important, and why it can be considered as a strength, weakness, opportunity or threat. Include precise evidence, and cite figures, where possible.
  • Be as specific as you can about the precise nature of a firm's strength and weakness. Do not be content with general factors like economies of scale.
  • Avoid vague, general opportunities and threats that could be put forward for just about any organisation under any circumstances.
  • Do not mistake the outcomes of a strength (such as profits and market share) for strengths in their own right;
  • Improvement is not the same as strength - do not confuse the two;
  • Avoid contradicting yourself in the course of the analysis, by having strengths and weaknesses that are essentially different aspects of the same strategy of resource. Come to a reasoned conclusion about whether the good points outweigh the bad ones, or vice versa.

Where to Find Information for SWOT Analysis
Students when finding the essential information for conducting SWOT analysis, would have to look at company's business reports, annual reviews, published performance data on financial resources, marketing and operations, including current suppliers and key stakeholders groups.

It can also be helpful to search various journals on marketing, strategy and human resources to find out more published and referenced information on the company's past experience, its current position and future objectives.

SWOT Analysis Limitations
A key element of strategic option formulation is the matching of organizational strengths and weaknesses with opportunities and threats which exist in the marketplace. SWOT analysis is widely recognized in the marketing and strategic management literature as a systematic way of achieving this end. A number of critics however have claimed that the output from a SWOT analysis is often either trivial or so broad as to be relatively meaningless in the context of making actual marketing decisions. Mintzberg (1990), for example, states that the assessment of strengths and weaknesses may be unreliable, being bound up with aspirations, biases and hopes. Therefore, it is important for strengths and weaknesses to be defined in the context of a situation. As a consequence, a creative problem-solving tool such as brainstorming may thus be a useful help in overcoming this difficulty.

SWOT analysis can be used in many ways to aid strategic analysis. The most common way is to use it as a logical framework guiding systematic discussion of a firm's resources and the basic alternatives that emerge from this resource-based view. What one manager sees as an opportunity, another may see as a potential threat. Likewise, a strength to one manager can be a weakness to another. Different assessments may reflect underlying power considerations within the firm or differing factual perspectives. Systematic analysis of these issues facilitates objectives internal analysis (Hill and Westbrook, 1997; Markides, 1999). Understanding the key opportunities and threats facing a firm helps its managers identify realistic options from which to choose an appropriate strategy and clarifies the most effective niche for the firm.

One of the historical deficiencies of SWOT analysis was the tendency to rely on a very general, categorical assessment of internal capabilities. The resource-based view came to exist in part as a remedy to this void in the strategic management field. It is an excellent way to identify internal strengths and weaknesses and use that information to enhance the quality of a SWOT analysis. Similarly, value chain analysis identifies elements of a company's capabilities and operations that are useful in conducting a SWOT analysis.

SWOT helps a company to see itself for better and for worse. Companies are inherently insular and inward looking SWOTs are a means by which a company can better understand what it does very well and where its shortcomings are. SWOTs will help the company size up the competitive landscape and get some insight into the vagaries of the marketplace.

SWOT analysis has been a framework of choice among many managers for along time because of its simplicity and its portrayal of the essence of sound strategy formulation - matching a firm's opportunities and threats wit its strengths and weaknesses. Central to making SWOT analysis effective is accurate internal analysis - the identification of specific strengths and weaknesses around which sound strategy can be built.

If you found this article useful please have a look at the other articles we have written: PEST analysis, Porter's 5 Forces analysis, Ansoff analysis, BCG Growth-Share Matrix, Porter's Generic Strategies, Scenario Planning, Value chain analysis, BALANCED SCORECARD, Competitor Analysis, Critical Success Factors, Industry Lifecycle, Marketing Mix, McKinsey 7S Framework and Product Life Cycle.

Adams, J. (2005) Analyze Your Company Using SWOTs, Supply House Times, Vol. 48 Issue 7, pp. 26-28.

De Witt, B. and Meyer, R. (1998) Strategy: Process, Content, Context, 2nd ed., Oxford: International Thompson Business Press.

Hill, T. and Westbrook, R. (1997) SWOT Analysis: It's Time for a Product Recall, Long Range Planning, Vol. 30 Issue 1, pp.13-16.

Markides, C. (1999) Six Principles of Breakthrough Strategy, Business Strategy Review, July-August, pp.30-34.

Mintzberg, H. (1990) The Design School: Reconsidering the Basic Premises of Strategic Management, Strategic Management Journal, Vol. 11 pp.171-195.

Thompson, J. (2002) Strategic Management, 4th Edition, London: Thomson.

Weihrich, H. (1982) The TOWS matrix: a tool for situational analysis, Journal of Long Range Planning, Vol. 15 Issue 2, pp.12-14.

Ames, M. and Runco, M. (2005) Predicting Entrepreneurship From Ideation and Divergent Thinking, Creativity & Innovation Management, Vol. 14 Issue 3, pp.311-315.

Hogarth, R. and Makridakis, S. (1981) Forecasting and Planning: An Evaluation, Management Science, 27, pp.115-138.

Kay, J. (1993) Foundations of Corporate Success, Oxford: Oxford University Press.

Mintzberg, H. (1987) Crafting Strategy, Harvard Business Review, November-December, pp.21-25.

Pearce, J. and Robinson, R (2005) Strategic Management, 9th Edition, New York: McGraw-Hill.

Whittington, R. (1993) What is Strategy - and Does it Matter?, Oxford: International Thompson Business Press.

Copyright 2002-2009 Papers4You.Com All Rights Reserved