The SWOT analysis offers a complete overview of the company in a specific stage, thus it is considered one of the most practical managerial techniques used in order to develop a strong business strategy because:
- it offers a big picture that presents the internal values, the internal critical points of the company or business (values and critical points that are defined in accordance with the objectives the organization has to reach);
- it helps the management to identify the external forces that positively and/or negatively influence the success of the business in reaching the set objective;
- it assists the management in finding a response to the question: “Are we able to follow this path to achieve the main goal of the organization?”;
- it helps to quickly identify the strengths and weaknesses of the company/organization;
- it helps in knowing and understanding the broad context in which the company/business operates.
In fact, S.W.O.T. is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis is in the end a structured list of your business’s greatest strengths, weaknesses, opportunities and threats.
The strengths and weaknesses are elements within the company over which the entrepreneur has direct control (such as location, image and reputation), while the opportunities and threats are external factors and can influence the company in a positive or negative manner, depending on how dynamic the business is and how inspired and cautious is the entrepreneur in the decision making process.
This instrument will help you have a bird’s eye view of your business in order to capitalize on the strengths and the opportunities on one hand, and to reduce and even eliminate the weaknesses and threats on the other hand.
By analyzing these business characteristics you will get a clear image of the current stage of your business. Moreover, you will determine stages that need to be completed to guarantee the performance of a business. Also, the analysis will help you know and understand the large context in which the company operates.
Examples of questions the SWOT analysis should answer:
S – Strengths
- What are we best at?
- What specific aptitudes does the work force have?
- What unique resources do we possess?
- What financial resources do we have?
- What technology do we use?
- What is the optimization degree of the internal processes?
W – Weaknesses
- Where are we most vulnerable?
- What kind of training are our employees lacking?
- What is the loyalty degree of our employees?
- What is our financial status?
O – Opportunities
- What shifts of the external environment can we exploit?
- What new technologies can we access?
- What new markets can we tap into?
- How has the consumer behavior shifted among potential customers?
T – Threats
- What could our competitors do to stay ahead of us?
- What new legislation could damage our interests?
- What social changes could pose a threat for us?
- How will the economic cyclicality affect us (momentum-decline)?
|It refers to the qualities of the business. You can include you competitive advantages.||Encompass the internal components that generate competitive disadvantages.|
|Products or design services||High quality product; licenses, patents, unique processes; innovation.||Equipment wear|
|Finances||Funding sources; rigorous financial control.||Lack of funding|
|Marketing||Brand awareness; efficient market positioning.||Low degree of promotion.|
|Human resources||Experience and business expertise in particular domains; Loyalty.||Big fluctuation; lack of necessary competencies.|
|Governmental policies||Governmental programs, grants.||Monopoly of government-ran businesses; frequent changes in legislation.|
|Economic||Favorable economic environment.||Recession, growth of business costs.|
|Social||Consumer salary increase; the existence of qualified personnel.||Shifts in consumer behavior; income decrease; low birth rate.|
|Technological||Innovation, lower prices for technology, the increased access to new technologies.||Low access to new technologies; high prices for new technologies.|
The purpose of the SWOT analysis is to help you:
- To consolidate your strengths;
- To improve the aspects that are considered weaknesses;
- To exploit the opportunities present in the environment;
- To avoid threats that can endanger your business.
It is important to create a SWOT analysis on separate business domains not to lose focus of the relevant aspects. When you perform a SWOT analysis, try and use as much information sources as possible: market analysis, employees and partners, in order to include as many opinions as possible.
Another important aspect is that you should revisit your SWOT analysis on a regular basis — at least annually or even more frequently if your business is facing major changes in marketplace or competitive conditions, experiencing development issues or failing to meet the goals and objectives previously set — in order to see if/how the balance of strengths, weaknesses, opportunities and threats may have changed.
Once you have acknowledged all the results in the SWOT analysis you can use them to develop short-term and long-term strategies for your business.