SWOT Analysis: Definition, Overview and How to Do it with Example
I still remember the faculty from the business school who always insisted on doing SWOT Analysis of everything he could get his hands around. We as students had quite a fun with that and we often used to joke about it. Little did we realize that he was trying to build a systematic thinking approach in all the students.
A SWOT analysis is an extremely valuable decision-making and strategic planning technique and works at many different levels: from the overall operation of the organization as a whole to the separate and independent issues affecting a department or a single product. Moreover it can be used in any decision making process, even personal, for example whether you should buy a house in suburb or not.
Most of us know what SWOT stand for:
- S – Strengths
- W- Weakness
- O – Opportunities
- T – Threats
But most of us do not actually know how to perform a SWOT analysis. Even if we do, we often do it for the sake of doing it and not using it as a robust yet simple decision making tool.
Definition of SWOT analysis: SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning. Please note that SWAT however is not limited to business competition or project planning.
Understanding SWOT analysis
Most people are right when they say that SWOT analysis is a tool for assessing own performance, competition, risk, and potential of a business, as well as part of a business such as a product line or division, an industry, or other entity. Mostly people also use while expanding or entering into a new market.
But SWOT analysis is also useful in other decision making processes apart form strategic planning for an organization. As mentioned earlier a decision like buying a house in suburb or not can also be made when you do a SWOT analysis, this can help you make an informed and organized decision.
How to do SWOT Analysis
Those who have not done the SWOT analysis in past will be surprise to learn how easy is it to do a SWOT analysis. The first step to draw 4 boxes or quadrants like given below.
While it doesn’t need to be fancy like above, it doesn’t even need to be in the exact form but you simply need 4 boxes under which you can list down your strength, weakness. opportunities and threat, so you need space. Easy, isn’t it?
The next step is to list down the Strength, Weakness, Opportunity and Threat. It doesn’t need to be of equal importance but what is important is that you cover all the points under each category and also not generate imaginary one.
One common mistake people often make is to confuse between strengths and opportunities and similarly with weaknesses and threats. Let me make it easy for you.
- Strengths and Weakness are internal to you and you can control them
- Opportunities and Threats are external to you and you don’t control them
Let us try to understand this with an example
In the earlier example of using SWOT analysis to help us make decision about buying the house in suburbs, the strength is abundance of space, while opportunity could be a proposed highway that is coming up and will make commuting easy. Here space is internal and you can reduce the space by building a garden but you can’t change government decision to build a highway.
In the same example the weakness could be the longer distance from the workplace and threat could be lack of security in the suburb. Now as you see distance from workplace is internal to you and you can control it, you can always move your workplace closure or seek job in nearby facility but you can’t control the security situation as it is external to you.
Now that you have understood each element of SWOT you can list them down under each section for Strength, Weakness, Opportunities and Threats. Makes sure to list down all of them. This will provide you with a complete and overall picture that you would need to analyze the present situation and then plan and decide on the basis of that.
Features of Internal sources of strength and weakness within organizations
Most of the SWOT analysis are done in organizational context, therefore it is important to understand them within that framework. For organizations internal source of strength and weakness are typically found within an organization, whereas opportunities and threats are most often external.
Some factors can be sources of both and they can change from one to the other very quickly. For example a pool of technical specialists employees can be your strength but if the technology changes the specialists become your weakness. It is important to note that sometimes force external to you can change your internal dynamics and therefore the strength and weakness.
Below are example list of opportunities and threats in a business or organizational context to help you do SWAT Analysis.
External sources of opportunity and threat
These are more difficult to assess than internal ones. Examples of sources of opportunities and threats are detailed below. Sources of opportunity include:
- New markets (including export markets)
- Emergence of new technologies
- New products and product enhancements Mergers, acquisitions and divestment
- New investment Factors affecting competitor’s fortunes
- Commercial agreements and strategic partnerships
- Political, economic, regulatory and trade developments
Sources of threats include:
- Industrial action
- Political and regulatory issues
- Economic issues
- Trade factors
- Mergers and other developments among competitors
- New market entrants
- Pricing actions by competitors
- Market innovations by competitors
- Environmental factors
- Natural disasters
- Crises, notably including issues of health, safety, product quality and liability
- Key staff attracted away from the business
- Security issues, including industrial espionage and the security of IT systems
- Supply chain problems
- Distribution and delivery problems
- Bad debts (resulting from the fortunes of others)
- Demographic factors and social changes affecting customer’s tastes or habits