SWOT analysis is a planning methodology that helps organizations build a strategic plan to meet goals, improve operations and keep the business relevant. During SWOT analysis, organizations identify strengths, weaknesses, opportunities and threats (the four factors SWOT stands for) pertaining to organizational growth, products and services, business objectives and market competition.
Internal Factors/External Factors
A two-by-two matrix is used to build a SWOT analysis, with horizontal pairings of internal (strengths and weakness) and external (opportunities and threats) factors and vertical pairings of helpful (strength and opportunities) and harmful (weaknesses and threats) factors in achieving an objective. Final results of the analysis will help the organization determine whether objectives, products, services, projects or goals are a strategic fit. The best strategic fits are when the internal environment (strengths and weaknesses) aligns with the external environment (opportunities and threats). The various SWOT factors are explained as follows:
The strengths of a business describe what an organization excels at and what separates it from the competition a strong brand, loyal customer base, a strong balance street, unique technology, and so on. For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results. It must then decide how to use those results to attract new investors.
– Strengths are the qualities that enable us to accomplish the organization’s mission. These are the basis on which continued success can be made and continued/sustained.
– Strengths can be either tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its constituency.
– Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competences, process capabilities, financial resources, products and services, customer goodwill and brand loyalty. Examples of organizational strengths are huge financial resources, broad product line, no debt, committed employees, etc.
– Strengths are internal positive attributes of your company. These are things that are within your control.
* What business processes are successful?
* What assets do you have in your team, such as knowledge, education, network, skills, and reputation?
* What physical assets do you have, such as customers, equipment, technology, cash, and patents?
* What competitive advantages do you have over your competitors?
Weakness refers to not having the form and competency necessary for something. According to Thompson and Strickland (1989:109), a weakness is something an organization lacks or does poorly in comparison to others or a condition that puts it a disadvantage.
Pearce and Robins (1991:182) have noted that weakness is a limitation or deficiency in resources skills and capabilities that seriously impedes an organization’s effective performance. Also, organization can show weakness in facilities, financial resources, management capabilities, marketing skills, brand image, etc.
For the organization, it is important to know its weakness as its strengths. The reason is that no strategy can be built on weaknesses. The organizational weakness that have the potential to lead the organization to inefficiency and ineffectiveness should be known and improved. Solving the existing problem that would cause difficulties and limitations for long-term plans and strategies, and foreseeing potential problems are obligatory.
Opportunity is a situation or condition suitable for an activity. It is also an advantage and the driving force for an activity to take place. For this reason, it has a positive and favourable characteristic.
For organizational management, an opportunity is a convenient time or situation that the environment presents to the organization to achieve its goal. Opportunities are those positive results for an organization when maximized with the organization’s internal strengths or with the minimization of internal weakness. Opportunities in the external environment includes; a favourable current and future economic conditions, political and social changes, new products, services and technology.
Threats refer to factors that have the potentials to harm an organization. For example, a drought is a threat to a wheat producing company, as it may destroy or reduce the crop yield. Other common threats include things like rising costs for materials, increasing competition, tight labour supply and so on.
Developments in technology may change this market beyond our ability to adapt. A small change in the focus of a large competitor might wipe out any market position achieved. These are external factors that you have no control over. You may want to consider putting in place; contingency plans, for dealing with them if they occur as in the consideration of the following questions:
– Do you have potential competitors who may enter your market?
– Will suppliers always be able to supply the raw materials needed?
– Could future developments in technology change what you do in business?
– Is consumer behaviour changing in a way that could negatively impact business?
– Are there market trends that could become a threat?
Threats are situations that come out as a result of the changes in the distant or immediate environment that would prevent the organization from competition, and that are not favourable for the organization (Uglen & Mirze, 2010, 161).
Threat usually consists of energy shortage, competition, unfavourable economic conditions, political and social changes, new products, service and technology. They can constitute an impediment to the success of the organization, and cause unrecoverable damages.
Hence, the strategic option for threat and weakness is to minimize both weaknesses and threats, and it is called the mini-mini (for “minimize-minimize”) strategy. It may require that the organization forms a joint venture, retrench, liquidate or form a merger.
Potentially, it is considered as the most successful strategy. It involves utilizing organization’s strengths to take advantage of opportunity. Indeed, it is the aim of enterprises to move from other positions in the matrix to this one. When organizations have opportunities that matches their strength, they tends to diversify their operations or introduce a new product-line. This strategy is referred to as Maxi-maxi (maximize-maximize). If organizations have weaknesses, they will strive to overcome them, making their strengths. If they face threats, they will cope with them so that they can focus on opportunities.
For many years, the SWOT analysis has been used to identify a company’s strengths, weaknesses, opportunities and threats. Opportunity comes with the external environment which you have essentially no control. While weakness emanate from the internal environment of which you have some measure of control.
Opportunities are presented by the environment within which an organization operates. These arise when an organization can take benefits of conditions in the environment to plan and execute strategies that enable it become more profitable. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired result is a difficult task. Opportunities may arise from the market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue.
Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet. Weaknesses in an organization may be depreciating machinery, insufficient research and development facilities, narrow product range, poor decision making, etc. Weaknesses are controllable. They must be minimized and eliminated. For instance, to overcome obsolete machinery, new machinery can be purchased. Other examples of organizational weaknesses are huge debts, high employee turnover, complex decision making process, narrow product change, large wastage of raw materials, etc.
Therefore, the weakness and opportunity strategy option attempts to minimize the weakness and maximize the opportunities. Thus, a firm with weakness in some res may either develop those areas within the enterprise or acquire the needed competencies (such as technology or persons with needed skills)from outside in order to enable it take advantage of opportunities in the external environment.
This strategy is referred to as the maxi-mini (maximize-minimize). It is based on using the organization’s strengths to deal with threats in the environment. The aim is to maximize the strength while minimizing threat. Thus, a company may use its technological, financial, managerial or marketing strengths to cope with the threats of a new product introduced by its competitors, or it can also use its competencies to cope with threats such as changed economic conditions, political instability and social changes. The strategic option is to use strength to cope with threats or to avoid threats.
SWOT analysis which has been used over the last fifty years in the field of strategic management is a valuable technique for planning and decision making. The technique has been employed in myriad of areas demanding strategic analysis for n industry, an organization, a product, a project, etc. The technique is used to analyse the strengths, weaknesses, opportunities and threats of businesses to achieve an objective. The more clear understanding of strengths and weaknesses, the less likely unfeasible opportunities can be used to counter threats. Weakness can be overcome through strengths and strengths can be used to respond to threats.
— Heinze, W., Mark, V. and Harold, K. (2011). Management, A global and Entrepreneurial Perspective, (13th Edition), USA: Delhi, Inc.
— Pearce, J. and Robinson, B. (1991). Strategic management, (4th Edition), USA: Irwin, Inc. 2 (3):122- 131.
— Singh, N. (2010). SWOT Analysis – A useful tool for community vision A Concept paper Central Himalay village. Res,,2(a):16-18.
— Thompson, A. and Strickland, A. (1989). Strategy formulation and implementation, (4th Edition), USA: Irwin, Inc.