SWOT analysis

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Definition

SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieving that objective. The technique is credited to Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.

Strategic and Creative Use of SWOT Analysis

Strategic Use: Orienting SWOTs to An Objective

Image:SWOT en.svg
Illustrative diagram of SWOT analysis

If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless. A SWOT analysis may be incorporated into the strategic planning model. An example of a strategic planning technique that incorporates an objective-driven SWOT analysis is SCAN analysis. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.

  • Strengths: attributes of the organization that are helpful to achieving the objective.
  • Weaknesses: attributes of the organization that are harmful to achieving the objective.
  • Opportunities: external conditions that are helpful to achieving the objective.
  • Threats: external conditions which could do damage to the business's performance.

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.

Creative Use of SWOTs: Generating Strategies

If, on the other hand, the objective seems attainable, the SWOTs are used as inputs to the creative generation of possible strategies, by asking and answering each of the following four questions, many times:

  • How can we Use each Strength?
  • How can we Stop each Weakness?
  • How can we Exploit each Opportunity?
  • How can we Defend against each Threat?

Ideally a cross-functional team or a task force that represents a broad range of perspectives should carry out the SWOT analysis. For example, a SWOT team may include an accountant, a salesperson, an executive manager, an engineer, and an ombudsman.

Evidence on the Use of SWOT

SWOT analysis may limit the strategies considered in the evaluation. "In addition, people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate strategies." <ref>ManyWorlds.com: Don’t do SWOT: A Note on Marketing Planning</ref> Findings from Menon et al. (1999) <ref>Modèle:Cite journal</ref> and Hill and Westbrook (1997) <ref>Modèle:Cite journal</ref> have shown that SWOT may harm performance. As an alternative to SWOT, J. Scott Armstrong describes a 5-step approach alternative that leads to better corporate performance.<ref>Modèle:Cite journal</ref>

These criticisms are addressed to an old version of SWOT analysis that precedes the SWOT analysis described above under the heading "Strategic and Creative Use of SWOT Analysis." This old version did not require that SWOTs be derived from an agreed upon objective. Examples of SWOT analyses that do not state an objective are provided below under "Human Resources" and "Marketing."

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. SWOT analysis groups key pieces of information into two main categories:

  • Internal factors – The strengths and weaknesses internal to the organization.
  • External factors – The opportunities and threats presented by the external environment.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.

Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has been defined. Examples include: non-profit organizations, governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis management.

SWOT-landscape analysis

The SWOT-landscape grabs different managerial situations by visualizing and foreseeing the dynamic performance of comparable objects according to findings by Brendan Kitts, Leif Edvinsson and Tord Beding (2000).<ref>Brendan Kitts, Leif Edvinsson and Tord Beding (2000) Crystallizing knowledge of historical company performance into interactive, query-able 3D Landscapes http://de.scientificcommons.org/534302</ref>

Changes in relative performance are continuously identified. Projects (or other units of measurements) that could be potential risk or opportunity objects are highlighted.

SWOT-landscape also indicates which underlying strength/weakness factors that have had or likely will have highest influence in the context of value in use (for ex. capital value fluctuations).

Corporate planning

As part of the development of strategies and plans to enable the organization to achieve its objectives, then that organization will use a systematic/rigorous process known as corporate planning. SWOT alongside PEST/PESTLE can be used as a basis for the analysis of business and environmental factors.<ref>Armstrong. M. A handbook of Human Resource Management Practice (10th edition) 2006, Kogan Page , London ISBN 0-7494-4631-5</ref>

  • Set objectives – defining what the organization is going to do
  • Environmental scanning
    • Internal appraisals of the organization's SWOT, this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle
  • Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors
  • Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organization
  • Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change
  • Establish critical success factors – the achievement of objectives and strategy implementation
  • Preparation of operational, resource, projects plans for strategy implementation
  • Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.<ref>Armstrong.M Management Processes and Functions, 1996, London CIPD ISBN 0-85292-438-0</ref>

Human resources

A SWOT carried out on a Human Resource Department may look like this:

Strengths Weaknesses Opportunities Threats
Developed techniques for dealing with major areas of HR, job evaluation, psychometric testing and basic training Reactive rather than pro-active; needs to be asked rather than developing unsolicited ideas New management team, wanting to improve overall organizational effectiveness through organizational development and cultural management programmes HR contribution not recognised by top management who by-pass it by employing external consultants

A SWOT carried out by an individual manager could look like this:

Strengths Weaknesses Opportunities Threats
Enthusiasm, energy, imagination, expertise in subject area, excellent track record in specialized area Not good at achieving results through undirected use of personal energies, trouble at expressing themselves orally and on paper – may have ideas but these come over as incoherent, management experience and expertise limited More general management opportunities requiring development of new managers De-centralisation having the effect of removing departments where the individual is employed and eliminating middle management layers to form flatter structure of organization

Marketing

Modèle:Main

In many competitor analyses, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor's cost structure, sources of profits, resources and competencies, competitive positioning and product differentiation, degree of vertical integration, historical responses to industry developments, and other factors.

Marketing management often finds it necessary to invest in research to collect the data required to perform accurate marketing analysis. Accordingly, management often conducts market research (alternately marketing research) to obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more common include:

  • Qualitative marketing research, such as focus groups
  • Quantitative marketing research, such as statistical surveys
  • Experimental techniques such as test markets
  • Observational techniques such as ethnographic (on-site) observation
  • Marketing managers may also design and oversee various environmental scanning and competitive intelligence processes to help identify trends and inform the company's marketing analysis.

Using SWOT to analyse the market position of a small management consultancy with specialism in HRM.<ref>Armstrong.M Management Processes and Functions, 1996, London CIPD ISBN 0-85292-438-0</ref>

Strengths Weaknesses Opportunities Threats
Reputation in marketplace Shortage of consultants at operating level rather than partner level Well established position with a well defined market niche. Large consultancies operating at a minor level
Expertise at partner level in HRM consultancy Unable to deal with multi-disciplinary assignments because of size or lack of ability Identified market for consultancy in areas other than HRM Other small consultancies looking to invade the marketplace
Track record – successful assignments
strength- market related , finance related , operational related , research and development related, hr related

market related- product quality, packaging , advertisement, service, distribution channel finance related- optimum debt/equity ratio, number of share holders, inventory size , optimum use of the financial resources, low cost of borrowings proper investment of the financial products

operational related- low cost , higher productivity , excellent quality , modernized technology,

See also

References

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