Every organization must make adjustments from time to time in carrying out its operations to meet its objectives. While there are several techniques that allow you to determine where adjustments need to be made, a very simple and effective one is SWOT analysis. The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
Strengths and weaknesses are internal to an organization. Opportunities and threats are what an organization faces in its external environment. Hence, SWOT analysis is also called as Internal-External analysis. You can do a SWOT analysis not only of your own organization but also of your competitors to see what strategies are optimal to pursue. SWOT analysis is best done from the perspective of all stakeholders of your organization, including suppliers and customers.
SWOT analysis was developed by Albert Humphrey in the 1960s at Stanford Research Institute (now called as SRI International) based on data from Fortune 500 companies. SWOT analysis can be used not only by for-profit organizations but also by non-profit organizations, government organizations, and even individuals.
Strengths are what the organization does well, or what the organization offers that others in the industry do not. Sometimes, when you consciously realize your strengths through this analysis you may suddenly note some opportunities that you were unaware of prior to the analysis. If you are unable to come up with a list of specific strengths, think of your organization’s characteristics, some of which might well turn out to be your strengths. For instance, the fact that you are a startup might tell you that the ability to make quick decisions because of little or no hierarchy is a strength. You should also evaluate your strengths in relation to your competitors. For instance, if everyone is offering a high-quality product in the market, high quality becomes a necessity and not a strength.
Weaknesses also should be considered from both an internal and external viewpoint. Weaknesses can be such things as areas for improvement, things to be avoided, customer perceptions of your weaknesses, low quality of employees, etc. As long as weaknesses exist, you will face threats from the environment. Eliminating weaknesses can open up opportunities. For example, if you are a startup company, some weaknesses can be a lack of reputation in the market, less market share, fewer staff, and unreliable cash flows.
To spot opportunities and threats, you can do a PESTLE analysis (Political, Economic, Social, Technological, Legal, and Environmental analysis). PESTLE analysis can be done by environmental scanning of the PESTLE factors prevailing, which can be opportunities or threats to your organization. Such factors can be the introduction of new patented technology that undercuts your competitiveness, changes in governmental policy regarding your business, demographic or lifestyle changes, etc.
For a startup company, the opportunities can be an expanding business sector, favourable policies for entrepreneurs by the local government, and slowness of competitors in adopting new technologies. Threats for a startup can be retaliatory market strategies by well-established competitors, and inability to adapt to fast-changing technology.
You should match strengths with opportunities to find competitive advantage and convert weaknesses into strengths so that threats are averted. If you cannot eliminate weaknesses fully, you should try to minimize them. In doing a SWOT analysis, make sure your list contains only precise and verifiable statements rather than vague statements like “Value for money”. Also, if the list is long, prune it down to a more manageable and significant one. Apply the analysis at the right level of the organization (say product level vs company level) depending on the decisions to be made. Lastly, you can combine this analysis with other strategic tools like USP analysis and core competence analysis.
SWOT analysis has met with some criticisms. One criticism is that it identifies only issues and not solutions. Also, collecting the required data for performing a SWOT analysis of growing businesses can be time-consuming and expensive. Moreover, in a fast-changing business environment, SWOT analysis can become outdated quickly.