Earlier in the 1960s, a business consultant from the US named Albert Humphrey came up with the popular technique in management known as SWOT analysis. This is abbreviated as Strength, Weakness, Opportunities and Threat analysis. It’s a technique used to detect and align the strengths, weaknesses, opportunities and threats of a project. Whether it is a start-up, an acquisition or an existing company’s project, this technique has proven to be extremely powerful.
SWOT analysis can be performed by entrepreneurs to organization leaders to project managers to analyze the business environment both internally and externally. This is generally presented in a 2X2 matrix. SWOT-analysis helps you visualize everything you know and don’t know about your business. This helps the entrepreneurs or project leads to strategies and effectively plan future activities
SWOT analysis is an extended level of the planning and decision making phases of a project or business. Hence, all the inputs must be gathered appropriately, which includes information from all departments and key personnel in the business. These inputs are taken based on the four primary elements as explained below.
Strengths are attributes which are often classified as internal as it is something that is under our control. These are the unique qualities of the business which could be tangible or intangible and yet give a certain edge to the business. Reputation, leadership qualities, knowledge, exclusive technology, etc. are things that help businesses stand out in the market and eventually become the strength of the business. It is a key factor in the business or project that helps earn goodwill and success.
For example, in a Start-up business scenario, it’s important to identify the core strength of the business idea or model. It could be knowledge, skilled resources, leadership or the unique product itself.
These are certain drawbacks or loopholes in the business process or the product that distance you from your strength. Generally, weakness is influenced by internal factors, market competition and location and the requirement of additional assets such as money, furniture or equipment. Certain times it’s also a flaw or a small gap in the business process. These are generally self-identified or brought out after critical thinking and brainstorming.
Progressing on these strategically and logically is the next most critical step to be taken during planning the business. As it helps identify areas that require enhancement, it could be in terms of skill, knowledge, finance, technology, furniture and fixtures. It could also be in terms of market competition and the need for an ideal location to operate the business.
This process of the analysis is based on a detailed study of the market in terms of new products, emerging products, decline of other competitors, publicity in the media and expansion options. It encourages the entrepreneur to capitalize on the new areas of improvement. It forces the entrepreneurs to look at all external factors such as new regulations or events that can bring in profitability to the business. Identifying opportunities on time is very important as it also pushes the entrepreneur to plan future activities effectively. Opportunities also mean that as an entrepreneur you get to set a ‘trend’ in the market.
Every business faces threats mostly from external factors or environment that we don't have control over. It comes with various risk factors the company has to constantly work on mitigating it. These treats are capable of changing the way you do your business. New players in the market, sudden dissolution of a supplier, new technology or regulation are some of the factors that can impact the business and restrict the growth. However, identifying these treats or being aware of them plays a vital role in the company as it allows you to create alternate strategies, helps you invest wisely, etc.
Some examples of SWOT analysis matrix are given below. Companies brainstorm against each of the factors on the matrix and work on developing a business strategy around it. Based on these, companies set timelines and plan activities for the future focusing mainly on the strength area. They also look at how external factors help improve on our internal weakness and bring factual clarity on the objective of the business plan or project.
1. What are the uses of SWOT Analysis?
Ans: SWOT analysis is used in cases of decision making and also at the time of crisis management to avoid maximum losses. Few other uses are described as below:
SWOT is used in matching and converting. This is done by matching the strength to opportunities thus finding a competitive advantage. The strategy of converting is used in finding new markets.
SWOT analysis is also useful in building a personal strategy. Based on the relations and strengths of a company, we can determine which strategy is to be used i.e. whether aggressive strategy or defensive strategy.
With the help of SWOT analysis, corporate planning can also be done. This comes under developmental strategies in an organization.
2. What is the difference between SWOT Analysis and SWOT Matrix?
Ans: SWOT analysis is useful in preparing strategies and in decision making since it focuses on many aspects of an organization. Whereas, SWOT matrix is useful in determining the threats to a particular organization or a company. Proper measures need to be taken for these threats.