A SWOT (strengths, weaknesses, opportunities, threats) analysis is a visual framework used for strategic planning across all types of businesses and organizations. SWOT analyses are made up of four components that will help you determine the output of your team’s analysis.
What Does SWOT Analysis Stand For?
- Strengths
- Weaknesses
- Opportunities
- Threats
How Do I Do a SWOT Analysis?
A SWOT analysis is a qualitative assessment of a company’s SWOT components. Individuals responsible for the assessment fill out a visual template similar to the figure above, which is usually laid out in a two-by-two matrix. This template helps visualize all the SWOT elements together in their entirety.
To understand in more detail the elements of this template, let’s dive into each component individually.
What Are the 4 Components of a SWOT Analysis?
Strengths
Your strengths are organizational features that provide a competitive and strategic advantage relative to the market and competition.
Weaknesses
Your weaknesses include organizational features that are lacking relative to market competition, or that hinder the organization’s overall effectiveness to compete, grow, and strive for optimal business performance.
Opportunities
These are favorable market conditions or external developments that represent an opportunity for unlocking or improving the organization’s competitive positioning and business performance. Opportunities can be related to present market conditions, but can also be forward-looking.
Threats
These are unfavorable market conditions or external developments that pose a risk to the organization’s performance or the entire viability of the current market. Threats can be related to present market conditions, but can also be forward-looking. (e.g. near-term competitive threats or geopolitical risks would be good examples to feature in this bucket)
- Strengths and weaknesses are factors that are owned (and thus controlled) by the organization. As a result, the organization and its team can directly influence strengths and weaknesses.
- Opportunities and threats are factors that cannot be controlled by the organization. For example, a near-term innovation trend or advantageous legal ruling that may come into play are considered opportunities, whereas near-term competitive innovation or geopolitical risks fall within the threats bucket. In either instance, your organization may prepare for these events, but it cannot control them.
During the process of filling in this template, you’ll consider all four elements individually. Once you complete the template, through brainstorming sessions and workshops, you can start putting together an actionable plan to capitalize on your strengths and opportunities while countering your weaknesses and threats.
SWOT Analysis Example
Let’s take, for example, a smartphone-producing company in the technology industry. Your example SWOT table may include the following.
Strengths:
- Strong brand positioning
- Loyal customer base
- High barriers to entry for the competition due to recent patent filings
Weaknesses:
- Recently departed CEO who led the company for the previous 15 years
- Production bottlenecks in key geographical regions
- Leaked PR documents
Opportunities:
- Customer trends indicating a shift towards higher-end smartphones in emerging markets
- Weakened competition due to a key competitor recently filing for bankruptcy
Threats:
- Increased regulatory scrutiny
- Global chip shortage
As a result and potential plan of action, the company in question may decide to focus on mitigating the risks caused by its weaknesses (for example by increasing production in key regions close to the ones suffering bottlenecks in addition to selecting an experienced interim CEO as soon as possible) while seizing market opportunities that may not come about again (i.e. gaining market share in the short term by exploiting the competitor’s bankruptcy).
Overall, resource allocation should flow to:
- Seizing market opportunities
- Developing mitigation plans for market threats and investing in limiting potential damage or performance slowdowns caused by internal weaknesses
Why Use a SWOT Analysis?
The results of a SWOT analysis inform your company’s strategic plan and help you make decisions about how to allocate future resources. As a result of a SWOT analysis your team might decide on the following:
- investment/divestments related to a given product line
- international market entry or market expansions
- changes to the company’s position relative to its competition (based on factors such as price, target customers and barriers to entry among others)
- adjustments to external macroeconomic trends (raise in interest rates) or market-related dynamics (global supply chain constraints)
SWOT Analysis Advantages and Disadvantages
The SWOT analysis as a framework for strategic planning has received its fair share of critique and scrutiny. Let’s review some of the pros and cons.
SWOT Analysis Advantages
- 10,000-Foot View: A SWOT allows you to consider multiple factors that you might not normally associate together all at once (departing CEO and macro-trends, for example). This process can invite management to identify creative solutions to company issues that may have previously been hard to identify; having this combination of different sources of data, from internal balance-sheet metrics to market data points to press releases may enable your organization to find more comprehensive and representative patterns.
- Cross-Team Collaboration: SWOT analyses create space for the representation of multiple viewpoints within the organization. The exercise invites people from different departments of the organization to contribute and collaborate across departments, thereby enriching the overall quality of the SWOT analysis and enabling better communication across company silos.
- Simplicity: A SWOT is a simple framework that allows you to consider and break down complex problems that are usually considered and tackled separately but without a link to the bigger picture offered by a SWOT exercise.
- Simultaneous Consideration of Internal and External Factors: A SWOT allows us to relate internal factors with external factors, which is important since these two sides are usually considered separately from one another and only more broadly considered at the executive level. For this reason, conducting a SWOT exercise at the department level allows internal teams to understand how external forces influence and relate to their day-to-day operations.
SWOT Analysis Disadvantages
- Groupthink and Bias: The generation of a SWOT chart is heavily influenced by the individuals tasked with the exercise. If the group isn’t diverse or made up of representatives from around the organization, the analysis will result in biased outcomes and lopsided strategies.
- Short Shelf Life: A SWOT analysis is a spot exercise, which means we typically perform them as a one-off planning effort. In fast-changing markets, its results (and, thus, its overall relevance) can go out of date quickly.
- Research shows a weak link between the SWOT exercise and actual strategic decision-making and organization follow-through. As a result, we’ve seen alternative frameworks emerge, most notably Porter's five forces analysis.
