We explain what the SWOT analysis is, its usefulness, and its internal and external analysis. Also, what are its characteristics and examples?
What is SWOT analysis?
The SWOT analysis or also called SWOT (Strengths, Weaknesses, Opportunities and Threats), is a conceptual tool to approach a company or a specific project , from the review of its internal characteristics (weaknesses and strengths) and its external situation ( opportunities and threats), to outline a diagnosis of possible improvement.
This method comes from English (SWOT) and is usually represented through a square matrix that allows the correlation between the elements analyzed to be seen and thus have a more complete picture of the company or the project. For this, competitive advantages are taken into account as well as the generic strategy, that is, individual considerations and common models.
Utility of SWOT
SWOT analysis is a strategy for analyzing and understanding organizations.
The SWOT analysis is used to create an accurate and complete diagnosis of a project , relating the pertinent information to allow the informed choice of the model to follow or of the possible routes of the same.
It is a strategy of analysis and understanding , therefore it is useful to diagnose problems, understand the level of effectiveness of an organization , determine the course of growth or simply provide the managers of the organization with a better understanding of the way in which it it works.
For this , the matrix of four aspects is used : Strengths, Weaknesses, Opportunities and Threats.
Origin of the SWOT analysis
SWOT analysis appeared in the United States during the 1970s , as part of a revolution in the field of business and project analysis.
The business consultant Albert S. Humphrey is assumed to be its creator , although there are texts that attribute it to other business thinkers of the time.
Internal SWOT Analysis
Strengths do not need rethinking and serve as inspiration.
The internal analysis proposed by the SWOT is based on two of its four fundamental elements , which are the strengths and weaknesses.
This involves all the structural, operational, managerial, economic, etc. considerations . that directly or indirectly influence the functioning of the organization and that respond only to elements that make life inside it.
- Strengths. It is about those elements that operate in a convenient, regular way, that not only do not need help or rethink, but even serve as an inspiration or model for others to follow.
- Weaknesses. Elements that are not very functional, slow, with a low or irregular response, that fail to meet their objectives or that barely achieve it, in which it would be advisable to intervene to provide support, innovation , reorganization, etc.
Threats are situations that threaten the organization or the project.
The external analysis, similarly, has to do with the environmental conditions in which the organization lives , since no company is an island nor can it be independent of what happens in its environment.
In this sense, attention must be paid to present or future political, legal, social and technological conditions, to determine the threats and opportunities that exist or may arise.
- threats. Threats are those negative situations that threaten the organization and that require, where appropriate, the design of a strategy to deal with them with the least possible damage or at the least possible risk.
- opportunities. Situations of benefit or profit, beneficial for the organization, that may arise and that require, precisely, the necessary strategic planning for its maximum or optimal use and thus not let the opportunity pass.
Questions to ask the SWOT
Each of the elements that the SWOT pursues can be determined through a series of questions, in which it is outlined which elements we should pay attention to and in what sense. Some are:
- Strengths. What is the best sector of the company? What are the highest performing sectors? What are the sectors that serve as an example within the company?
- Weaknesses. What sectors do not meet expectations? What aspects of the organization are not met or are met poorly? What should the organization improve if it could? What is perceived in the market as a weakness?
- threats. What obstacles does the company face? What is the competition doing that the company is not? What is the future projection of the organization? What are the market trends that we do not manage? What changes occur in the environment to our disadvantage?
- opportunities. What circumstances could provide growth? What market trends could favor the company? What changes in the environment are taking place in our favor?
The strengths and opportunities show possible routes for growth and investment.
Once the SWOT data has been collected through the questions, the next step in the analysis is its representation in a grid matrix . This matrix lays out the exploratory content in two columns and two rows, so that we can read strengths and opportunities, and weaknesses and threats, one on top of the other.
Strengths – Weaknesses
Opportunities – Threats
From the conjunction of the strengths and the opportunities will arise the powers of the company, that is, the possible routes of growth and investment . From the weaknesses and threats, instead, the limitations will emerge, which are a warning regarding the present and future functioning of the company.
SWOT Analysis Interpretation
Once the matrix has been prepared and the powers and limitations have been obtained, the general panorama of the company will be interpreted , based on this multiple and complete panorama of its most positive and negative aspects.
It is, thus, an evaluation of its real situation and the approach of possible future routes, which must be taken into account when considering its strategic objectives for the future, such as remodeling, investments , diversification, reductions etc
Importance of SWOT Analysis
SWOT analysis can be applied to people, companies and even countries.
The SWOT analysis model has proven to be one of the most complete in the organizational theory of companies , providing complete and decisive results that, like any diagnosis, do not say exactly what to do but do point out possible paths. In fact, the SWOT model can be applied even to individuals , non-business projects, and even entire countries.
Given the success of the SWOT analysis model, the CAME has been designed as the next step, taking into account everything thrown up by the previous one. Thus, CAME would be the acronym for:
- Correct weaknesses . Considered as mistakes in the past.
- Confront the threats . Learn from the mistakes made.
- Keep the strengths . Considered as successes of the past.
- Exploit opportunities . Give more space to what has gone well.
SWOT application example
A possible example of a SWOT analysis could be applied to a business selling knitted scarves as follows:
- strengths . The woven scarves are top quality and the materials used too.
- Weaknesses . The sale of the scarves is slow due to the cost of premium materials.
- opportunities . The arrival of winter will increase the demand for scarves.
- threats . The appearance of a popular brand of cheap disposable tissues.
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