SWOT analysis is the foundation for every business venture. It allows you to understand the strengths and weaknesses, as well as identify opportunities and threats. This approach enables effective strategic planning and adaptation to a changing environment.
In this article, you will learn what SWOT Analysis is and why using it brings benefits. We will discuss its key elements, application, and the advantages it offers. We will also provide examples that will help understand its practical application in various contexts.
What is SWOT analysis?
SWOT analysis is a method of evaluating a project or business in terms of four main aspects: Strengths, Weaknesses, Opportunities, and Threats. It allows for a holistic view of the object being analysed and serves as a key to effective strategic planning.
The use of SWOT Analysis allows for the identification of key factors that influence success or failure. This enables effective utilization of available resources, minimising risks, and developing a strategy to capitalise on market opportunities.
SWOT analysis – understanding the tool
SWOT analysis is a evaluation tool that helps to understand the position of a company, product, or even an entire industry in the market. It is a method that takes into account both internal and external aspects of business, making it easier to make strategic decisions. By using this technique, companies can better understand their strengths, weaknesses, opportunities, and threats. This allows them to direct their actions towards greater success.
SWOT analysis has started to play a key role in business, but over time it has also been applied in the public sector, non-profit organizations, as well as by individual entrepreneurs and investors. This shows its universality and ability to provide valuable insights in diverse contexts.
Importantly, a SWOT analysis is not just a tool for introspection. It can also serve as a compass for investors or competitors trying to understand why a particular company or product is succeeding or facing difficulties. In this way, it becomes a valuable source of information not only for internal but also external users.
Personally, I believe that one of the greatest strengths of SWOT analysis is its flexibility. It can be successfully applied in almost any situation, making it invaluable in a world where change and uncertainty often rule the day. Whether you are a large corporation, a small business, a government, or an individual, using SWOT analysis can help understand the key factors influencing success or failure.
SWOT Analysis Table
The SWOT table is a tool that analysts often present in the form of a square divided into four segments, each dedicated to one of the elements of the SWOT method. This visual presentation provides a quick overview of the company’s market position. Although not all points under a specific heading may have the same weight. Each of them provides key insights into the balance between opportunities and threats, strengths and weaknesses, etc.
A SWOT analysis typically arranges internal factors in the top row and external factors in the bottom. Additionally, items placed on the left side of the table represent more positive/beneficial aspects, while those on the right side pertain to more concerning/negative issues.
Interestingly, such a SWOT table structure not only facilitates understanding the current situation of the company but also helps in quickly identifying areas that require immediate attention or further development. As a result, decision-makers can more effectively steer the company’s strategy, focusing on its strengths and minimising the impact of weaknesses.
How to conduct a SWOT analysis?
The SWOT analysis can be carried out by following a few steps, which require preparation before starting the actual analysis and actions after its completion. This process typically involves the following stages.
Stage 1: Defining the objective – SWOT analysis.
Although SWOT analysis can be general in nature, it is most valuable when it is focused directly on a specific objective. For example, the aim of the analysis could be a decision to launch a new product to the market. By having a clearly defined goal, the company can better focus on what it wants to achieve at the end of the process. In the example mentioned, SWOT analysis should help in evaluating whether to introduce the product to the market.
Stage 2: Gathering resources
Every SWOT analysis is different and may require different sets of data. The company should first understand what information it has access to, what limitations of data it is dealing with, and how reliable the sources of external data are.
In addition to data, it is also important to understand who from the staff should participate in the analysis. Some employees may have a better understanding of external forces, while others from production or sales departments may have a better insight into what is happening within the company. A wide range of perspectives increases the chances of obtaining diverse, valuable insights.
Stage 3: Gathering ideas
For each of the four components of a SWOT analysis, the group of people responsible for conducting the analysis should start by listing ideas in each category. Questions worth asking or considering for each group may include:
What happens within the company is a great source of information about strengths and weaknesses. Examples of internal factors include financial and human resources, tangible and intangible assets (e.g. brand), and operational efficiency.
(Strengths) What do we do well? (Strengths) What is our biggest advantage? (Weaknesses) What weakens us? (Weaknesses) Which product lines are performing the weakest?
What happens outside the company is just as important for its success as internal factors. External influences, such as monetary policy, market changes, and access to suppliers, are categories from which information can be gathered for a list of opportunities and threats.
(Chances) What trends are visible in the market? (Chances) Which demographic groups are not our target audience? (Threats) How many competitors do we have and what is their market share? (Threats) Are there new regulations that could harm our business or products?
Stage 4: Clarification of results
With a list of ideas in each category, it’s time to prioritise them. By refining the list of ideas, the company can focus only on the best ideas or the highest risks. This may require significant discussion among the analysis participants, including engaging senior management in setting priorities.
Stage 5: Developing a strategy
With a ranking of strengths and weaknesses, opportunities and threats, it’s time to turn the SWOT analysis into a strategic plan. The analysis team members are transforming the bullet-point list from each category into a cohesive plan that provides guidance on the primary objective.
For example, a company considering launching a new product may identify that it is a market leader in its current product category and has the opportunity to expand into new markets.
However, rising material costs, strained distribution lines, the need for additional staff, and unpredictable product demand may outweigh the strengths and opportunities. The analysing team is developing a strategy to reconsider the decision in six months, hoping for a decrease in costs and greater market demand transparency.
Benefits of SWOT analysis
A SWOT analysis will not answer all the key questions facing a company, but it does bring a number of benefits that facilitate making strategic decisions.
SWOT analysis simplifies complex issues. Often, when making complex decisions, one must analyse huge amounts of data and consider many important aspects. With SWOT analysis, which involves organising and ranking ideas according to their importance, one can transform a vast and potentially overwhelming problem into a more accessible report.
This requires consideration of external factors. Companies often tend to focus only on internal aspects when making decisions. However, the outcome of business decisions can also be influenced by elements over which the company has no direct control. SWOT analysis covers both internal factors that the company can manage and external factors that may be more difficult to control.
That analysis can be applied to almost any business issue. It can be used in relation to the entire organization, a team, or an individual. The analysis can cover a whole product line, changes in brands, geographic expansion, or acquisition. It is a versatile tool with many applications.
The analysis utilises various sources of data. The company will likely use internal information to determine strengths and weaknesses, and will also need to gather external information regarding broader markets, competitors, or macroeconomic forces for opportunities and threats. Instead of relying on a single, potentially biased source, a good SWOT analysis compiles different perspectives.
FAQ – frequently asked questions
What do the individual elements of SWOT Analysis signify?
Strengths are the assets of the company, weaknesses are the areas that need improvement, opportunities are potential development possibilities, and threats are external factors that can have a negative impact on operations.
How often should a SWOT Analysis be conducted?
Conducting a SWOT analysis is recommended for any change in strategy, introduction of a new product or service, and also at regular intervals to adjust actions to the changing environment.
Is SWOT only useful for large companies?
SWOT analysis is a universal tool, useful for both large corporations and small businesses or startups. It enables effective management regardless of the scale of operations.
What are the limitations of SWOT Analysis?
The main limitations of SWOT Analysis can be subjectivity in evaluation and difficulty in assessing the impact of individual factors. It is important, therefore, that the approach to analysis is as objective as possible and based on data.