SWOT analysis is a strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning. It is intended to specify the objectives of the business venture or project and identify the internal and external factors that are favorable and unfavorable to achieving those objectives. Users of a SWOT analysis often ask and answer questions to generate meaningful information for each category to make the tool useful and identify their competitive advantage. SWOT has been described as the tried-and-true tool of strategic analysis.
SWOT analysis provides information that is helpful in matching the firm’s resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and section.
A firm’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include:
- Strong brand names
- Good reputation among customers
- Cost advantages from proprietary known-how
- Exclusive access to high grade natural resources
- Favorable access to distribution networks.
The absence of certain strengths may be viewed as a weakness. For Example, each of the following may be considered weaknesses:
- Lack of patent protection
- A weak brand name
- Poor reputation among customers
- High cost structure
- Lack of access to the best natural resources
- Lack of access to key distribution channels.
In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, It also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.
The external environmental analysis may reveal certain new opportunities for profits and growth. Some examples of such opportunities include:
- An unfulfilled customer need
- Arrival of new technologies
- Loosening of regulations
- Removal of international trade barriers
Changes in the external environmental also may present threats to the firm. Some examples of such threats include:
- Shifts in consumer tastes away from the firm’s products
- Emergence of substitute products
- New regulations
- Increased trade barriers.