SWOT analysis – a basic understanding
Any organisation, be it big or small normally operates in a dynamic environment. This environment is made of up of numerous factors which may or may not be good for the organisation in the long run. The organisation has the responsibility to identify all such factors and then adjust itself accordingly. This constitutes the dynamic environment of the organisation, and any organisation’s ultimate survival depends on how quickly it can identify the environment it operates in, and how quickly it can chart out its course from turbulent waters towards a smoother course.
SWOT analysis plays a useful role in helping the organisation’s managers understand their environment through the four essential factors i.e. Strength, Weakness, Opportunity and Threat (Valentin, 2001). These four factors are essentially responsible for identifying the areas of concern for the business.
What is SWOT?
The SWOT framework was originally proposed by E. Learned, C. Christiansen, K. Andrews and W. Guth in Business Policy (Barney, 1995). This analysis can help the organisation to create a blueprint for the future. A SWOT analysis is useful not only for an organisation but also any industry or product, or even a person. People need to identify their core areas of strength and weakness to help them identify the suitable roles they should look for in the future.
We can understand it better with the help of the following illustration. It depicts the four essential factors. We will now discuss the analysis in detail –
What is the core area of the organisation or product which is very strong? Strengths are basically an amalgamation of knowledge, talent, and skill in case of an individual and areas where the organisation has an upper hand over its competitors. For example, a mosquito repellent brand which uses herbal ingredients may be in a better position than a company which uses harsh chemicals. The identification of strength is positive psychology. Every organisation, product or person, may have a set of strengths, which when identified, helps them in finding the right fit. For example, although a student is studying engineering, he may be keener to pursue a career in psychology. An earlier analysis would have successfully evaded this dilemma. Thus, strength is internal in nature.
Strength is accompanied by immediate excitement and complete engagement in the case of a person. In the case of a product or organisation, the effect is also somewhat similar. For example, in the case of a mosquito repellent with herbal ingredients, it is more likely that a consumer will choose an herbal variety over a chemical product. Hence, manufacturing a more health-friendly, user-friendly product can be considered as the strength of the company.
Every product, or person for that matter, may have a few qualities which may be harmful to It may create a negative psychology in the minds of the makers of the product, and in the minds of the persons who have those qualities. Continuing with the example of a herbal mosquito repellent, we may find that the product, although made entirely of herbal ingredients, turns out to be quite expensive. Everyone may not be able to afford the product. This may not be good for the product because the business may not grow further if it only caters to a particular section. The price must be quoted to compete with the cheaper versions in the market while retaining its popularity. Weakness is a component of the internal environment.
Weakness, as already defined, may negatively influence any person or product. But identifying the weakness is pretty essential from the point of view of improvement. Until and unless someone knows their weakness or the weakness of their organisation or product they may not know what exactly went wrong. Why they missed a particular opportunity or why a product, despite being so good for the environment, failed to take off. The weak points have to be understood and then a remedy for the same has to be identified. If the price is a concern for the sale of the product, then perhaps lowering the price in the form of discounts or better still, providing another useful item with it as a combo pack may help the sales. Once the product has brand recognition and generates goodwill, the sales will pick up.
These are external in nature. The market presents a plethora of opportunities for any product or organisation. The organisation, before launching a new product, tries to identify the various opportunities it can take hold of. Similarly, in the case of individuals, if a person is well qualified in a particular field, he may find a host of opportunities for himself or he may decide to start a venture of his own. In other words, he is able to successfully explore and benefit from the opportunities present before him. In the case of an organisation introducing a product which can revolutionize a particular segment, opportunities galore. For example, ready to eat food items have successfully carved a niche in the market as well as our homes for the convenience and hassle-free experience they provide. Thus, the market research team of a particular firm would have to go in for an in-depth analysis and find out the possible opportunities for a product. This is essential to make sure that no stone is left unturned for utilising a particular opportunity. Opportunity is thus the unutilised possibility which either an individual or the markets have to explore with careful analysis and create a beneficial situation from it.
A threat comes from the outside environment. When an organisation or individual has zeroed in on the various opportunities present before them, their next task is to then identify the possible threats that can jeopardise those opportunities. Threats can be of any type. For example, a candidate seeking a job in a big business firm may find that he has to compete with hundred other candidates for the job. The possibility of any other candidate getting the job is a threat to the opportunity that the candidate can otherwise benefit from. Likewise, a company which is coming up with a new product has the threat of competition from other companies selling the same product as well as possible rejection in the market. A sudden drop in supply of raw material or a transporter’s strike is also a threat which an organisation may have to face. The organisation may even face the possibility of their products being outnumbered by cheaper substitutes. These cheaper substitutes may sabotage the market completely.
Thus, threat, which is ever present in the external environment, is what an organisation needs to be aware of and be prepared for. For example, the discovery and consequent use of computers in daily activities completely changed the market for typewriters and made them redundant. The companies which were selling typewriters had to quickly adapt to this situation or perish. The birth of new technology is a threat which any company can only imagine and stay prepared for, but how big the threat would be and how it would translate into the company’s future cannot easily be fathomed in advance. At best an organisation, or an individual, should try to continuously upgrade themselves with regards to the latest technology or idea, to make sure that when the change occurs, or when the threat presents itself, they are aware and ready.
Advantages of SWOT
The advantages and disadvantages of a SWOT analysis (Barney, 1995):
- Helps to identify opportunities – An in-depth SWOT analysis helps to identify any opportunity that may otherwise not be visible. It can provide an overall view about any opportunity together with associated threats.
- Helps to analyse and thus take advantage of strengths – With the help of SWOT, we are able to identify the strength or strong points of either a product, person or organisation. The strength can also be mentioned as the Unique Selling Point (or the USP) of a product in marketing parlance.
- Helps to identify and deter threats – The SWOT analysis helps in the identification of threats (if any) so that we can find remedial measures before the threat actually strikes, or adapt ourselves so that our interests are protected.
- Helps to identify and address the weaknesses – There are bound to a few weaknesses associated with a product, person or organisation. SWOT helps to identify them so that the exact ways and means to address them can be determined.
- Helps in the formulation of strategies – Every organisation or product needs a strategy for success. With the help of SWOT the various angles with respect to strength, weakness, opportunity and threat can be zeroed in, and strategies with respect to the organisation could be formed.
Disadvantages of SWOT
There are certain disadvantages associated with SWOT:
- SWOT is only an analysis, it does not proffer any solutions to the issue at hand. It can at best provide an in-depth analysis.
- SWOT does not prioritise and say what is urgent and what is not. The analysis once done only gives an idea of the whole issue. It will be the user’s responsibility to determine what a priority is, and what is not.
- There can be a situation wherein biases or vested interests may overcome the need to acknowledge weaknesses and threats. This situation could be dangerous for the organisation or product in the long run. Only a clear and unbiased opinion will be required for arriving at a correct measure.
- SWOT helps in the gathering of million ideas, but it definitely would not suggest which one is the most suitable in the context of one’s organisation. Too many options can actually confuse the decision makers.
- SWOT analysis can generate a lot of information from the facts provided to it which may or may not be useful for the business. Some of the information generated is not at all useful and it does not help the strategist at all.
- How valuable is the split between strength/weakness and opportunity/threat as very often the same point can be both a strength and a weakness and every opportunity can also be a threat.
A SWOT analysis as a tool for strategy planning has a lot of advantages. This analysis is frequently used by marketing managers as well as strategy planners to identify the internal factors such as strengths and weaknesses of their product as well as zero in on the opportunities and threats present that can probably affect the external environment of the product or business (Porter, 1981). This analysis is very important for the formulation of strategies for the present as well as the future. What the strategist needs to do is separate the wheat from the chaff while using this technique. Not all the ideas generated or information presented will be useful or relevant to the product or business. Identifying what is important, and what can be taken up later, is the biggest task. If this tool is used effectively, and the limitations are dealt with carefully, it can reap a lot of benefits for the user (Barney, 1991).
You can find out more about the SWOT analysis in the Manager’s tool kit section of the iQualify UK Teaching Zone.
Barney, J., 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, pp. 99-120.
Barney, J. B., 1995. Looking inside for competitive advantage. Academy of Management Perspectives, pp. 49-61.
Porter, M., 1981. The Contributions of Industrial Organization to Strategic Management. Academy of Management Review, pp. 609-620.
Valentin, E., 2001. SWOT Analysis from a resource based view. Journal of Marketing Theory and Practice, pp. 54-69.