10/23/2016

TheStructureofaGoodSWOTHowtodoitRight|SMI

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SWOTAnalysisDoItProperly!
OvidijusJurevicius|February13,2013

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Definition
Swotanalysisinvolvesthecollectionandportrayalofinformationaboutinternalandexternal
factorswhichhave,ormayhave,animpactonbusiness.[2]
SWOTisaframeworkthatallowsmanagerstosynthesizeinsightsobtainedfromaninternal
analysisofthecompanysstrengthsandweaknesseswiththosefromananalysisofexternal
opportunitiesandthreats.[3]

Understandingthetool
WhatisSWOTanalysis?Theanswertothequestionissimple:itsatoolusedforsituation
(businessorpersonal)analysis!SWOTisanacronymwhichstandsfor:
Strengths:factorsthatgiveanedgeforthecompanyoveritscompetitors.
Weaknesses:factorsthatcanbeharmfulifusedagainstthefirmbyitscompetitors.
Opportunities:favorablesituationswhichcanbringacompetitiveadvantage.
Threats:unfavorablesituationswhichcannegativelyaffectthebusiness.
Strengthsandweaknessesareinternaltothecompanyandcanbedirectlymanagedbyit,
whiletheopportunitiesandthreatsareexternalandthecompanycanonlyanticipateand
reacttothem.Often,swotispresentedinaformofamatrixasintheillustrationbelow:

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Swotiswidelyacceptedtoolduetoitssimplicityandvalueoffocusingonthekeyissues
whichaffectthefirm.Theaimofswotistoidentifythestrengthsandweaknessesthatare
relevantinmeetingopportunitiesandthreatsinparticularsituation.[4]

Benefits
Swottoolhas5keybenefits:
Simpletodoandpracticaltouse
Cleartounderstand
Focusesonthekeyinternalandexternalfactorsaffectingthecompany
Helpstoidentifyfuturegoals
Initiatesfurtheranalysis.

Limitations
Althoughthereareclearbenefitsofdoingtheanalysis,manymanagersandacademics
heavilycriticizeordontevenrecognizeitasaserioustool.[2]Accordingtomany,itisalow
gradeanalysis.Herearethemainflawsidentifiedbyaresearch:[2][5]
Excessivelistsofstrengths,weaknesses,opportunitiesandthreats
Noprioritizationoffactors
Factorsaredescribedtoobroadly
Factorsareoftenopinionsnotfacts
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Norecognizedmethodtodistinguishbetweenstrengthsandweaknesses,opportunities
andthreats.

Howtoperformtheanalysis?
Swotcanbedonebyonepersonoragroupofmembersthataredirectlyresponsibleforthe
situationassessmentinthecompany.Basicswotanalysisisdonefairlyeasilyandcomprises
ofonlyfewsteps:
Step1.Listingthefirmskeystrengthsandweaknesses
Step2.Identifyingopportunitiesandthreats

StrengthsandWeaknesses
Strengthsandweaknessesarethefactorsofthefirmsinternalenvironment.Whenlookingfor
strengths,askwhatdoyoudobetterorhavemorevaluablethanyourcompetitorshave?In
caseoftheweaknesses,askwhatcouldyouimproveandatleastcatchupwithyour
competitors?

Wheretolookforthem?
Somestrengthsorweaknessescanberecognizedinstantlywithoutdeeperstudyingofthe
organization.Butusuallytheprocessisharderandmanagershavetolookintothefirms:
Resources:land,equipment,knowledge,brandequity,intellectualproperty,etc.
Corecompetencies
Capabilities
Functionalareas:management,operations,marketing,finances,humanresourcesand
R&D
Organizationalculture
Valuechainactivities

Strengthoraweakness?
Often,companysinternalfactorsareseenasboth,strengthsandweaknesses,atthesame
time.Itisalsohardtotellifacharacteristicisastrength(weakness)ornot.Forexample,
firmsorganizationalstructurecanbeastrength,aweaknessorneither!Insuchcases,you
shouldrelyon:
Cleardefinition.Veryoftenfactorswhicharedescribedtoobroadlymayfitbothstrengths
andweaknesses.Forexample,brandimagemightbeaweaknessifthecompanyhaspoor
brandimage.However,itcanalsobeastrengthifthecompanyhasthemostvaluablebrand
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inthemarket,valuedat$100billion.Therefore,itiseasiertoidentifyifafactorisastrengthor
aweaknesswhenitsdefinedprecisely.
Benchmarking.Thekeyemphasizeindoingswotistoidentifythefactorsthatarethe
strengthsorweaknessesincomparisontothecompetitors.Forexample,17%profitmargin
wouldbeanexcellentmarginformanyfirmsinmostindustriesanditwouldbeconsideredas
astrength.Butwhatiftheaverageprofitmarginofyourcompetitorsis20%?Thencompanys
17%profitmarginwouldbeconsideredasaweakness.
VRIOframework.AresourcecanbeseenasastrengthifitexhibitsVRIO(valuable,rareand
cannotbeimitated)frameworkcharacteristics.Otherwise,itdoesntprovideanystrategic
advantageforthecompany.

Opportunitiesandthreats
Opportunitiesandthreatsaretheexternaluncontrollablefactorsthatusuallyappearorarise
duetothechangesinthemacroenvironment,industryorcompetitorsactions.Opportunities
representtheexternalsituationsthatbringacompetitiveadvantageifseizedupon.Threats
maydamageyourcompanysoyouwouldbetteravoidordefendagainstthem.

Wheretolookforthem?
PESTEL.PESTorPESTELanalysisrepresentsallthemajorexternalforces(political,
economic,social,technological,environmentalandlegal)affectingthecompanysoitsthe
bestplacetolookfortheexistingornewopportunitiesandthreats.
Competition.Competitorsreacttoyourmovesandexternalchanges.Theyalsochangetheir
existingstrategiesorintroducenewones.Therefore,thecompanymustalwaysfollowthe
actionsofitscompetitorsasnewopportunitiesandthreatsmayopenatanytime.
Marketchanges.Themostvisibleopportunitiesandthreatsappearduringthemarket
changes.Marketsconverge,startingtosatisfyothermarketsegmentneedswiththesame
product.Newgeographicalmarketsopenupallowingthefirmtoincreaseitsexportvolumes
orstartoperationsinanewcountry.Oftennichemarketsbecomeprofitabledueto
technologicalchanges.Asaresult,changesinthemarketcreatenewopportunitiesand
threatsthatmustbeseizeduponordealtwithifthecompanywantstogainandsustain
competitiveadvantage.

Opportunityorthreat?
Mostexternalchangescanrepresentbothopportunitiesandthreats.Forexample,exchange
ratesmayincreaseorreducetheprofitsgainedfromexports.Thisdependsontheexchange
rate,whichmayrise(opportunity)orfall(threat)againstthehomecountrycurrency.The
organizationcanonlyguesstheoutcomeofthechangeandcountonanalystsforecasts.In
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suchcases,whenorganizationcannotidentifyiftheexternalfactorwillaffectitpositivelyor
negatively,itshouldgatherunbiasedandreliableinformationfromtheexternalsourcesand
makethebestpossiblejudgement.

GuidelinesforsuccessfulSWOT
Thefollowingguidelinesareveryimportantinwritingasuccessfulswotanalysis.They
eliminatemostofswotlimitationsandimproveit'sresultssignificantly:
Factorshavetobeidentifiedrelativetothecompetitors.Itallowsspecifyingwhetherthe
factorisastrengthoraweakness.
Listbetween35itemsforeachcategory.Preventscreatingtooshortorendlesslists.
Itemsmustbeclearlydefinedandasspecificaspossible.Forexample,firmsstrengthis:
brandimage(vague)strongbrandimage(moreprecise)brandimagevaluedat$10
billion,whichisthemostvaluedbrandinthemarket(verygood).
Relyonfactsnotopinions.Findsomeexternalinformationorinvolvesomeonewhocould
provideanunbiasedopinion.
Factorsshouldbeactionorientated.Forexample,slowintroductionofnewproductsis
actionorientatedweakness.

SWOTanalysisexampleA
Thisisabasicexampleoftheanalysis:

SWOTanalysisofCompany"A"
Strengths
1.Secondmostvaluablebrandintheworldvaluedat$76billion
2.Diversifiedincome(5differentbrandsearningmorethan$4billioneach)
3.Strongpatentsportfolio(15,000patents)
4.InvestmentsinR&Dreaching4billionayear.
5.Competentinmergers&acquisitions
6.Haveanaccesstocheapcashreserves
7.Effectivecorporatesocialresponsibility(CSR)projects
8.Localizedproducts
9.Highlyskilledworkforce
10.Economiesofscaleoreconomiesofscope

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Weaknesses
1.InvestmentsinR&Darebelowtheindustryaverage
2.Veryloworzeroprofitmargins
3.Poorcustomerservices
4.Highemployeeturnover
5.Highcoststructure
6.Weakbrandportfolio
7.Rigid(bureaucratic)organizationalcultureimpedingfastintroductionofnewproducts
8.Highdebtlevel($3billion)
9.Branddilution(thefirmhastoomanybrands)
10.Poorpresenceintheworld'slargestmarkets

Opportunities
1.Marketgrowthforthemainfirm'sproduct
2.Growingdemandforrenewableenergy
3.Newtechnology,thatwoulddriveproductioncostsby20%isindevelopment
4.OurcountryaccessiontoEU
5.Changingcustomerhabits
6.Disposableincomelevelwillincrease
7.Government'sincentivesfor'specific'industry
8.Economyisexpectedtogrowby4%nextyear
9.Growingnumberofpeoplebuyingonline
10.Interestratesfallingto1%

Threats
1.Corporatetaxmayincreasefrom20%to22%in2013
2.Risingpaylevels
3.Risingrawmaterialprices
4.Intensecompetition
5.Marketisexpectedtogrowbyonly1%nextyearindicatingmarketsaturation
6.Increasingfuelprices
7.Agingpopulation
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8.Stricterlawsregulatingenvironmentpollution
9.Lawsuitsagainstthecompany
10.Currencyfluctuations
(IfyouneedmoreexamplesforSWOTfactorspleasevisitourSWOTanalysesexamples)

AdvancedSWOT
Atthemost,swotisconsideredtobeonlyareferencetofurtheranalysisasithastoomany
limitationsandcannotbeusedaloneinthesituationanalysis.Thepreviousguidelines
identifiedinthisarticlemeetthemostofswotlimitationsexceptone:prioritizationoffactors.
Anadvancedswotgoesastepfurtherandeliminatesthisimportantdrawback.
Inasimpleswot,strengthsandweaknessesoropportunitiesandthreatsareequaltoeach
other,thereforeaminorweaknesscanbalanceamajorstrength.Withoutprioritization,some
factorsmightbegiventoomuchortoolittleemphasisandthemostrelevantfactorsmight
simplybeoverlooked.
Theaimofadvancedswotistoidentifythemostsignificantfactorsoftheanalysisfromallthe
itemslistedonit.Howtoperformit?
Step1.Identifystrengths,weakness,opportunitiesandthreats.
Step2.Prioritizethem.
(Thefirststepwasdiscussedearliersopleaserefertoitwhendoingadvancedswotanalysis.
SeeexampleBwhenreadingfurtherinstructions.)

Prioritization
Strengthsandweaknessesareevaluatedon3categories:
Importance.Importanceshowshowimportantastrengthoraweaknessisforthe
organizationinitsindustryassomestrengths(weaknesses)mightbemoreimportantthan
others.Anumberfrom0.01(notimportant)to1.0(veryimportant)shouldbeassignedto
eachstrengthandweakness.Thesumofallweightsshouldequal1.0(includingstrengths
andweaknesses).
Rating.Ascorefrom1to3isgiventoeachfactortoindicatewhetheritisamajor(3)ora
minor(1)strengthforthecompany.Thesameratingshouldbeassignedtothe
weaknesseswhere1wouldmeanaminorweaknessand3amajorweakness.
Score.Scoreisaresultofimportancemultipliedbyrating.Itallowsprioritizingthe
strengthsandweaknesses.Youshouldrelyonyourmostimportantstrengthsandtryto
convertordefendyourweakestpartsoftheorganization.
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Opportunitiesandthreatsareprioritizedslightlydifferentlythanstrengthsandweaknesses.
Theirevaluationincludes:

Strengths
Importance Rating Score
Importance.Itshowstowhatextenttheexternalfactormightimpactthebusiness.Again,
thenumbersfrom0.01(noimpact)to1.0(veryhighimpact)shouldbeassignedtoeach
item.Thesumofallweightsshouldequal1.0(includingopportunitiesandthreats).
Probability.Probabilityofoccurrenceisshowinghowlikelytheopportunityorthreatwill
haveanyimpactonbusiness.Itshouldberatedfrom1(lowprobability)to3(high
probability).
Score.Importancemultipliedbyprobabilitywillgiveascorebywhichyoullbeableto
prioritizeopportunitiesandthreats.Payattentiontothefactorshavingthehighestscore
andignorethefactorsthatwillnotlikelyaffectyourbusiness.

SWOTanalysisexampleB
Thisswotexampleisadoptedfromthepreviousexampleandadditionallyincludes
prioritization.Highlightedcellspointtothemostsignificantfactorsaffectingtheorganization.

AdvancedSWOTofCompany'A'(1/2)
Strengths

Importance

Rating

Score

Secondmostvaluablebrandintheworld

0.03

0.03

Diversifiedincome

0.01

0.02

Strongpatentsportfolio(15,000patents)

0.15

0.45

InvestmentsinR&Dreaching4billionayear

0.10

0.20

Competentinmergers&acquisitions

0.05

0.15

Anaccesstocheapcashreserves

0.02

0.02

Effectivecorporatesocialresponsibility(CSR)projects

0.03

0.03

Localizedproducts

0.01

0.01

Highlyskilledworkforce

0.08

0.16

Economiesofscale/economiesofscope

0.02

0.06

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Weaknesses
Opportunities
Strengths

Importance
Rating
Importance
ImportanceProbability
Rating

Score
Score

InvestmentsinR&Darebelowtheindustryaverage

0.03

0.06

Veryloworzeroprofitmargins

0.08

0.24

Poorcustomerservices

0.10

0.20

Highemployeeturnover

0.05

0.10

Highcoststructure

0.03

0.09

Weakbrandportfolio

0.02

0.02

Bureaucraticorganizationalculture

0.03

0.03

Highdebtlevel($3billion)

0.03

0.03

Branddilution(thefirmhastoomanybrands)

0.01

0.01

Poorpresenceintheworld'slargestmarkets

0.12

0.24

AdvancedSWOTofCompany'A'(2/2)
Opportunities

Importance

Probability

Score

Marketgrowthforthemainbusinessproduct

0.10

0.20

Growingdemandforrenewableenergy

0.01

0.01

Newtechnologyisindevelopment

0.13

0.13

OurcountryaccessiontoEU

0.05

0.15

Changingcustomerhabits

0.05

0.05

Disposableincomelevelwillincrease

0.02

0.06

Government'sincentivesfor'specific'industry

0.03

0.06

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Economyisexpectedtogrowby4%nextyear
Opportunities

0.01
Importance

2
Probability

0.02
Score

Growingnumberofpeoplebuyingonline

0.08

0.24

Interestratesfallingto1%

0.02

0.06

Threats

Importance

Probability

Score

Corporatetaxmayincreasefrom20%to22%in
2013

0.12

0.24

Risingpaylevels

0.03

0.06

Risingrawmaterialprices

0.09

0.27

Intensecompetition

0.07

0.07

Marketisexpectedtogrowbyonly1%nextyear

0.05

0.15

Increasingfuelprices

0.01

0.03

Agingpopulation

0.01

0.03

Stricterlawsregulatingenvironmentpollution

0.01

0.01

Lawsuitsagainstthecompany

0.02

0.02

Currencyfluctuations

0.09

0.18

Sources
1.Thompson,J.andMartin,F.(2010).StrategicManagement:Awareness&Change.6th
ed.CengageLearningEMEA,p.140,817
2.Pickton,D.W.andWright,S.(1998).Whatsswotinstrategicanalysis?StrategicChange
Vol.7,pp.101109,105106
3.Rothaermel,F.T.(2012).StrategicManagement:ConceptsandCases.McGraw
Hill/Irwin,p.105106
4.Johnson,G,Scholes,K.Whittington,R.(2008).ExploringCorporateStrategy.8thed.FT
PrenticeHall,p.156,160
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5.Coman,A.andRonen,B.(2009).FocusedSWOT:diagnosingcriticalstrengthsand
weaknesses.InternationalJournalofProductionResearchVol.40,Issues20,pp.5677
5689
6.Kotler,P.(1991).MarketingManagement.7thed.PrenticeHall
7.David,F.R.(2009).StrategicManagement:ConceptsandCases.12thed.FTPrentice
Hall,p.125126,166168
8.VirtualStrategist(2008).SWOTanalysis:Howtoperformoneforyourorganization
(VIDEO).Availableat:http://www.youtube.com/watch?v=GNXYI10Po6A
9.Wikipedia(2013).SWOTanalysis.Availableat:http://en.wikipedia.org/wiki/
SWOT_analysis

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