What is a 'SWOT Analysis'

SWOT analysis is a process that identifies the strengths, weaknesses, opportunities and threats of an
organization. Specifically, SWOT is a basic, analytical framework that assesses what an organization can
and cannot do, as well as its potential opportunities and threats. A SWOT analysis takes information
from an environmental analysis and separates it into internal strengths and weaknesses, as well as its
external opportunities and threats.

SWOT Analysis

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BREAKING DOWN 'SWOT Analysis'

A SWOT analysis determines what assists the firm in accomplishing its objectives, and what obstacles
must be overcome or minimized to achieve desired results. When using SWOT analysis, an organization
needs to be realistic about assessing its strengths and weaknesses. Analysis needs to examine where the
organization is today, and where it may be positioned in the future.

SWOT analysis needs to be kept specific by avoiding gray areas and analyzing in relation to the
competition. For example, how do the organization’s products and services compare to the
competitions? SWOT analysis should be short and simple, and should avoid complexity and over-
analysis, as much of the information is subjective. Thus, use it as a guide and not a prescription. For
more details, see"Executing A Swot Analysis".

Strengths and Weaknesses

Strengths describe what an organization excels at, allowing decisions on how to gain a competitive
advantage. For example, a hedge fund may have developed a proprietary trading strategy that returns
superior results in comparison to its competitors. It must then decide how to use those superior results
to attract new investor capital.

Weaknesses stop an organization from performing at its optimum level. They have the potential to
reduce progress or to give a competitive edge to the competition. An organization needs to minimize
weaknesses and analyze how they can be improved. An inadequate supply network or lack of capital are
example of weaknesses.

Opportunities and Threats

Opportunities refer to favorable external factors that an organization can use it its advantage. If utilized
effectively, opportunities have the potential to create a competitive advantage. For example, a car
manufacturer may be able to export its cars into a new market if tariffs in a country are substantially
reduced. This is likely to increase sales and market share, which may create a competitive advantage in
terms of scale.

Threats refers to factors that have the potential to negatively impact an organization. For example, a
drought is a threat to a wheat-producing company, as it may destroy or reduce the yield of a wheat
crop. Market share is likely to be lost if a competitor has not diversified operations in terms of location.
It is prudent for an organization to have a comprehensive contingency plan that addresses possible risks
and specifies how to deal with them.