SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis.

It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans. SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT framework was described in the late 1960's by Edmund P. Learned, C. Roland Christiansen, Kenneth Andrews, and William D. Guth in Business Policy, Text and Cases (Homewood, IL: Irwin, 1969). The General Electric Growth Council used this form of analysis in the 1980's. Because it concentrates on the issues that potentially have the most impact, the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation. The following diagram shows how a SWOT analysis fits into a strategic situation analysis.

Situation Analysis / Internal Analysis /\ Strengths Weaknesses \ External Analysis /\ Opportunities Threats

| SWOT Profile

The internal and external situation analysis can produce a large amount of information, much of which may not be highly relevant. The SWOT analysis can serve as an interpretative filter to reduce the information to a manageable quantity of key issues. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as opportunities or threats. Strengths can serve as a foundation for building a competitive advantage, and weaknesses may hinder it. By understanding these four aspects of its situation, a firm can better leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and deter potentially devastating threats. Internal Analysis The internal analysis is a comprehensive evaluation of the internal environment's potential strengths and weaknesses. Factors should be evaluated across the organization in areas such as:
y y y y y y y y y

Company culture Company image Organizational structure Key staff Access to natural resources Position on the experience curve Operational efficiency Operational capacity Brand awareness

The completed SWOT profile sometimes is arranged as follows: Strengths 1. External Analysis An opportunity is the chance to introduce a new product or service that can generate superior returns. . a SWOT profile can be generated and used as the basis of goal setting. strategy formulation. Changes in the external environment may be related to: y y y y y y y y y Customers Competitors Market trends Suppliers Partners Social changes New technology Economic environment Political and regulatory environment The last four items in the above list are macro-environmental variables. The SWOT analysis summarizes the external environmental factors as a list of opportunities and threats. . . 3. Many of these changes can be perceived as threats to the market position of existing products and may necessitate a change in product specifications or the development of new products in order for the firm to remain competitive. and implementation. 2. and are addressed in a PEST analysis. . Opportunities can arise when changes occur in the external environment. . Weaknesses 1. . 3. 2.y y y y Market share Financial resources Exclusive contracts Patents and trade secrets The SWOT analysis summarizes the internal factors of the firm as a list of strengths and weaknesses. SWOT Profile When the analysis has been completed. .

and managers can be alerted to weaknesses that might need to be overcome in order to successfully pursue opportunities. 2. For example. who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies. Perhaps what is more important than the superficial classification of these factors is the firm's awareness of them and its development of a strategic plan to use them to its advantage. the interaction of the quadrants in the SWOT profile becomes important. A technological change can be a either a threat or an opportunity. suppliers. even though this one person may have a broad view of the company and industry. 3. or as opportunities or threats is somewhat arbitrary. For example. . the information would represent a single viewpoint. If the information is obtained hastily during a quick interview with the CEO. customers. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. Weaknesses. the strengths can be leveraged to pursue opportunities and to avoid threats.Opportunities 1. When formulating strategy. 3. SWOT Analysis Limitations While useful for reducing a large quantity of situational factors into a more manageable profile. The classification of some factors as strengths or weaknesses. Threats 1. the SWOT framework has a tendency to oversimplify the situation by classifying the firm's environmental factors into categories in which they may not always fit. . The quality of the analysis will be improved greatly if interviews are held with a spectrum of stakeholders such as employees. Opportunities. a particular company culture can be either a strength or a weakness. Multiple Perspectives Needed The method used to acquire the inputs to the SWOT matrix will affect the quality of the analysis. 2. etc. SWOT analysis is a strategic planning method used to evaluate the Strengths. . The technique is credited to Albert Humphrey. strategic partners. . . and Threats involved in a project or in a business venture. . .

For example. Such an analysis of the strategic environment is referred to as a SWOT analysis. and those external to the firm can be classified as opportunities (O) or threats (T). it is instrumental in strategy formulation and selection.A scan of the internal and external environment is an important part of the strategic planning process. As such. each of the following may be considered weaknesses: . The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. The following diagram shows how a SWOT analysis fits into an environmental scan: SWOT Analysis Framework Environmental Scan / \ Internal Analysis External Analysis /\ /\ Strengths Weaknesses Opportunities Threats | SWOT Matrix Strengths 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: y y y y y y patents strong brand names good reputation among customers cost advantages from proprietary know-how exclusive access to high grade natural resources favorable access to distribution networks Weaknesses The absence of certain strengths may be viewed as a weakness. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W).

Some examples of such opportunities include: y y y y an unfulfilled customer need arrival of new technologies loosening of regulations removal of international trade barriers Threats Changes in the external environmental also may present threats to the firm.y y y y y y 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. In some cases. a weakness may be the flip side of a strength. Opportunities The external environmental analysis may reveal certain new opportunities for profit and growth. Rather. Take the case in which a firm has a large amount of manufacturing capacity. the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity. Some examples of such threats include: y y y y shifts in consumer tastes away from the firm's products emergence of substitute products new regulations increased trade barriers The SWOT Matrix A firm should not necessarily pursue the more lucrative opportunities. it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. 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. While this capacity may be considered a strength that competitors do not share. .

the Wells Fargo Bank positions itself as the bank that opened up the West. W-O strategies overcome weaknesses to pursue opportunities. also called segmentation strategy. Using this strategy. a manufacturer will introduce different . positioning a brand in such a way as to differentiate it from the competition and establish an image that is unique. a matrix of these factors can be constructed.To develop strategies that take into account the SWOT profile. marketing technique used by a manufacturer to establish strong identity in a specific market. Using this strategy. S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. for example. W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.differentiation strategy 1. 2. also called segmentation strategy. marketing technique used by a manufacturer to establish strong identity in a specific market. What do you undrstnd by differentiation strategy??? Ans:. a manufacturer will introduce different varieties of the same basic product under the same name into a particular product category and thus cover the range of products available in that category. The SWOT matrix (also known as a TOWS Matrix) is shown below: SWOT / TOWS Matrix Strengths Weaknesses Opportunities S-O strategies W-O strategies Threats S-T strategies W-T strategies y y y y S-O strategies pursue opportunities that are a good fit to the company's strengths. Dictionary of Marketing Terms differentiation strategy 1.

This technique is quite costly to the advertiser because each individual product must be marketed independently. a decaffeinated soda. and the full line of products available will help to establish the company's name in the soda category. for example. Each type of soda is directed at a different segment of the soda market. For example. since separate marketing strategies are necessary for each market segment. positioning a brand in such a way as to differentiate it from the competition and establish an image that is unique. the Wells Fargo Bank positions itself as the bank that opened up the West. and a diet-decaffeinated soda all under the same brand name is using a differentiation strategy. Also called product differentiation .varieties of the same basic product under the same name into a particular product category and thus cover the range of products available in that category. a diet soda. . a soda company that offers a regular soda. 2.

Sign up to vote on this title
UsefulNot useful