SWOT analysis

Introduction:

 SWOT analysis is a form of strategic analysis that identifies and analyses the main
internal strengths and weaknesses and external opportunities and threats that will
influence the future direction and success of a business
 S = strengths
o These are internal factors about a business which can be used as the basis for
developing a competitive advantage
o E.g.
 Experienced management
 Product patents
 Loyal workforce
 Good product range
 Quality processes and processes
 Location of the business
o These factors are identified by an internal audit often conducted by specialist
management consultants.
 W= weaknesses
o These are internal factors of the businesses considered to be negative factors,
which hinders or hold back business performance
o E.g.
 Poorly trained workforce
 Limited production capacity
 Ageing equipment
 Lack of marketing expertise
 Poor quality goods and services
 Damaged reputation
o Sometimes weakness can be a flip side of the strength
 E.g. spare capacity at times of economic boom is a strength but at times
of recession is a weakness
o Weaknesses are also identified by internal audit
 O= opportunities
o These are the potential areas for expansion of the business and future profits
o E.g.
 New technologies
 New expanding export markets
 Lower rates of interest
 Mergers, joint ventures or strategic alliance
 Reduced tax rates
o These factors are identified by external audit of the market in which the firm
and its major competitors operates.
 T= threats
o Analyses of external factors which can create trouble for the business
o E.g.
 A new competitor in the home market
 Globalization cutting price
 Competitor has new, innovative product or service
 Increase of taxes
 Changes in law
 Changes in government’s economic policy
o These are also external factors identified by external audit
o This audit thus analyses the business and economic environment, market
conditions and the strength of competitors
 The SWOT analysis therefore helps manager assess the most likely successful future
strategies and the constraints on them.
 It helps the manager to use the strength to fight threats and grab the correct
opportunity, and to reduce weakness so that opportunities can be grabbed.
 SWOT is a common starting point for developing corporate strategies but in maximum
cases not sufficient enough and thus further analysis and planning are needed.
 Limitations of SWOT
o Subjectivity, that is no two managers will arrive at the same assessment of the
company
o Only a qualitative form of assessments
 E.g does not say the cost needed to reduce a weakness or the profit
from an opportunity
 Thus SWOT should be used as a management guide for future strategies not a
prescription.