Examples
Strengths
Strengths may be any number of areas or characteristics where a company excels and has a competitive advantage over its peers. Advantages may be more qualitative in nature and therefore difficult to measure (like a great corporate culture, strong brand recognition, proprietary technology, etc.), or they may be more quantitative (like best-in-class margins, above-average inventory turnover, category-leading return on equity, etc.).
Weaknesses
Weaknesses are areas or characteristics where a business is at a competitive disadvantage relative to its peers. Like strengths, these can also be more qualitative or quantitative. Examples include inexperienced management, high employee turnover, low (or declining) margins, and high (or excessive) use of debt as a funding source.
Opportunities
The “Opportunities” section should highlight external factors that represent potential growth or improvement areas for a business. Consider opportunities like a growing total addressable market (TAM), technological advancements that might help improve efficiency, or changes in social norms that are creating new markets or new sub-segments of existing markets.
Threats
Threats are external forces that represent risks to a business and its ability to operate. The categories tend to be similar to the “Opportunities” section, but directionally opposite. Consider examples like an industry in decline (which is the same as a decreasing TAM), technological innovation that could disrupt the existing business and its operations, or evolving social norms that make existing product offerings less attractive to a growing number of consumers.
How to Conduct a SWOT Analysis
A SWOT analysis is rarely completed in isolation; it generally makes up one part of a broader business analysis. And while it is itself an assessment framework, a SWOT analysis is also an effective tool to help summarize other findings.
For example, an analyst can’t really assess a company’s strengths and weaknesses without first understanding the business and its industry. They may wish to leverage other tools and frameworks in order to accomplish this, including:
- Hax’s Delta Model – This will help to understand competitive positioning.
- Ansoff’s Matrix – This will help visualize the relative risk of a management team’s growth strategies.
- Financial ratio analysis – This will help identify trends (year-over-year), as well as a firm’s relative performance (using benchmarking data).
The same is true for external factors – opportunities and threats. It’s nearly impossible to understand these without first considering:
- The industry life cycle – Does the business operate in a growing, mature, or declining industry? This itself informs both opportunities and threats.
- An analysis of the broader business environment or the industry itself – Think frameworks like PESTEL or Porter’s 5 Forces.
What is a SWOT Analysis used for?
A SWOT analysis is used differently by different stakeholders.
For example, a management team will use the framework to support strategic planning and risk management. SWOT helps them visualize the firm’s relative advantages and disadvantages in order to better understand where and how the organization should allocate resources, either towards growth or risk reduction initiatives.
The analyst community, on the other hand, may seek to understand (and quantify) strengths, weaknesses, opportunities, and threats in order to assess the business more completely.
Consider that findings from a SWOT analysis may help inform model assumptions among analysts. It could be an equity researcher trying to estimate the fair market value of a company’s shares, or a credit analyst looking to better understand a borrower’s creditworthiness.
In general, the SWOT framework is considered by many to be one of the most useful tools available for strategic planning and business analysis.
Additional Resources
Thank you for reading CFI’s guide to SWOT Analysis. To keep learning and advancing your career, the following CFI resources will be helpful:
- Ansoff Matrix
- Business Risk
- PESTEL Analysis
- Industry Analysis
The overall evaluation of a company’s Strengths, Weaknesses, Opportunities, and Threats are called SWOT analysis.
Strengths and Weaknesses Analysis
It also called internal environment analysis. It is one thing to discern attractive opportunities and another to be able to take advantage of these opportunities. Each business needs to evaluate its internal strengths and weaknesses. Clearly, the business does not have to correct all its weaknesses, nor should it gloat about all its strengths. The big question is whether the business should limit itself to those opportunities where it possesses the required strengths or whether it should consider better opportunities where it might have to acquire or develop certain strengths. Sometimes a business does poorly not because its departments lack the required strengths, but because they do not work together as a team.
Opportunity and Threat Analysis
It also called external environment analysis. The business unit should set up a marketing intelligence system to ‘track trends and important developments. For each trend or development, management needs to identify the associated opportunities and threats. A major purpose of environmental scanning is to discern new marketing opportunities. A marketing opportunity is an area of buyer need or potential interest in which a company can perform profitably.
Some developments in the external environment represent threats. An environmental threat is a challenge posed by an unfavorable trend or development that would lead, in the absence of defensive marketing action, to deterioration in sales or profit.
Once management has identified the major threats and opportunities facing a specific business unit; it can characterize that business’s overall attractiveness. Four outcomes are possible:
- An ideal business is high in major opportunities and low in major threats
- A speculative business is high in both major opportunities and threats.
- A mature business is low in major opportunities and low threats.
- A troubled business is low in opportunities and high threats.
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SWOT analysis is a framework for identifying and analyzing an organization's strengths, weaknesses, opportunities and threats. These words make up the SWOT acronym.
The primary goal of SWOT analysis is to increase awareness of the factors that go into making a business decision or establishing a business strategy. To do this, SWOT analyzes the internal and external environment and the factors that can impact the viability of a decision.
Businesses commonly use SWOT analysis, but it is also used by nonprofit organizations and, to a lesser degree, individuals for personal assessment. SWOT is also used to assess initiatives, products or projects. As an example, CIOs could use SWOT to help create a strategic business planning template or perform a competitive analysis.
The SWOT framework is credited to Albert Humphrey, who tested the approach in the 1960s and 1970s at the Stanford Research Institute. SWOT analysis was originally developed for business and based on data from Fortune 500 companies. It has been adopted by organizations of all types as a brainstorming aid to making business decisions.
When and why should you do a SWOT analysis?
SWOT analysis is often used either at the start of, or as part of, a strategic planning process. The framework is considered a powerful support for decision-making because it enables an organization to uncover opportunities for success that were previously unarticulated. It also highlights threats before they become overly burdensome.
SWOT analysis can identify a market niche in which a business has a competitive advantage. It can also help individuals plot a career path that maximizes their strengths and alert them to threats that could thwart success.
This type of analysis is most effective when it's used to pragmatically recognize and include business issues and concerns. Consequently, SWOT often involves a diverse cross-functional team capable of sharing thoughts and ideas freely. The most effective teams would use actual experiences and data -- such as revenue or cost figures -- to build the SWOT analysis.
A SWOT analysis matrix is made up of these four elements.Elements of a SWOT analysis
As its name states, a SWOT analysis examines four elements:
- Internal attributes and resources that support a successful outcome, such as a diverse product line, loyal customers or strong customer service.
- Internal factors and resources that make success more difficult to attain, such as a weak brand, excessive debt or inadequate staffing or training.
- External factors that the organization can capitalize on or take advantage of, such as favorable export tariffs, tax incentives or new enabling technologies.
- External factors that could jeopardize the entity's success, such as increasing competition, weakening demand or an uncertain supply chain.
A SWOT matrix is often used to organize the items identified under each of these four elements. The matrix is usually a square divided into four quadrants, with each quadrant representing one of the specific elements. Decision-makers identify and list specific strengths in the first quadrant, weaknesses in the next, then opportunities and, lastly, threats.
Organizations or individuals doing a SWOT analysis can opt to use various SWOT analysis templates. These templates are generally variations of the standard four-quadrant SWOT matrix.
How to do a SWOT analysis
A SWOT analysis generally requires decision-makers to first specify the objective they hope to achieve for the business, organization, initiative or individual. From there, the decision-makers list the strengths and weaknesses as well as opportunities and threats.
Various tools exist to guide the decision-making process. They frequently provide questions that fall under each of the four SWOT elements.
For example, participants might be asked the following to identify their company's strengths: "What do you do better than anyone else?" and "what advantages do you have?" To identify weaknesses, they may be asked "where do you need improvement?" Similarly, they'd run through questions such as "what market trends could increase sales?" and "where do your competitors have market share advantages?" to identify opportunities and threats.
Example of a SWOT analysis
The end result of a SWOT analysis should be a chart or list of a subject's characteristics. The following is an example of a SWOT analysis of an imaginary retail employee:
- Strengths: good communication skills, on time for shifts, handles customers well, gets along well with all departments, physical strength, good availability.
- Weaknesses: takes long smoke breaks, has low technical skill, very prone to spending time chatting.
- Opportunities: storefront worker, greeting customers and assisting them to find products, helping keep customers satisfied, assisting customers post-purchase and ensuring buying confidence, stocking shelves.
- Threats: occasionally missing time during peak business due to breaks, sometimes too much time spent per customer post-sale, too much time in interdepartmental chat.
How to use a SWOT analysis
A SWOT analysis should be used to help an entity gain insight into its current and future position in the marketplace or against a stated goal.
Organizations or individuals using this analysis can see competitive advantages, positive prospects as well as existing and potential problems. With that information, they can develop business plans or personal or organizational goals to capitalize on positives and address deficiencies.
Once SWOT factors are identified, decision-makers can assess if an initiative, project or product is worth pursuing and what is needed to make it successful. As such, the analysis aims to help an organization match its resources to the competitive environment.
A SWOT analysis can be used to assess and consider a range of goals and action plans, such as the following:
- the creation and development of business products or services;
- making hiring, promotion or other human resources decisions;
- evaluating and improving customer service opportunities and performance;
- setting business strategies to improve competitiveness or improve business performance; and
- making investments in technologies, geographical locations or markets.
SWOT analysis is similar to PEST analysis, which stands for political, economic, social and technological. PEST analysis lets organizations analyze external factors that affect its operations and competitiveness.
SWOT analysis pros and cons
Among the advantages of using a SWOT approach are the following:
- The analysis creates a visual representation of the factors that are most likely to impact whether the business, project, initiative or individual can successfully achieve an objective.
- By involving experienced cross-discipline team members, a SWOT analysis can encourage many different perspectives and approaches.
- Such diversity can allow a SWOT analysis to flesh out each element and expose creative ideas and overlooked problems that might otherwise go unnoticed.
Although a SWOT snapshot is important for understanding the many dynamics that affect success, the analysis does have limits, such as the following:
- The analysis may not include all relevant factors because some strengths, weaknesses, opportunities and threats can easily be overlooked or misunderstood.
- The input for each element can often be empirical or subjective and give a skewed perspective.
- Because it only captures factors at a particular point in time and doesn't allow for how those factors could change over time, the insight SWOT offers can have a limited shelf life.
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