A SWOT analysis is an incredibly simple, yet powerful tool to help you develop your business strategy, whether you’re building a startup or guiding an existing company.
What Is swot analysis
SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning.
This technique, which operates by 'peeling back layers of the company' is designed for use in the preliminary stages of decision-making processes and can be used as a tool for evaluation of the strategic position of organizations of many kinds (for-profit enterprises, local and national governments, NGOs, etc.). It is intended to specify the objectives of the business venture or project and identify the internal and external factors that are favorable and unfavorable to achieving those objectives. Users of a SWOT analysis often ask and answer questions to generate meaningful information for each category to make the tool useful and identify their competitive advantage. SWOT has been described as the tried-and-true tool of strategic analysis.
Why do a SWOT Analysis?
When you take the time to do a SWOT analysis, you’ll be armed with a solid strategy for prioritizing the work that you need to do to grow your business.
You may think that you already know everything that you need to do to succeed, but a SWOT analysis will force you to look at your business in new ways and from new directions. You’ll look at your strengths and weaknesses, and how you can leverage those to take advantage of the opportunities and threats that exist in your market.
History of the SWOT Analysis
The origins of the SWOT analysis technique is credited by Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s using data from many top companies. The goal was to identify why corporate planning failed. The resulting research identified many key areas, and the tool used to explore each of the critical areas was called SOFT analysis. Humphrey and the original research team used the categories “What is good in the present is Satisfactory, good in the future is an Opportunity; bad in the present is a Fault and bad in the future is a Threat.”
A Visual Overview
Analysts present a SWOT analysis as a square segmented into four quadrants, each dedicated to an element of SWOT. This visual arrangement provides a quick overview of the company’s position. Although all the points under a particular heading may not be of equal importance, they all should represent key insights into the balance of opportunities and threats, advantages and disadvantages, and so forth.
1.Strengths
Strengths describe what an organization excels at and what separates it from the competition: a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results. It must then decide how to use those results to attract new investors.
2.Weaknesses
Weaknesses stop an organization from performing at its optimum level. They are areas where the business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital.
3.Opportunities
Opportunities refer to favorable external factors that could give an organization a competitive advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and market share.
4.Threats
Threats refer to factors that have the potential to harm an organization. For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats include things like rising costs for materials, increasing competition, tight labor supply. and so on.
How to Use a SWOT Analysis
Internal
What occurs within the company serves as a great source of information for the strengths and weaknesses categories of the SWOT analysis. Examples of internal factors include financial and human resources, tangible and intangible (brand name) assets, and operational efficiencies.
Potential questions to list internal factors are:
•(Strength) What are we doing well?
•(Strength) What is our strongest asset?
•(Weakness) What are our detractors?
•(Weakness) What are our lowest-performing product lines?
External
What happens outside of the company is equally as important to the success of a company as internal factors. External influences, such as monetary policies, market changes, and access to suppliers, are categories to pull from to create a list of opportunities and weaknesses.
Example of a SWOT Analysis
For example, a SWOT Analysis for McDonald’s stock can be constructed as follows:
Strengths:
1.McDonald’s serves customers in more countries than any other competitor in the fast-food industry
2.Significant economies of scale
3.Wide audience reach
4.McDonald’s exercises market power over suppliers and competitors
5.The most recognized brand in the fast-food industry
6.Competitive price
Weaknesses:
1.High employee turnover
2.Negative publicity (The perception of McDonald’s as an unhealthy food choice)
3.Not much variation in seasonal products
4.Quality inconsistency due to franchised operations
5.Focus on fast food and not healthier options for consumers
Opportunities:
1.Being responsive to social changes to healthier options
2.Business expansion to new parts of the world
3.Allergen-free options and gluten-free food
4.Corporate social responsibility
Threats:
1.More health-conscious customers
2.Threat from competitors in different countries
3.Threat of an economic downturn
4.Social change to a more balanced meal
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