A SWOT analysis is a fundamental strategic business planning and analysis technique used to identify internal capabilities and external opportunities, threats, and constraints. The “SWOT” stands for strengths, weaknesses, opportunities, and threats. This method–developed in 1960 by Charles Mulford Robinson–is an easily-applied framework that extends the more traditional input-output analysis approach to cover environmental sustainability issues.
The business is “sustainable” if the organization is able to increase income over time, reduce its environmental impact on the Earth, and provide a high level of employee satisfaction. A sustainable business ensures that “somebody” in the future will be around to “keep doing something”. For a majority of organizations, this means they will have to be “sustainable over time.” Most companies inevitably fail at this–often because they misjudge their abilities to respond with speed and agility.
The SWOT analysis is often used by management consultants , who will then use the analysis as a basis for strategic business planning. A SWOT analysis also forms part of a balanced scorecard approach to strategic business planning.
Strengths are internal factors that can be exploited by an organization, to help it achieve its objectives. Strengths are usually factors that make a company different from its competitors, allowing it to succeed in the competitive environments it faces. They are essentially sources of an organization’s “competitive advantage. Strengths can include:
While some strengths appear to be ‘internal’, there is a strategic dimension to them, as they are only relevant if the business is aware of them and can use them in its marketing strategy. For example, if a business has a loyal customer base, this should be actively cultivated. Also the level of knowledge that customer service staff have about the products or services being provided can be considered as an internal strength. A knowledgeable staff member can assist customers with queries and problems that they may have using their product or service.
Weaknesses are internal factors that limit a company’s ability to achieve its objectives, and also the organization’s ability to respond effectively to environmental changes. Weaknesses can include:
Opportunities are external conditions that can be exploited by an organization, helping it achieve its objectives. For example, a fast-growing market is an opportunity for organizations with the right products or services. Opportunities can include:
Organizations must assess threats and opportunities in their external environment carefully when conducting a SWOT analysis. In the absence of accurate information about key opportunities or threats, an organization runs the risk of making damaging missteps, resulting in missed opportunities or unnecessary strategic re-direction for addressing threats. Sources of threats and opportunities include:
Similarly, an organization must assess its own strengths and weaknesses accurately, which may require a SWOT analysis to be conducted by staff members who work within the organization; they can provide a more realistic picture of the internal status of the organization than external analysts.
Once an environmental scan has been conducted and SWOT analysis completed, companies generally face a number of strategic decisions. These include deciding how to prioritize opportunities for exploitation, how to allocate resources to meet objectives as efficiently as possible and how best to focus marketing efforts. The SWOT analysis is also useful in identifying any potential barriers to success (threats) which must be addressed for a business strategy or project plan to be realized as anticipated.
For many organizations, it is essential to consider environmental constraints as well as opportunities and threats. Environmental constraints are factors external to the organization that influence its ability to achieve its objectives, and/or its future viability. For example, the rising cost of raw materials may constrain an organization’s profitability unless they can find a way of reducing costs by using alternative materials or sourcing them from more cost-effective suppliers. These factors must be considered in any SWOT analysis.
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