SWOT Analysis

SWOT analysis provides a simple framework for analysing the market position of an organisation and can be applied in a range of planning and strategic contexts, including strategy development, marketing planning, and the evaluation of strategic options for a whole business or an individual department. It may be used in conjunction with tools such as PEST Analysis (or one of its variants) or five forces analysis which can provide a deeper understanding of the external environment and help to assess potential risks and threats to the profitability and survival of the organisation.

SWOT analysis emerged in the 1960s from research at Stanford Research Institute into the failure of current corporate planning methods. The technique evolved, became widely used during the 1980s and remains popular, although critics have pointed out weaknesses in its application, such as a lack of analytical depth. SWOT analysis can be particularly useful for SMEs and start-up companies in preparing their business plans. The technique is also used by individuals to assess personal career prospects, but this checklist focuses on its use by organisations and departments and does not cover the individual aspect.

SWOT analysis is a diagnostic tool for strategic planning which involves the identification and evaluation of Strengths, Weaknesses, Opportunities and Threats. This framework facilitates the assessment of internal capabilities and resources which are under the control of the organisation and of external factors which are beyond organisational control. SWOT analysis involves the collection of information, rather than the framing of recommendations, which can only be considered once the facts have been confirmed. The analysis may be carried out by a single manager, but usually involves the participation of a wider group, so that insights can be gained from across the organisation or department.

The first step in any management project is to be clear about what you are doing and why. The purpose of conducting a SWOT analysis may be wide or narrow, general or specific – anything from getting staff to think about and understand the business better, to re-thinking a strategy or the overall direction of the business. SWOT analysis usually focuses on the present situation. In the context of scenario planning, however, it could be used to look into the future, or it could be combined with Appreciative Inquiry methods, which focus on factors in current and past best practice to collectively identify priorities for change and appropriate solutions.

This is important if the final recommendations are to result from consultation and discussion, not just personal views, however expert. If conducting an organisation-wide analysis, it is important to include people from different departments so as to ensure that information is gathered from across the business.

  • Pick a mix of specialist and “ideas” people with the ability and enthusiasm to contribute.
  • Consider including a mix of staff from different grades, if appropriate.
  • Think about the numbers. Six to ten people may be enough, especially in a SWOT workshop. Up to 25 or 30 can be useful if one of the aims is to help staff see the need for change, but it will be necessary to split into smaller groups for the more active parts of the process.

Background preparation is vital if the subsequent analysis is to be accurate and should be divided among the SWOT participants. Preparation can be carried out in two stages: exploratory, followed by data collection; and detailed, followed by a focused analysis.

  • Gathering information on Strengths and Weaknesses should focus on the internal factors of skills, resources and assets, or the lack of them.
  • Gathering information on Opportunities and Threats should focus on the external factors over which you have little or no control, such as social, market or economic trends.

 

However, you will need to be aware of and take account of the inter-relationships between internal factors (strengths and weaknesses) and external factors (opportunities and threats). Some recent adaptations of SWOT aim to avoid rigid classifications, acknowledging that firms shape and interact with their environment. The behaviour of suppliers, for example, is not entirely within a firm’s control but neither are these completely outside its realm of influence.

If the compilation and recording of SWOT lists takes place in meetings, make sure that you take full advantage of workshop sessions. Foster an atmosphere conducive to the free flow of information and encourage participants to say what they feel is appropriate, without fearing or attributing blame. The leader or facilitator has a key role and should allow time for thought, but not so much as to let the discussion stagnate.

One approach is to split the workshop participants into teams to cover each of the strengths, weaknesses, threats and opportunities. Provide enough space and materials to capture not only the discussions, but also the specific items under each component of SWOT. This can be achieved using a combination of post-it notes, flipcharts and other workshop resources. Allow the teams to work diligently in concentrated bursts on each component. Half an hour is often enough to spend on Strengths, for example, before moving on. It is important to be specific, evaluative and analytical at the stage of compiling and recording the SWOT lists – mere description is not enough. Finally, it may be useful to ask each team to prioritise and present their SWOT component to others in the room, and to share or even move SWOT components as appropriate (easily done if using post-it notes or even a spreadsheet).

Alternatively, the leader may wish to reorder the elements of the SWOT mnemonic to put more or less challenging tasks first. Depending on the context and the people involved, the team may find strengths easier or harder to identify than weaknesses. For example, a strategic planning team may fixate on the positives rather than addressing challenges, while a group of participants who are very conscious of weaknesses may find it difficult to recognise strengths.

Questions such as the following can be helpful:

  • What do we do better than anyone else?
  • What advantages do we have?
  • What unique resources do we have?
  • What do others see as our strong points?

 

Strengths may relate to the organisation and to its people and could include reasons for past successes. Try to be as specific as possible when collecting facts. For example, it is not sufficient to say that the level of profit is good. If the profit margin is 10%, but the industry average is 30%, for example, there is clearly room for improvement.

Other organisational strengths may include:

  • customer loyalty, 90% repeat customers for example
  • capital investment and a strong balance sheet, with a higher profit margin than other organisations in the sector
  • effective cash management resulting in, say, 25 days accounts receivable as opposed to a norm of 36 days in the same industry
  • efficient procedures and systems showing, for example, a 3% reduction in expenses over the last five years
  • well-developed corporate social responsibility policies
  • patents, technological knowledge or access to raw materials that can’t be easily replicated by other firms.

 

People strengths could include:

  • friendly, cooperative and supportive staff
  • skills and knowledge possessed by staff
  • a staff development and training scheme
  • appropriate levels of involvement through delegation and trust.

This session should not be seen as an opportunity to criticise the organisation but as an honest appraisal of the way things are. Be careful not to take weaknesses at face value, but to identify the underlying causes.

Key questions include:

  • What is hindering progress?
  • What needs improving?
  • Where are complaints coming from?
  • Are there any weak links in the chain?

 

The list might include:

  • failure to meet customer needs
  • declining sales of the main or most popular products or services
  • poor competitiveness, as demonstrated by figures showing the percentage of market share lost over the last three years and higher price increases as compared with competitors
  • non-compliance with, or ignorance of, appropriate legislation
  • financial or cash-flow problems
  • employees not aware of the organisation’s mission, objectives and policies
  • high levels of staff absence compared to average levels in the sector or rising levels of absence
  • no processes in place for monitoring success or failure.

 

It is not unusual for “people” problems – poor communication, inadequate leadership, lack of motivation, too little delegation, absence of trust – to feature among the major weaknesses.

This step is designed to assess the socio-economic, political, environmental and demographic factors which affect organisational performance. The aim is to identify circumstances which the organisation can exploit and to evaluate their possible benefits to the organisation.

While strengths and weaknesses represent the current situation within the organisation, opportunities and threats could be present now or anticipated in the future. It is important to define the timeframe that you are considering. Otherwise it is possible to waste the exercise by looking speculatively at the distant future or by restricting discussion to the present and therefore missing future opportunities and threats. The appropriate time horizon will vary according to industry characteristics.

Opportunities may arise from:

  • technological developments
  • new markets
  • change of government
  • changes in interest rates
  • demographic trends
  • strengths and weaknesses of competitors.

 

Bear in mind that opportunities may be time-limited and consider how the organisation may make the most of them.

Threats are the opposite of opportunities – all of the factors listed above may, with a shift of emphasis or perception, also have an adverse impact.

Here the questions to ask include:

  • What are our competitors doing?
  • What changes are there in the market for our products?
  • What resource problems do we have?
  • What is the impact of the economy on our bottom line?

 

Threats may include:

  • unemployment levels
  • skills shortages
  • environmental legislation
  • new technologies which will make your products or services obsolete.

 

It is important to look at a worst-case scenario. However, this should not be allowed to foster pessimism; it is rather a question of assessing risks and considering how potential problems may be limited or eliminated. Most external factors are in fact challenges, and whether staff perceive them as opportunities or threats is often a valuable indicator of morale.

Once the lists have been compiled, the process of evaluation, elimination and prioritisation begins. If a large number of factors have been identified, it will be necessary to consider which of these are of major importance and which are negligible, in the context of organisational objectives. This should prompt consideration of which strategies will lead to the best prospects for the organisation. There are different techniques that can be used for this part of the process.

Weihrich (1982) used a simple matrix with columns representing opportunities and threats and rows for strengths and weaknesses. Two sets of factors combine in each of the four cells to offer different strategic options. For example, strategy S-O (or maxi-maxi) considers what the organisation should do to maximise strengths to take advantage of opportunities, while below strategy W-O (mini-maxi) looks at what the organisation might do to minimise the weaknesses standing in the way of opportunities.

Berry (2010) recommends a more complex matrix to cover the entire evaluation stage. Here, there is a box for each letter of the SWOT mnemonic. The position of each individual factor against two axes should show the level of impact it has on the organisation and how easy or difficult it would be for the organisation to address, and these decisions can help to support the prioritisation stage of the process. Arrows can be placed on the factors to show how the group feels that the environment is changing, for example a strength is becoming more useful to an organisation in the current climate or a threat is getting increasingly difficult to combat. Finally, strengths and weaknesses in turn are linked with opportunities and threats, building up a detailed picture of how the factors inter-relate, contributing to or mitigating each other.

Document as much of the process, the discussion, interpretations and conclusions of the SWOT as you can. Although some aspects may require further investigation or research, a clear picture should start to emerge at this stage.

Once the SWOT analysis is complete, you need to address the question of how the strategies identified can be fleshed out and prioritised. Bear in mind that much of the information you have collected will represent symptoms rather than root causes so further consideration of the underlying issues may be needed.

Finally, it is very important to disseminate the results to anyone who may need to see them, most crucially those who are responsible for setting overall strategy. However good or bad the results of the analysis, make sure that they are integrated into subsequent planning and strategy development. Revisit the findings at suitable intervals to check that they are still valid.

Managers should avoid:

  • starting SWOT based upon “what we already know” (typically strengths and opportunities)
  • giving undue weight to opinions which are not based on hard evidence
  • ignoring the ideas of participants at lower levels in the organisational hierarchy
  • succumbing to “paralysis by analysis”
  • allowing the process to become an exercise in blame laying or a vehicle for criticism and recrimination
  • seeing SWOT analysis as an end in itself and failing to integrate the results into subsequent planning.

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