The SWOT analysis is a strategic tool that is used to assess the competitive environment of a company and place the company at an advantage within that environment. Each company has unique elements such as staff skills, established supply chains, experienced management etc. The SWOT analysis helps to ensure that resources are utilized effectively and that effort (and capital) is not spent pursuing unachievable objectives, for example competing against a much larger player when there is little chance of viable success. This tool allows a strategy to be developed to place the company at the best possible position within the market and defend that position once established.
The SWOT analysis considers:
A careful consideration of each element will produce the strategy. Strategies can be ongoing or annually readjusted in fast paced, moving industries such as technology e.g. telecommunications.
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Strengths of the company performing the analysis need to be considered, documented and developed further if needed.
This is fundamentally what the company is not good at. Weaknesses need to be avoided or reduced. A way to overcome a weakness may be to outsource or form a gain-sharing agreement with a company that has particular strengths in an area where the company performing the SWOT analysis fails. Some weaknesses cannot be avoided. The rest of the strategy needs to be developed so that these weaknesses are not exposed to other companies or that any exposure is limited and can take little negative affect.
New developments should always be looked at. What are emerging niches that the company can provide with little reshaping to its current structure? Easy revenue can be made here and the process can be little more than a discussion at board level. Look at expending into similar markets or creating products or services that further establish (and hopefully dominate) the current industry.
The threats are either new entrants to the industry (can be a new company or an established company in another niche expanding their range) or substitutes. Substitute products are as much of a threat as new companies. Fashions and tastes of each generation can determine the substitutes that are likely to be most threatening and a company can create a strategy to diminish the threats as much as possible, for example competing against the threat or emphasizing current USPs (unique selling points) so that the threat is seen as inferior.
Strengths and weaknesses are internal elements. The management of a company can control these directly in the majority of cases. There are some aspects e.g. staff, which management cannot control (you can produce standard operating procedures and offer training, but in practice controlling staff is not ‘direct’ –they are human and will upskill, deskill, have ‘off days’ etc. Weaknesses of the company stem from internal operations and can be shaped by management.
External elements of the SWOT analysis are shaped by the market/industry. These cannot be directly changes by management. Instead positioning the company in a manner that makes most of its USPs is essential to make the most out of external factors. The external elements are opportunities and threats. They are external because both arise from what other companies, markets and consumers are doing.
Read more about strategy here.