The four parts of a SWOT Analysis are Strengths, Weaknesses, Opportunities and Threats, based on which businesses can build strategies and gain an advantage.
Business planning is like preparing to build a backyard fort. First, you dream up your grand idea, just like picturing the perfect fort. Then, you sketch out your plan, similar to drawing your fort's design. You also list everything you need, from materials to helpers, akin to gathering wood and nails for your fort. Anticipating challenges, you think ahead about potential problems, like weather or competitors. Finally, you start building step by step, sharing your finished product with friends or customers, making your dream a reality.
Your new fort looks strong. But in some spots, it's weak. You consider the opportunity of making it bigger. Yet, you are also worried about imminent threats. You know what your fort needs: a SWOT analysis!
The four parts of a SWOT Analysis
The Four Parts of A SWOT Analysis are
- Strengths
- Weaknesses
- Opportunities
- Threats
Business managers assess these factors during the business strategic planning process to ensure the organization's growth.
What is a SWOT Analysis?
SWOT analysis is a strategic planning tool businesses use to assess how internal and external factors impact their operations. You might be wondering why this tool is called SWOT. The word "SWOT" is an acronym. The letter "S" represents an organization's strengths, while "W" refers to its weaknesses. These are internal factors for the organization. The letters "O" and "T" represent an organization's opportunities and threats. These are external factors, as the organization has no control over them.
The Purpose of Using a SWOT Analysis
Do you know what is that one thing that individuals and businesses both must have? The ability to self-analyze. Studies show that if an individual is not self-aware, he/she cannot make well-informed decisions. Similar is the case with businesses. If a business doesn't know its strengths and weaknesses, it can't make good decisions.
For example, suppose a clothing brand has to decide whether to diversify its products and enter the cosmetic industry without analyzing its strengths and weaknesses. In that case, it won't be able to decide.
On the other hand, if the clothing brand is self-aware and knows it doesn't have enough resources to enter the cosmetic industry, it will decide not to enter the cosmetic industry and save itself from failing.
You might be wondering how businesses become self-aware. Well, they use SWOT analysis to learn about their strengths and weaknesses. Moreover, the SWOT analysis helps businesses in highlighting the opportunities present for them and the threats that they face from the external environment.
Besides helping organizations make informed decisions, SWOT analysis helps organizations plan and develop strategies. For example, a business can identify growth opportunities with the help of a SWOT analysis.
Once the opportunities are highlighted, a business can form strategies and plan how to grab those opportunities to attain growth. Moreover, organizations also use SWOT analysis to highlight the potential threats coming from the external environment.
After highlighting these threats, organizations can plan and form strategies to overcome the identified threats. Planning is essential for organizations since it helps mitigate risks and make informed decisions.
After discussing what SWOT analysis is and the purpose of conducting a SWOT analysis, let's proceed further and discuss all four steps of SWOT analysis in detail.
SWOT Strengths: Unveiling The Inner Capabilities
"Strengths" in a SWOT analysis refers to the internal attributes that provide an organization, individual, or project a competitive advantage in the market.
A competitive advantage is important since it provides an edge to an organization, individual, or project over its market competitors.
Every organization possesses different strengths. Businesses need to identify their strengths since it helps them decide. Organizations that stick to their strengths succeed. Hence, organizations must know their strengths.
The SWOT analysis is a useful tool for organizations to identify their strengths. SWOT analysis lists an organization's strengths by emphasizing the internal factors the organization can influence directly.
The SWOT analysis identifies the aspects that contribute positively to the organization's overall performance. The strengths of an organization could be tangible or intangible.
For example, tangible strengths of an organization would be the financial resources and technological infrastructure, while intangible strengths would be the brand recognition and the culture of the organization.
SWOT Strengths Example
The SWOT analysis of Ralph Lauren identified some of the strengths:
- One of the strengths highlighted by the SWOT analysis is the global presence of the clothing brand. Ralph Lauren's global presence was identified as its strength since the brand operates in different parts of the world, including the US, Europe, Asia, and the Middle East. Operating in different parts of the world increased the brand's customer base and Ralph Lauren's revenue. Hence, the SWOT analysis highlighted the brand's global presence as its strength.
- Besides that, diversification is also referred to as a strength of Ralph Lauren. The SWOT analysis refers to diversification as the strength of Ralph Lauren since diversification decreases the brand's reliance on clothing products. Moreover, due to the diversification, the risk has also been diversified. For example, if Ralph Lauren's clothing line isn't earning huge profits, the accessories line can compensate. This is why diversification is considered a strength of Ralph Lauren.
SWOT Weaknesses: Confronting Limitations And Challenges
Every organization, individual, or project possesses some weaknesses along with strengths. The weaknesses of an organization are the internal factors that hinder the growth of the organization.
Businesses need to identify the weaknesses so that they can be overcome. SWOT analysis highlights the weaknesses of an organization by analyzing the internal factors that stop it from reaching its true potential.
The SWOT analysis then marks areas within the organization that require improvement. The weaknesses identified in the SWOT analysis may be tangible, such as a lack of funds or machinery. On the contrary, they could also be intangible, for example, a lack of skilled labor.
SWOT Weaknesses Example
The SWOT analysis of Honda highlights some of its weaknesses.
- One of the weaknesses highlighted by the SWOT analysis was Honda's over-reliance on the North American Region. The SWOT analysis of Honda proved that a high percentage of Honda's revenue is generated from the North American region. This is considered a weakness of Honda since over-reliance on one region could make the brand suffer in case of political or economic crises in the North American region.
- Other than that, the high price of Honda's products is also considered Honda's weakness because this can cause Honda's customer base to fall and hinder its growth.
SWOT Opportunities: Embracing External Possibilities
Opportunities are the chances that lie in front of an organization to grow. Every organization gets a chance to grow. However, it is essential to identify the opportunities beforehand to grab them.
SWOT analysis helps organizations to identify the opportunities that lie ahead of them. By doing so, it enables organizations to capitalize on the identified opportunities.
Once the opportunities are identified through SWOT analysis, it becomes easy for organizations to formulate a strategy to capitalize on those opportunities.
The purpose of listing the opportunities with the help of SWOT analysis is to steer the organization toward success and growth. Moreover, organizations or even colleges use opportunities to gain a competitive advantage in the market. Opportunities are external factors since they are not created within the organization.
Opportunities can be explored in various ways. Organizations can conduct market research and analyze market trends and consumer tastes. By doing so, they can adapt and meet the changing market demand, which will increase the organization's customer base.
Besides that, the organization can collect feedback from their customers through surveys. These surveys will help the organization to identify its shortcomings and understand consumer preferences.
Furthermore, organizations can conduct competitor analysis to find areas their competitors lack. Organizations can capitalize on their competitor's weaknesses by positioning themselves to exploit the opportunities effectively.
Companies often capitalize on the weaknesses of their competitors. For example, Apple is a huge manufacturer of smartphones. However, its weakness is its limited range of smartphones.
SWOT Opportunities Examples
Samsung, Apple's competitor, capitalized on this weakness and offered a diverse range of smartphones. Samsung discriminated its smartphones based on features and price, while Apple only had iPhones.
This move of Samsung provided it an opportunity to grow and attract customers with different buying power.
Other than that, Pepsi also capitalized on the weakness of Coca-Cola. As Pepsi recognized consumers' growing concern regarding their health, PepsiCo capitalized on the perception that Coca-Cola contains high sugar and isn't good for health.
PepsiCo acquired Tropicana, a company known for its fruit juices. By doing so, PepsiCo introduced juices and attracted health-conscious consumers.
SWOT Threats: Mitigating External Risks and Challenges
Threats in a SWOT analysis refer to the external factors that risk the success of an organization or a project. Organizations must identify the threats present to form a strategy to mitigate those threats timely.
One of the threats that organizations face is a threat from the intense competition in the industry. Competition threatens organizations because it divides the market share and causes profits to fall.
Besides that, many companies feel threatened by economic downturns because they cause disposable income to fall, which, as a result, causes the demand in the market to fall.
Furthermore, political instability is also considered a threat since it creates uncertainty, which causes the demand for products to fall.
Identification of threats is possible by conducting a comprehensive risk assessment of the external environment. Moreover, organizations can identify threats by monitoring the external environment, such as market trends, political landscape, and economic landscape.
An organization can also conduct market research to monitor the changing trends. Once the threats are identified, organizations can form effective strategies to counter these threats.
For example, suppose an organization anticipates the threat of change in consumers' tastes.
In that case, it can diversify its products and invest in products that align with consumers' tastes. Moreover, suppose a brand can feel the threat of a war between two countries.
In that case, it can wrap up its operations from those countries and move it to another country.
Every organization faces threats from the external environment. However, the damage can be avoided if timely measures are taken.
SWOT Threats Examples
For example, in 2017, WannaCry ransomware emerged that was used to target computers with Microsoft Windows. It was a crypto worm whose purpose was to demand ransom by hacking computers.
Microsoft felt threatened by the crypto worm since the demand for Microsoft fell significantly after the emergence of WannaCry ransomware. Microsoft identified the threat and released security patches that protected computers from WannaCry ransomware.
Besides that, Walmart also identified the threat from e-commerce. It formed a strategy to acquire online platforms to establish an online store so that the rising trend of online shopping doesn't impact Walmart's demand.
SWOT Analysis Goal: Business Recommendations
Integrating the findings of SWOT analysis is very important since it provides a holistic view of the external and internal factors that affect an organization's operations.
Moreover, the SWOT analysis findings provide an opportunity for the organization to assess its strengths and weaknesses. Furthermore, it also allows the organization to analyze the opportunities and threats ahead of it.
The SWOT analysis findings help an organization plan and formulate strategies to retain its strengths, overcome its weaknesses, capitalize on opportunities, and mitigate the risks associated with threats.
Organizations have to constantly evaluate the market trends, market environment, and their personal performance. Moreover, they have to adapt according to the changing situations. Organizations can monitor the market trends and environment by conducting market research.
Besides that, it can use customer feedback to analyze the current market trends. On the other hand, organizations can evaluate their performance by setting key performance indicators (KPIs). Furthermore, they can assess their strengths and shortcomings by conducting regular SWOT analysis.
The Four Parts of a SWOT Analysis need Constant Updating
SWOT analysis is a tool organizations use to assess the external and internal factors that impact the operations of an organization or a project. A SWOT analysis analyses the strengths, weaknesses, opportunities, and threats present for an organization or a project.
After analyzing the strengths, weaknesses, threats, and opportunities, effective plans and strategies can be formulated to retain the strengths, overcome the weaknesses, explore the opportunities, and mitigate the effect of threats.
SWOT analysis allows organizations to gain a competitive advantage by working on their strengths and weaknesses. Organizations should conduct SWOT analysis regularly to become aware of the internal and external factors that impact them.
Moreover, conducting a SWOT analysis can help organizations capitalize on the opportunities to grow further. Besides that, SWOT analysis also helps organizations formulate strategies to overcome their weaknesses.
