SWOT analysis is a tool that considers a firm’s strengths and weaknesses along with the opportunities and threats that exist in the firm’s environment.
Executives using SWOT analysis compare these internal and external factors to generate ideas about how their firm might become more successful. In general, it is wise to focus on ideas that allow a firm to leverage its strengths, steer clear of or resolve its weaknesses, capitalize on opportunities, and protect itself against threats.
For example, untapped overseas markets have presented potentially lucrative opportunities to Subway and other restaurant chains such as McDonald’s and Kentucky Fried Chicken. Meanwhile, Subway’s strengths include a well-established brand name and a simple business format that can easily be adapted to other cultures. In considering the opportunities offered by overseas markets and Subway’s strengths, it is not surprising that entering and expanding in different countries has been a key element of Subway’s strategy in recent years. Indeed, Subway currently has operations in nearly 100 nations.
SWOT analysis is helpful to executives, and it is used within most organizations. Important cautions need to be offered about SWOT analysis, however. First, in laying out each of the four elements of SWOT, internal and external factors should not be confused with each other. It is important not to list strengths as opportunities, for example, if executives are to succeed at matching internal and external concerns during the idea generation process. Second, opportunities should not be confused with strategic moves designed to capitalize on these opportunities.
In the case of Subway, it would be a mistake to list “entering new countries” as an opportunity. Instead, untapped markets are the opportunity presented to Subway, and entering those markets is a way for Subway to exploit the opportunity. Finally, and perhaps most important, the results of SWOT analysis should not be overemphasized. SWOT analysis is a relatively simple tool for understanding a firm’s situation.
As a result, SWOT is best viewed as a brainstorming technique for generating creative ideas, not as a rigorous method for selecting strategies. Thus the ideas produced by SWOT analysis offer a starting point for executives’ efforts to craft strategies for their organization, not an ending point.
In addition to organizations, individuals can benefit from applying SWOT analysis to their personal situation. A college student who is approaching graduation, for example, could lay out her main strengths and weaknesses and the opportunities and threats presented by the environment.
Suppose, for instance, that this person enjoys and is good at helping others (a strength) but also has a rather short attention span (a weakness). Meanwhile, opportunities to work at a rehabilitation center or to pursue an advanced degree are available. Our hypothetical student might be wise to pursue a job at the rehabilitation center (where her strength at helping others would be a powerful asset) rather than entering graduate school (where a lot of reading is required and her short attention span could undermine her studies).
Internal factors include your resources and experiences.
Human resources - staff, volunteers, board members, target population
Physical resources - your location, building, equipment
Financial - grants, funding agencies, other sources of income
Activities and processes - programs you run, systems you employ
Past experiences - building blocks for learning and success, your reputation in the community
Don't be too modest when listing your strengths. If you're having difficulty naming them, start by simply listing your characteristics (e.g., we're small, we're connected to the neighborhood). Some of these will probably be strengths.
Although the strengths and weakness of your organization are your internal qualities, don't overlook the perspective of people outside your group. Identify strengths and weaknesses from both your own point of view and that of others, including those you serve or deal with.
Forces and facts that your group does not control include:
Future trends in your field or the culture
The economy - local, national, or international
Funding sources - foundations, donors, legislatures
Demographics - changes in the age, race, gender, culture of those you serve or in your area
The physical environment (Is your building in a growing part of town? Is the bus company cutting routes?)
Legislation (Do new federal requirements make your job harder...or easier?)
Local, national or international events
A realistic recognition of the weaknesses and threats that exist for your effort is the first step to countering them with a robust set of strategies that build upon strengths and opportunities. A SWOT analysis identifies your strengths, weaknesses, opportunities and threats to assist you in making strategic plans and decisions.