SWOT Analysis - Definition, Examples & Advantages

Table of Contents

What is SWOT Analysis?

SWOT analysis also (SWOT Matrix) is a strategic tool that is comprised of organizational strengths, weaknesses, opportunities, and threats. The purpose of the swot analysis is not only to understand the internal strengths and weaknesses of a company but also external opportunities and threats that the business could take advantage of and it should avoid.

When you start the journey of swot analysis whether it’s finding out the company’s internal strengths, plans or policies; the aim should be on presenting a strategy that how the business or the company should use strengths and opportunities to cope with weaknesses and threats.

There should be consistency in the swot analysis because the environment and circumstances change. You’ll need to know whether you’re moving in the right direction or not. There’s no better way to get the right information than swot analysis.

Albert Humphrey conducted a study at Stanford University in the 1960s that why the planning of companies and businesses fail to deliver the desired results. Then he came up with the methodology of swot analysis. It has become the most effective tool for business owners and entrepreneurs to make the right decision.

When to Perform SWOT Analysis

You should use swot analysis before taking any action; whether it’s looking for new options, rethinking of policies and plans, and finding out new opportunities to change the company’s plans. Sometimes, it’s just good to perform a swot analysis of your company to know the current situation of your business. The analysis would help you to find out your key areas and how you can improve the performance of your business by doing certain adjustments.

While performing the swot analysis, you shouldn’t take it lightly or use the informal attitude towards it. By using the formal approach of swot analysis would help you to see the complete image of your business. Then you would know what actions you should avoid threats and capitalize on your company’s strengths.

If you’re a business owner and performing the swot analysis, then it’s better that you should add some team members in the process because it would help you to see things from different perspectives. The more views of various people from different backgrounds would make your final report better.

How to Do a SWOT Analysis

As we know that swot analysis is comprised of four parts, strengths, weaknesses, opportunities and threats. However, these positive and negative points would assist you to recognize the important factors.

Now, the question is how to perform swot analysis. You should start drawing a Quadrant comprising of two rows and two columns, four boxes in total. Strengths and weaknesses are opposite with one another, so as the opportunities and threats.

You should use the strategy of Billy Bauer of pairing up four factors into two major factors i.e. internal factors and external factors.

Internal Factors

Internal factors comprise of strengths and weaknesses. They are such factors, experiences, and resources that are a company’s disposal and are available. Some of them are as follows;

Physical Resources like the company’s building, location, equipment, and other facilities.
Human Resources like the company’s workforce, labor, employees, targeted audience, and volunteers.
Financial Resources like the company’s income, balance, and investment bonds and securities.
Natural Resources like business trademark, patent and intellectual copyrights
Progressive Resources like the company’s departmental hierarchy, employee programs, and software.

Strengths

Strengths are the internal positive points of the company that are in its complete control like investments, skilled labor, equipment, and machinery, building, etc. Before performing a swot analysis, you should ask these questions;

What are the items in the asset list of your company?
Divide the asset list into two parts; strong and weak assets. What are the key strong assets of your business?
What are the key factors that make you better than your competitors?
Are your customers loyal to your company’s brand?
What makes your brand unique?
Does your business have a skilled workforce?
What the good things that people talk about your brand?
Does your company have experience in the company mission?
What is the competitive edge you have over your company’s rivals?

Weaknesses

Weaknesses are also the internal negative points of the company that are in its complete control. But they don’t help the company to move forward. In other words, weaknesses are the hindrance in company’s path towards progress. If the brand doesn’t control over them, then the competitors would use them to their advantage. Here are some of the questions that you should ask;

What are the key areas of your business that require improvements?
What are the points that your brand should avoid?
What are the factors that your competitors could take advantage of?
Does your company lack knowledge?
Does the workforce of your company have the required skill?
Does your business have sufficed capital investment to initiate new projects?
Do the customers of your company have a low base?
Is your company making less profit?
How far behind are you from your competitors?

External Factors

External factors comprise of opportunities and threats. Such factors aren’t in the control of the company, but they can have a direct or indirect impact on the company. Some of them are as follows;

Local Market Trends like new technological products or shift in the customers’ needs.
Country’s Economy like local economic regulations, international trends, and policies.
Foreign and local funding
Demographic like change in people’s job, interest, behavior, education level, etc
Company’s relationship with suppliers and investors
Social, political, and natural environment

Opportunities

Opportunities are the external positive factors that are out of control of your company. If the management of your business plays well and takes advantage of such factors, then they will be profitable for the company. They could be in the form of socio-cultural, economic, legal, and environmental or market trend. Here are some of the questions that you should ask while considering opportunities;

What would be the challenges you have to face if you take the risk?
What are the trends that are ongoing in the market?
Does it have a positive impact if you follow those trends?
Does your company have the option of taking advantage of the local market?
What product or service customers are expecting from the market and how can you establish the link?
Do your competitors fail to satisfy the needs and requirements of customers?
How are you planning to satisfy the unhappy customers of your competitors?
Does your brand take advantage of natural weather and has a competitive edge over competitors?
Does the brand name of your business help you in terms of finances?

Threats

Threats are the external negative factors that are out of control of your business. If your company doesn’t take any precautionary measures, then they would hurt your company. Here are some of the following questions that you should ask;

All those negative factors in the market that could hurt your company?
What are the growing trends in the market that would possibly be your competitors in the future?
What are the difficulties you’re facing in the market?
Does any action of your business could result in the form of a potential lawsuit in the future?
Are the employees of your company satisfies with the current wages?
Is the taste of your customers changing?
Do govt policies affect your company?
What are the potential natural disasters that could hurt your business?
Would the political environment of the country affect your brand?

Advantages of SWOT Analysis

Of course, there are several advantages of SWOT analysis but the key advantage is that it is a free yet effective strategic tool. Those people who understand your business like management, employees and team members can easily conduct a swot analysis for your business. You can also hire an external consultant. But if you perform swot analysis with your team members, then it’ll be time efficient and cost-effective.

Another point to mention here is that the swot analysis focuses on the important factors that can affect the performance of your business, key advantages are given below:

It provides information that is critical for business success
Focusses on strengths
Find out and address the weaknesses
Capitalize the opportunities
Try to overcome the threats to the organization
By doing swot analysis, one can identify the core competencies
It is a helpful process for setting objectives for the organization strategic process

Limitations of SWOT Analysis

After conducting SWOT analysis, do not think that the game is over. For instance, the extracted information might hopeful in the decision-making process in a certain situation. But it won’t be applicable in the other circumstances; here are few internal and external limitations of swot analysis:

Management is unable to control prices
Regulations and legislations
Import restrictions
Changing technological trends
Human psychology and behavior
Insufficient R&D facilities
Unavailability of skilled labor

An Example of SWOT Analysis

Hotel and restaurants are a very successful business worldwide. Now, here’s an exemplary swot analysis of a restaurant business that would give you a clear idea that how you should perform swot for your business.

Strengths	Clean Atmosphere. A neat and clean atmosphere of the hotel would attract and retain customers. Economical. Low prices help you to target middle-class customers. Quality service. service is one of the most important features in the hotel industry, it comprises of many things like; experienced and well-mannered staff, clean table and dishes and etc. Variety on the menu. More items on the menu help your customers to choose easily, instead of offering only two or three items. Upcoming brand. A new brand has its charm and people usually prefer to check out new places.
Weaknesses	New brand. new brands also take a lot and time and consistency to establish their reputation. Limited investment. maintaining a reputation and providing quality cost a lot in the beginning, especially when the earning is low. Not Unique. you’re offering the same product that competitors are offering. Far off location. the building of your hotel is outside the market.
Opportunities	New brand. new brands also take a lot and time and consistency to establish their reputation. Limited investment. maintaining a reputation and providing quality cost a lot in the beginning, especially when the earning is low. Not Unique. you’re offering the same product what competitors are offering. Far off location. the building of your hotel is outside the market.
Threats	Famous brands. Well-known and famous brands are performing well in the city, it would be difficult to attract existing customers towards our restaurant. Increasing business cost. The running cost of day to day expenses is increasing, income, on the other hand, is lower.

What is Next?

After completing your swot analysis; the final step you should do is to look at the strengths and opportunities, then ask yourself that would they be helpful to combat weaknesses and threats? If the strengths and opportunities are strong and they would assist your business to minimize threats and weaknesses, then you should take the risk