SWOT Analysis

Definition of SWOT Analysis

SWOT analysis is a method for identifying organization’s strengths, weaknesses, opportunities, and threats. SWOT analysis evaluates what an organization can or cannot do in terms of both internal as well as external factors. This analysis uses environmental data and forms an evaluation on the position of a company. Conducting a SWOT analysis determines the factors that will assist the firm in achieving its objectives. SWOT also identifies the factors that must be minimised or overcome to attain the desired result.

After gaining an insight into the meaning of SWOT analysis, let’s have a look at the elements of SWOT analysis.

Elements of SWOT Analysis

 The following are the elements of the SWOT analysis:

Strengths

Strengths are factors which the company holds expertise in and contribute to the continued success of the organization. These are the basis for the continued success of the organization and will assist in gaining the organization’s mission. These factors could include strong capabilities of the organizations in spheres such as process capabilities, brand loyalty, customer goodwill, human competencies, financial resources, no debt, broad product line and many others.

SWOT Analysis

Weaknesses

Weaknesses are factors that prevent an organization from meeting its mission and achieving full potential.  These weaknesses hamper the organizational success and growth. These factors do not meet the required standards of the organization. Weaknesses could include factors such as insufficient research and development facilities, narrow product range, poor decision-making and depreciating machinery.

Opportunities

The environment within which our organization operates offers opportunities. An organization can identify such opportunities and enjoy benefit arising from them by planning and executing required strategies. Recognizing and grasping these strategies well in time will help the organization in gaining competitive advantage. Opportunities may arise from factors such as government/industry, technology, and competition.

Threats

Threats are factors existing in the external environment that jeopardize the profitability and reliability of the organization. Such threats are uncontrollable and prove to be a risk to the stability and survival of the organizations. Threats could include factors such as ever-changing technology, unrest among employees, price wars, reducing industry profits and increasing competition.

The factors included lead to a number of benefits and limitations in the SWOT analysis.

Benefits of SWOT Analysis

A SWOT analysis involves negligible cost and anyone having an understanding of the business will be able to prepare the analysis. SWOT analysis addresses complex situations and finds means towards improvement. SWOT analysis also holds a number of more advantages.

The following are the benefits of the SWOT analysis:

  • Capitalise on opportunities
  • Address weaknesses
  • Understand your business better
  • Deter threats
  • Develop business goals and strategies for achieving them
  • Take advantage of your strengths

Limitations of SWOT Analysis

The SWOT analysis is only a single stage of the business planning process. Complex issues will require more in-depth research and a thorough analysis before the decision-making process. Swot analysis holds limited coverage of the issues faced by the organization. A number of more limitations are associated with this form of analysis.

The following are the limitations of the SWOT analysis:

  • Doesn’t provide solutions or offer alternative decisions
  • Doesn’t prioritize issues
  • Can produce a lot of information, but not all of it is useful
  • Can generate too many ideas but not help you choose which one is the best

After gaining a deep insight into the SWOT analysis, have a look at the example to clarify the concept further.

Example of SWOT Analysis

In the year 2015, a SWOT analysis was prepared for The Coca-Cola Company. Strengths such as the brand’s name and vast distribution network and opportunities like emerging markets were noted. Weaknesses and threats such as growing taste for ‘healthy’ beverages, foreign currency fluctuations and subsequent competition were analyzed. Coca-Cola then based its future activities on this SWOT analysis and ramped up its advertising, promotional activities and marketing. The company also branched out into other beverage categories. Coca-Cola realized benefits within a year as its earning per share rose from $.33 to $.35. The stocks of the company increased from $39 to $46. The SWOT analysis led the company towards improvement thereby heading towards wealth maximization.

Conclusion

A SWOT analysis provides a bird’s-eye view of a company’s position. It also suggests on the feasibility of a concept or strategy planned by the organization. This tool gains popularity due to its flexibility in the process of evaluating a number of ideas and strategies. However, the SWOT analysis is never the complete solution and only leads the path to further analysis and discussions.

References:


Last updated on : October 17th, 2017
What’s your view on this? Share it in comments below.

Leave a Reply

How to Choose Right Source of Finance …
  • Total Quality Management
    Total Quality Management
  • Shareholder’s Wealth Maximization Vs. Stakeholder Welfare as a Corporate Objective
    Shareholder’s Wealth Maximization Vs. Stakeholder Welfare
  • How Macro Environment affects Financial Management Decision
    How Macro Environment affects Financial Management Decision?
  • Financial Modelling
    Financial Modeling
  • Subscribe to Blog via Email

    Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 122 other subscribers

    Recent Posts

    Find us on Facebook


    Related pages


    how do you calculate the internal rate of returnpurpose of profitability ratiosexamples of indirect costdifference between lessor and lesseeacid test ratio formulalimitations of capm modelcash accounting versus accrual accountingwhat is the profitability indexwhat is the formula for waccunderstanding waccinventoriable costs examplesdouble entry bookkeeping explainedgoodwill balance sheet definitioncalculate payback period uneven cash flowshypothecation agreement definitionaccounting roacapital lease calculationdebt to assets ratio analysisuses of waccadvantages of double entry bookkeeping systemcapital one overdraft limitwealth maximisationcapitalized interest gaapwhat is the formula for wacccalculate the payback period for each projectaccounting for research and development gaapnet asset turnover definitionmacroenvironmental factorstotal debts to total assets ratiogross profit margin rationventure capital vs bank loanwhat is the meaning of factoringjit analysis in inventory managementtypes of intangible assetsdegree of financial leverage formulaliquid asset meaningoperating cycle accounting formulanet profit margin rationhedging definition financeadvantages of bankers acceptancedifferentiate between accrual basis and cash basis accountingrevaluation surplus in balance sheetrevaluation methodwacc calculation examplenonconstant growth stock valuation calculatorsteps in zero based budgetinghigher purchase meaninghorizontal merger definitionirr managementwhat does horizontal merger meanbullet maturitycost of capital npvtobin theoryliquidating dividendsirr calculation examplewacc curvelessor or lesseeaccount receivable turnover ratio formuladcf formulagrowth margin formulanwc investopediatod full form in bankingdefine capital rationinginventory conversion period formuladiscuss the merits and demeritsstakeholders vs stockholdershow to calculate ebiteps financial definitionexplain debits and creditscapm assumptions explaineddefinition of solvency ratiodefine lessee vs lessorytm in financewhat are credits and debitsaccrual accounting and cash accounting