SWOT is an acronym which stands for strengths, weaknesses, opportunities and threats. A SWOT analysis summarizes the key issues from the business environment and the strategic capability of an organization that are most likely to impact on strategy development.
The aim of SWOT analysis is to identify the extent to which the current strengths and weaknesses are relevant to and capable of dealing with changes taking place in the micro business environment.
It can also be used to exploit further the unique resources or core competences of the organization and further reveal possible threats emanating from macro environmental dynamism.
Strength
Something a company is good at doing or characteristics that give it enhanced competitiveness these may include:
- Physical assets
- Original intellectual property rights
- High level of mechanization
- High employee loyalty
- Healthy cash flow
- Clear mission and objectives
- Highly developed information and control system
A company is poised to succeed if it has a good complement of strengths (resources)
Weakness
Shortcomings in an organization that decelerates it from accomplishing its objectives. Something a company lacks or does poorly or a condition that puts it at a disadvantage. Companies resource strengths represents competitive assets, its resource weakness represents competitive liabilities.
Opportunity
These are external environmental phenomena that enable a company to excel or exceed achievement of objectives. Opportunities are sources of growth, profitability, competitive advantage etc., and may include;
- Exit from the industry by a major competitor
- Loyal Customers
- Loyal and fair suppliers
- Good government support of business community
- Good relation with trade union movement
- Relocation to a better location
- Existence of a skilled labour force
- Technological innovation etc.
Threat
Is that which inhibits a company’s ability to achieve its objective. It may result in any of the following:
- It may erode competitive advantage
- It may weaken a company market standing.
- It may inhibit growth and reduce profitability.
NB: Strengths and weaknesses are internal to a company while opportunities and threats are external.
Advantages of SWOT
- It‘s a source of information
- Build organizational strength
- Reverse organization‘s weakness
- Maximize organization‘s response to the opportunities
- Overcome organization‘s threat
- Identify competencies of the firm
- Helps in setting objectives for strategic planning
Limitations of SWOT
- It is out of organization‘s control e.g. Supply of raw materials, government legislation, economic environment, import restrictions
