1.2.1: SWOT Analysis

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Learning Objectives

Understand what SWOT analysis is.
Learn how SWOT analysis can help organizations and individuals, and its limitations.

Table 4.12 SWOT

Chess master Bruce Pandolfini has noted the similarities between business and chess. In both arenas, you must understand your own abilities as well as your flaws. You must also know your opponents, try to anticipate their moves, and deal with considerable uncertainty. A very popular management tool that incorporates the idea of understanding the elements internal and external to the firm is SWOT (strengths, weaknesses, opportunities, and threats) analysis. Strengths and weaknesses are assessed by examining the firm, while opportunities and threats refer to external events and trends. These ideas can be applied to individuals too. Below we offer examples of each element of SWOT analysis for organizations and for individuals who are seeking employment.

SWOT point	Organizational Examples	Individual Examples
Strenths	describes what an organization excels at and separates it from the competition: things like a strong brand, loyal customer base, strong balance sheet, unique technology, and so on. (Internal Influence)	Strong technical and language skills, as well as previous work experience, can help individuals rise above the competition.
Weaknesses	what stops an organization from performing at its optimum level? They are areas where the business needs to improve to remain competitive: things like higher-than-industry average turnover, high levels of debt, or no social media presence. (Internal Influence)	Poor communication skills keep many job seekers from being hired into sales and supervisory positions.
Opportunities	refers to favorable outside factors that an organization can use to give it a competitive advantage. For example, a car manufacturer may be able to export its cars into a new market, increasing sales and reaching untapped consumers. (External Influence)	The U.S. economy is increasingly services based, suggesting that individuals can enjoy more opportunities in service firms.
Threats	refers to factors that have the potential to harm an organization. Common threats include things like rising costs, increasing competition, tight labor supply, and so on. Weather could also be a threat for agricultural businesses (External Influence)	A tight job market poses challenges to new graduates.

Five forces analysis examines the situation faced by the competitors in an industry. Strategic groups analysis narrows the focus by centering on subsets of these competitors whose strategies are similar. SWOT analysis takes an even narrower focus by centering on an individual firm. Specifically, 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 (Table 4.12).

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 form and clipboard on a desk. SWOT analysis form and clipboard on a desk. SWOT analysis stock pictures, royalty-free photos & images

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).

Key Takeaway

Executives using SWOT analysis compare internal strengths and weaknesses with external opportunities and threats to generate ideas about how their firm might become more successful. Ideas that allow a firm to leverage its strengths, steer clear of or resolve its weaknesses, capitalize on opportunities, and protect itself against threats are particularly helpful.

Exercises

What do each of the letters in SWOT represent?
What are your key strengths, and how might you build your own personal strategies for success around them?
Conduct a SWOT analysis of an organization of your choice.