What is SWOT Analysis?
One of the primary elements of organizational strategy, or business planning, is understanding where you stand as an organization in terms of your SWOT analysis. SWOT analysis is an acronym for organizational Strengths, Weaknesses, Opportunities & Threats. The first two elements, strengths and weaknesses, refer to the internal operations of the company. Opportunities and threats refer to the external elements, or the industry environment in which you are competing. Understanding both of these categories help organizational decision makers establish clear objectives.
Organizational strengths refer to the product or services offered and what differentiates that sellable item. From this respect you may consider the four "P's" (Product, Price, Place and Promotion). Product strengths can occur from a variety of perspectives. It could be quality, cost, price, or you may have the first mover advantage. Is your product a substitute or does it have a substitute? Does your product or service have a complimentary product or service? Is your strength your location? Your location can capture benefits gained from the distribution networks within your physical location as well as natural resources or even the weather.
A strength is a strength and this area generally receives less scrutiny than organizational weaknesses. Strengths get tweaked, but weaknesses require change. When analyzing your internal strengths, weaknesses generally reveal themselves. An example of a weakness that may exist within a firm is economies of scale, your production capacity may be great and you may be able to produce 100,000 widgets a month at a cost that undercuts your competitors cost by 25%, but if you can't move the product due to a lack of brand recognition, or a poor distribution network, then this is a serious weakness that requires attention.
Moving to the external environment, one of the primary considerations are barriers to market entry, as they could present both opportunities and threats to your organizations well being (I'll cover barriers to entry in another article).
In simple terms, opportunities exist whenever you can enter the market with a profitable position. There are three primary opportunities; filling a consumer need, technological and political. The first is providing a product or service that fulfills an underserved consumer need. For example, if you live in a rural community and there is a lack of Internet service providers, yet the infrastructure exists to provide Internet services- this is a clear opportunity to provide that service. Additionally, being a first mover into the area could instill a loyal consumer base instilling brand loyalty, while creating a switching cost (the time involved with changing providers, the inconvenience of getting used to new service provider, etc.)
The second type of opportunity exists as a result of technology. Technological changes occur and reoccur in what seems to be a perpetual nature, which constantly present opportunities for the creative entrepreneur. This can occur as a direct result of technological innovations, for example app's for your smart phone, or technology can create a need for peripherals, such as scratch resistant stickies for your iPhone.
Finally, the political environment can open pathways of opportunity with changing regulations, shifting focus, and even legislation. An example of opportunities created by legislation is the American Recovery and Reinvestment Act. The decision to create jobs by allocating funds to renovating our infrastructure created opportunities for anyone in those respective industries, but it should be noted that the opportunity lacks longevity, so creating loyalty and establishing relationships is important to last longer than the Act.
The same elements that create opportunities, create threats. Changing consumer taste/need/desire/wants can sink an established business if it doesn't remain vigilant and find ways to stay in touch with its consumer base. This is applicable to the technological impact as well. Just as the changing environment generates opportunities, it also creates threats. The emergence of substitute products, new regulations and political instability also have an effect on an organizations well being. Political instability is particularly important to international companies. Political unrest and financial instability can ruin a profitable business.