Spring 2009

 A swot analysis is a snapshot of a business’s position and provides an input into the generation of strategic options. It gives management an outline of the major issues affecting the industry and the business and identifies the basis for developing strategies  Of particular value is the identification of weaknesses and threats. It demonstrates that you are not just looking at the upside but are aware of the challenges that face your business

Implicit in the swot analysis is the aim of achieving the optimum match of a firm’s resources with the environment in order to gain sustainable competitive advantage

 building on a firm’s strengths;  reducing weaknesses or adopting a strategy that avoids weaknesses;  exploiting opportunities, particularly using the firm’s strengths;  reducing exposure to or countering threats. “A swot analysis is easily understood and communicated and can fit on one page. Therefore you could use a swot analysis to carry out a quick strategic review.”

The process of creating a swot analysis is valuable because it involves discussion among managers or key people in a business. This stimulates thinking in a way that is not too structured or restrictive.

 In a larger business, ideally the swot analysis is carried out by a multi-disciplinary team in a workshop dedicated to producing such analysis. The workshop techniques suitable for this process are the same as for the political, economic, social and technological (pest) analysis

an external factor can be an opportunity or a threat.  Strengths matter only if you can use them to exploit an opportunity or counter a threat.  A weakness is problematic if it relates to a threat.

 For example, if new technology is becoming available and a business has an excellent product-development department that can take advantage of the new technology to develop products, this is an opportunity.  In contrast, if a business cannot make use of the new technology, there is a threat from substitution if rivals make use of the technology. The analysis should be made bearing in mind the objective of strategic planning: to gain sustainable competitive advantage

“A strength is a potential source of competitive advantage, such as core competencies or financial strength.”

 Because competitive advantage can only be sustained if customer needs are addressed, the market analysis is an important input into the swot analysis “This means a swot analysis should, like your business, have a customer focus. To derive real advantage from a strength, it must be useful in satisfying the needs of customers. Similarly, a weakness that relates to specific customer needs should be addressed as a priority.”

 Generally weaknesses tend to get played down by entrepreneurs and managers generally find it easier to think of strengths rather than weaknesses.  The matrix analysis of products may also identify weaknesses  an unbalanced portfolio with too many products in the mature stage of the product life cycle  too many SBUs with a weak business position. Carrying out a swot analysis for competitors is recommended “The inability to neutralise or sidestep a threat is a fundamental weakness.”

 In order to fully explore possible opportunities and weaknesses, using the results from a PEST analysis as an input for our SWOT can be very valuable  studying possible opportunities and threats in the context of strengths and weaknesses are necessary i.e. there may a new market opportunity but at present your business does not have the resources to exploit it. Indeed, you may be preparing a business plan to raise funds for this purpose. To be successful in this, you must use resources to acquire the strengths that are necessary to exploit the opportunity.

 Changes in the competitive environment may pose a threat. Therefore the industry and competitor analysis is an input into the analysis of opportunities and weaknesses. i.e. “A business could be threatened by consolidation taking place in the industry which may relegate the business to a secondary position unless that business also becomes part of the consolidation process”