What Is SWOT Analysis?

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a

framework used to evaluate a company's competitive position and to develop
strategic planning. SWOT analysis assesses internal and external factors, as
well as current and future potential.

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven

look at the strengths and weaknesses of an organization, initiatives, or within
its industry. The organization needs to keep the analysis accurate by avoiding
pre-conceived beliefs or gray areas and instead focusing on real-life contexts.
Companies should use it as a guide and not necessarily as a prescription.

KEY TAKEAWAYS

 SWOT analysis is a strategic planning technique that provides

assessment tools.
 Identifying core strengths, weaknesses, opportunities, and threats leads
to fact-based analysis, fresh perspectives, and new ideas.
 A SWOT analysis pulls information internal sources (strengths of
weaknesses of the specific company) as well as external forces that may
have uncontrollable impacts to decisions (opportunities and threats).
 SWOT analysis works best when diverse groups or voices within an
organization are free to provide realistic data points rather than
prescribed messaging.
 Findings of a SWOT analysis are often synthesized to support a single
objective or decision that a company is facing.

Understanding SWOT Analysis

SWOT analysis is a technique for assessing the performance, competition,
risk, and potential of a business, as well as part of a business such as a product
line or division, an industry, or other entity.

Using internal and external data, the technique can guide businesses toward
strategies more likely to be successful, and away from those in which they have
been, or are likely to be, less successful. Independent SWOT analysts,
investors, or competitors can also guide them on whether a company, product
line, or industry might be strong or weak and why.

Components of SWOT Analysis

Every SWOT analysis will include the following four categories. Though the
elements and discoveries within these categories will vary from company to
company, a SWOT analysis is not complete without each of these elements:

Strengths

Strengths describe what an organization excels at and what separates it from

the competition: a strong brand, loyal customer base, a strong balance sheet,
unique technology, and so on. For example, a hedge fund may have developed
a proprietary trading strategy that returns market-beating results. It must then
decide how to use those results to attract new investors.

Weaknesses

Weaknesses stop an organization from performing at its optimum level. They

are areas where the business needs to improve to remain competitive: a weak
brand, higher-than-average turnover, high levels of debt, an inadequate supply
chain, or lack of capital.

Opportunities

Opportunities refer to favorable external factors that could give an organization

a competitive advantage. For example, if a country cuts tariffs, a car
manufacturer can export its cars into a new market, increasing sales
and market share.

Threats

Threats refer to factors that have the potential to harm an organization. For
example, a drought is a threat to a wheat-producing company, as it may
destroy or reduce the crop yield. Other common threats include things like
rising costs for materials, increasing competition, tight labor supply. and so on.
SWOT Table
Analysts present a SWOT analysis as a square segmented into four quadrants,
each dedicated to an element of SWOT. This visual arrangement provides a
quick overview of the company’s position. Although all the points under a
particular heading may not be of equal importance, they all should represent
key insights into the balance of opportunities and threats, advantages and
disadvantages, and so forth.

The SWOT table is often laid out with the internal factors on the top row and
the external factors on the bottom row. In addition, the items on the left side of
the table are more positive/favorable aspects, while the items on the right are
more concerning/negative elements.

How to Do a SWOT Analysis

A SWOT analysis can be broken into several steps with actionable items before
and after analyzing the four components. In general, a SWOT analysis will
involve the following steps.

Step 1: Determine Your Objective

A SWOT analysis can be broad, though more value will likely be generated if
the analysis is pointed directly at an objective. For example, the objective of a
SWOT analysis may focused only on whether or not to perform a new
product rollout. With an objective in mind, a company will have guidance on
what they hope to achieve at the end of the process. In this example, the SWOT
analysis should help determine whether or not the product should be
introduced.

Step 2: Gather Resources

Every SWOT analysis will vary, and a company may need different data sets
to support pulling together different SWOT analysis tables. A company should
begin by understanding what information it has access to, what data limitations
it faces, and how reliable its external data sources are.

In addition to data, a company should understand the right combination of

personnel to have involved in the analysis. Some staff may be more connected
with external forces, while various staff within
the manufacturing or sales departments may have a better grasp of what is
going on internally. Having a broad set of perspectives is also more likely to
yield diverse, value-adding contributions.

Step 3: Compile Ideas

For each of the four components of the SWOT analysis, the group of people
assigned to performing the analysis should begin listing ideas within each
category. Examples of questions to ask or consider for each group are in the
table below.

Internal Factors

What occurs within the company serves as a great source of information for
the strengths and weaknesses categories of the SWOT analysis. Examples of
internal factors include financial and human resources, tangible and intangible
(brand name) assets, and operational efficiencies.

Potential questions to list internal factors are:

 (Strength) What are we doing well?

 (Strength) What is our strongest asset?
 (Weakness) What are our detractors?
 (Weakness) What are our lowest-performing product lines?

External Factors

What happens outside of the company is equally as important to the success

of a company as internal factors. External influences, such as monetary
policies, market changes, and access to suppliers, are categories to pull from
to create a list of opportunities and weaknesses.1

Potential questions to list external factors are:

 (Opportunity) What trends are evident in the marketplace?

 (Opportunity) What demographics are we not targeting?
 (Threat) How many competitors exist, and what is their market share?
 (Threat) Are there new regulations that potentially could harm our
operations or products?
 Companies may consider performing this step as a "white-boarding" or
"sticky note" session. The idea is there is no right or wrong answer; all
participants should be encouraged to share whatever thoughts they
have. These ideas can later be discarded; in the meantime, the goal
 should be to come up with as many items as possible to invoke creativity
and inspiration in others.

Step 4: Refine Findings

 With the list of ideas within each category, it is now time to clean-up the
ideas. By refining the thoughts that everyone had, a company can focus
on only the best ideas or largest risks to the company. This stage may
require substantial debate among analysis participants, including
bringing in upper management to help rank priorities.

Step 5: Develop the Strategy

 Armed with the ranked list of strengths, weaknesses, opportunities, and

threats, it is time to convert the SWOT analysis into a strategic plan.
Members of the analysis team take the bulleted list of items within each
category and create a synthesized plan that provides guidance on the
original objective.
 For example, the company debating whether to release a new product
may have identified that it is the market leader for its existing product and
there is the opportunity to expand to new markets. However, increased
material costs, strained distribution lines, the need for additional staff,
and unpredictable product demand may outweigh the strengths and
opportunities. The analysis team develops the strategy to revisit the
decision in six months in hopes of costs declining and market demand
becoming more transparent.