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SWOT Analysis-Effective and Time tested Business Analytical Tool
You, me and most of us at some stage of our academic career have come across the term SWOT. SWOT technique has been historically used as an important tool for analyzing the business. The technique was developed by Albert Humphrey, who had actually come up with not SWOT but SOFT analysis. SOFT stood for satisfactory, Opportunity, Fault, Threat. Urick and Orr however changed it from SOFT to SWOT in 1964.
SWOT analysis takes in to account not only the internal environment (strengths and weakness) but also the external environment (opportunities and threats) of your business. No matter how the analysis is carried out, the basic intention of the business while performing the analysis is to gain insight in to their positioning in the market.
S-W-O-T……..Strengths, Weakness, Opportunities, Threats
While preparing the SWOT analysis, first the strengths and weakness are listed down by the company from the internal sources available. This is followed by opportunities and threats, the information for which is gathered from the external sources. Strengths are nothing but the areas in which the company is one up on their competitor or anything that is favorable for their business. Many companies are hesitant while listing down the weakness, but they ought to be honest and realistic in order to make proper use of SWOT analysis.
Weakness can be termed as a complete opposite of strengths, i.e. areas where the company lags vis-à-vis their competitors and things which are not favorable for their business. Opportunities are anything that might help the company to do better and enable the company to improve their positioning. Threats, the last part of the analysis stands for any situation that might pose a hindrance to the company and their market position.
SWOT analysis………provides an answer to various questions…
There are many questions that are answered once the SWOT analysis is prepared, i.e.
- What is your strongest asset?
- Where you stand vis-à-vis your competitors?
- Do you have skilled workforce?
- Any area where the company is lacking in itself or as compared to its competitors?
- Cash-flow problems, if any,
- Problems with regards to plant, machinery, stock
- No patent protection or a weak brand name
- Too much wastage of resources
- Any new regulation or technology that might be beneficial to business
- Interesting opportunities that are untapped or bound to come
- Any threats looming on the business
Once the SWOT matrix is formed…what next
Once the company is through listing down their strengths, opportunities, weakness and threats, the next step for the company would be to put the plan in to action. The company shall try and capitalize on their strengths, work on their weakness, take advantage of the opportunities, combat the threats.
Many experts feel that SWOT analysis too has some shortcomings like,
- It might prove to be time consuming,
- It is based on assumptions that might be unfounded,
- It can be quiet subjective,
- A part of operational planning and not the strategic planning,
- Cannot be relied upon solely
- Compilation of too much information, which might result in to skipping some key data
No matter the shortcomings, SWOT analysis is and will always remain a strong tool for business analysis. It is a first step used by the company in their strategic planning process and thus forms the base for the company analysis. Company can achieve better results if SWOT analysis is used in conjunction with other forms of analysis such as PESS analysis or Porters 5 Competitive Forces Model