SWOT Analysis is used by Organizations to analyze their current position, which helps them to develop a new strategy. Firms can find out the are of improvement and the area where they function the best through this analysis. This article will explain the SWOT analysis meaning along with examples and purpose.
What is a SWOT Analysis?
SWOT matrix was developed by Albert Humphery in the early ’60s. SWOT stands for Strength, Weakness, Opportunity, and Threat. This means that a person by using SWOT Analysis can assess these 4 aspects of anything be it a business. One can use this as an advantage to their firm by knowing where they lack and how to avoid failures.
Purpose of SWOT Analysis
The main purpose of this matrix is to study the external and internal environment of a firm by identifying and analyzing the opportunities and strengths of any firm and at the same time know the exposure to threats and weaknesses. Its purpose is to partly identify the influencing factors for the firm functioning and provide information regarding the process of strategic planning. The swot analysis is divided into two parts, the internal environment, and the external environment. In the internal environment, the weakness and strengths are identified, whereas, in the external, one gets to know about the threats and opportunities.
The internal environment of a company is the grouping of physical, financial and human, etc together. This grouping helps to exert greater control like the management strategies results.
The external environment of a firm is something that is there beyond its boundaries but can still influence it. Though one can not have control over this environment it is necessary to keep a watch on the threats and opportunities for strategic planning. The external environment consists of the following 2 factors:
- Macro Environment-economic, technological, demographic, political, etc
- Micro Environment- customers, partners, suppliers, etc
What is the efficient way to conduct a SWOT analysis?
Analyzing using SWOT start with finding or creating a matrix for the same. It can be created either by bringing together the strategies informally or following a more formal or sophisticated tool. One of the best ways to do it is by using the brainstorming technique. On finding pointers, one should start filling the relevant boxes.
Below is a detailed discussion of the different aspects of SWOT Analysis.
By strength it means, the area in which the firm performs well or something can differentiate them from their rivalries and competitors. The person or the team conducting this analysis for the firm should think about the advantages of the firm. It can staff motivation, stronger manufacturing process set, certain materials access, etc.
The companies strength is their integral part, so it is important to think about the following questions before writing them.
- What are the values that drive the business?
- What does the business do better than the rest?
- What lowest cost or unique resources does the business draw that others cannot?
- Identify the USP
The firm should make sure they have some as an advantage over others. For example, firm producing products of high-quality cant are its strength if its rivalries are also producing high-quality products.
It is not justified if one just knows the strength and neglects the weakness. It is important to know the weakness, so important actions can be taken for improvement and what needs to be avoided as well.
This section tells a firm that something positive is on the plate, but that needs to be claimed. Opportunities come externally and one needs to keep an eye on the future. It can come as technological development or even better opportunities in the market. It is very important to spot and grab the opportunities as it helps one to lead the market. It can even be relaxation in the government policies, a lifestyle change in the general public, etc.
The threat is when in the near future there is a chance of some problem arising due to the external environment. It can be an issue with the supply chain, labor shortage, change in the demand of the public, etc. The technology environment is something that can be a threat as well as an opportunity. One needs to be careful with the product’s standards. No matter how good a firm is performing, it is important for them to know the competitor’s actions and about the new market. Knowing the threats can help to take necessary actions that would further safeguard the business.
How can one use SWOT analysis for business growth?
As already discussed the matrix is a compilation of opportunities, threats, strengths, and weaknesses. The factors while taking a decision is very much dependant on SWOT analysis. Midway alternation of the plan, considering pivot opportunities, internal policies revamping, or exploration of new policies, all needs an analysis of the firm. To discover new strategies, suggestions, and recommendations, one can always use SWOT.
For the business to be successful, it is very important that they analyze the strength, opportunities, weaknesses, and threats frequently.
A SWOT Analysis Example
Café Nemo located in XYZ city specially deals, in fruit pie and meat. They even sell ready-to-go hot pies, options for frozen take-home, beverages as well as fresh salads. The café is now planning to open its first franchise. So, here is a detailed SWOT analysis for the same.
- They are unique as most of the café provide fast food but they provide an alternative to it considering the distinctive atmosphere and high-quality food.
- They are opening it in a location which is very crowded but does not have such café options.
- The management team is strong and comes from different disciplines making sure all the business areas are covered.
- The company does not have enough funds and is borrowing money, looking for investors as well as considering taking a loan.
- As it just has one store, it is not much famous and needs enough publicity in a newer location.
- The location and the area they are opening a franchise is growing 9.5% annually
- As the healthy options available on the menu are ready to eat, many families that are working and have children would opt for it on a regular basis.
- There is a café for pie for 25 years and has gained the attention of most of the people in the town, so a huge competition as well as risk.
- The service if poor at the beginning might disappoint many customers and they would never prefer to return or suggest to others.
So, any firm especially a startup should consider a SWOT analysis frequently before making strategic plans.