SWOT Analysis Framework in Business Strategy

Strategic Planning | Business

A SWOT analysis is an analytical framework that documents an organisation’s strengths, weaknesses, opportunities and threats.
 
These insights would allow organisations to devise relevant strategies to remain competitive in the marketplace. They may also be used to align a company’s operations with its current strategies.

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Components of a SWOT Analysis​
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A SWOT Analysis consists of your organisation’s strengths, weaknesses, opportunities and threats.
 
It includes the following components:
 
1.   Strengths:

• Advantageous characteristics that would bolster an organisation’s corporate position.

• An organisation’s strengths may include its original assets, as well as corporate activities that are well executed.

 
2.   Weaknesses: 

• Disadvantageous characteristics that would compromise an organisation’s corporate position.

• An organisation’s weaknesses may include activities that are poorly executed, or necessary assets that the company has not acquired.

 
3.   Opportunities: 

• An organisation’s opportunities include environmental or market trends that may bolster an organisation’s corporate position.

• Valuable corporate opportunities may include a large consumer base with an unaddressed need.

 
4.   Threats: 

• An organisation’s threats include environmental or market trends that may compromise an organisation’s corporate position.

• The organisation should strive to eliminate or mitigate potential threats. 

​Importance of a SWOT Analysis

​A SWOT Analysis provides an organisation with internal insights (insights about an organisation’s internal operations), as well as external insights (identifying prominent trends about an organisation’s external environment).
 
 
1.     Internal Insights 

The SWOT analysis framework sheds insights on an organisation’s internal environment.
 
Key Components of an Internal Analysis 

Managers may conduct an internal analysis of their organisation by reviewing its divisional progress, employee productivity, and relevant activities that are controlled by those within the company.  
 
This framework also allows an organisation’s leaders to assess the strength of its governance.

​An organisation’s SWOT analysis may include effective leadership styles that are currently practiced. Alternatively, it may list ineffective leadership techniques that managers should revise or replace in the near future.
 
Practical Application of Internal Analysis 
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Managers may use an internal analysis to determine the strengths and weaknesses of their organisation’s existing operational, financial and legal practices.
 
It may identify untapped resources that an organisation may invest into its existing operations, or alternative channels that an organisation may choose to divert its resources into.
 
 
2.     External Insights 

Conducting SWOT analyses would allow managers to identify prominent trends in its industry.
 
Key Components of an External Analysis 

Organisations should identify opportunities that may aid their organisation’s expansion, as well as threats that may hinder its progress.
 
For instance, managers should use identify forms of disruptive technology, transformative business models, or emerging players in their industry.

From there, they may choose to adopt either one of the following approaches:
 
Developing Products:

• Develop new products and services, or revise their existing prototypes, to ensure that their products may compete against emerging forms of technology.

 
Reviewing Business Models:

• Adopt new business models, or revise their existing business models, to match emerging business models in their industry. This may allow an organisation to exploit all possible channels of revenue generation.

 
Collaborate or Compete with Prominent Companies  in the Industry:​

• An organisation may choose to collaborate with emerging players in the industry. They may achieve this by creating products or services that would complement their offerings.
  
  
• Alternatively, organisations may choose to include more features into their existing products and services to act as viable substitutes of their competitors’ offerings.

 
Predictive Analytics in External Analysis 

​Industry leaders, whose activities may significantly affect trends in their marketplace, often create several opportunities and threats that are listed in a SWOT framework.
 
Managers may identify an organisation’s opportunities and threats through the use of predictive analytics, which are advanced analytical models that may predict unforeseen events in the future.

​These studies may be conducted with data-mining practices, statistical research, and artificial intelligence.
 
Through the use of predictive analytics, an organisation’s leaders are highly encouraged to identify these opportunities and threats before they cause significant changes within their industry.
 
Correspondingly, organisations should use the strengths and weaknesses that they have identified from the internal analysis to gauge their ability to react to these industry trends. 

​When to perform a SWOT analysis

SWOT analyses should be conducted frequently to update an organisation’s board of directors about their company’s current operational and financial state, as well as relevant trends in their industry.
 
Managers are highly encouraged to conduct a quarterly analysis of their organisation. These updated analyses should account for: 
 

• Updated Strengths: New financial, legal and operational resources that their organisation has acquired.

 

• Updated Weaknesses: Operational deficiencies that an organisation may use its resources to rectify.

 

• Updated Opportunities: Technology, models or players in the industry that would enable an organisation to expand its market share.

 

• Updated Threats: Technology, models or players in the industry that may compromise an organisation’s competitive position in its industry.

​Limitations of using the SWOT analysis
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​1.     Long-term Benefits instead of Short-term Profits 

Insights from a SWOT analysis would enable an organisation to reduce its costs, increase their productivity, and improve their operational processes. However, time and effort is required to implement policies that would lead to these changes.
 
Due to this, the operational benefits that a SWOT analysis creates would be observed in the long-run. Most leaders would prefer to invest their finite supply of resources into activities that could reap observable, short-term gains instead of intangible, long-term profits.
 

2.     Potentially Inaccurate Results 

Caused by a Lack of Resources 

Smaller companies – such as start-ups and independent ventures – may not have the technological or human capital to form entire departments that are dedicated to conducting research for a SWOT analysis.
 
Caused by Subjective Collection Methods 

A SWOT report’s findings may also exaggerate an organisation’s successful performance. Research departments may identify an organisation’s strengths and weaknesses according to survey, or other forms of human inquiry.
 
Researchers may find it difficult to acquire honest and unbiased feedback from surveyed employees. As such, their collected data may be affected by subjective opinions.
 
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3.     Ineffective Reaction to Market Trends 
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An organisation may use predictive analysis to determine the emergence of prominent industry trends. However, its managers must still rely on human direction to determine how to approach these trends with their current supply of resources.
 
Corporate strategies in large organisations must be reviewed and approved by a board of directors. This lengthy process may affect their ability to react quickly to market trends.
 
In contrast, small organisations are not hindered by hierarchical deliberation. However, they may not have the resources to address prominent industry trends as compared to their larger competitors.