Overview of SWOT Analysis
Before discussing the advantages and disadvantages of SWOT analysis, I believe it is best to firstly gain a clear concept and understanding as to what a SWOT analysis is actually about. SWOT analysis (also commonly referred to as SLOT analysis) is a strategical technique credited to Albert Humphrey -- for firstly, the identification of a project's internal and external factors -- from which secondly, the planning of goals and objectives can take place to strengthen a company's position in the market.
Strengths - what aspects of a business or project represents an advantage over competitors.
Weaknesses (Limitations) - what aspects represents an disadvantage over competitors.
Opportunities - the chances and events that could occur in order to ensure greater profits.
Threats - chances and events that could cause difficulties and limitations to the business.
The analysis ensures that the project or business has identified what areas need to be 'capitalized' and others that need to be improved (internal -- assessing your strengths and weaknesses), as well as where to invest and what areas need to be kept under caution (external -- analysing your opportunities and threats). Overall it gives a basic direction of 'what to do next' for the business or project ensure a greater chance of success. For a detailed and comprehensive overview of carrying out the SWOT method for a business or organization check out the video presented by Erica Olsen just below.
Carrying Out a SWOT Analysis
Advantages of SWOT Analysis
1. Simplicity - a great benefit of the SWOT 2x2 matrix is that it is relatively simple and basic to understand -- you identify the strengths, weaknesses (internal) and then the opportunities and threats (external) that may be presented. There is no real issue of complexity in understanding the objectives of what a company's strengths, weaknesses, opportunities and threats are -- and then simply comprehending that for in order for a company to become more successful it must be: 'capitalizing on the strengths', 'reversing the weaknesses", 'investing in opportunities' and 'overcoming the threats'.
2. Identification Leads a Company to Become More Informed - the SWOT analysis also forces a company to look within itself to identify -- what really is the company's strengths and weaknesses -- as well as looking externally to the industry and economic environment they are operating within. Hence, as a company carries out the SWOT analysis they immeditately become more knowledgeable of their position within their industry -- and with this, a company can take a more informed approach of what action to take next.
3. Cost Effective - relating back to point 1. 'Simplicity' on some levels, is that to actually carry out the SWOT analysis, not only is it simple to do, but it is also cheap and efficient method of strategical planning -- that costs relatively little time (apart from the necessary research) and monetary costs in order to get an effective plan of action of where to take the company or project next.
Disadvantages of SWOT Analysis
1. Simplicity - although 'simplicity' has already been mentioned as an advantage of SWOT analysis it is also in part a drawback -- because it is so simple it fails to recognise the details and other vital aspects of the functioning of a successful business or project. It doesn't always represent a comprehensive overview of what is really going on, such as future unexpected external economic influences or detailed intrinsic assets.
2. Subjective - what may be regarded as a strength or a threat to someone (Person A), may be negligible to someone else (Person b), or perhaps even a polarised view of it being a weakness or opportunity (Person C) -- hence varying magnitudes of what particular strengths and threats are etc. The SWOT analysis is rather subjective i.e it will differ from person to person on what aspect, strength and category they believe it to be. Hence, one person carrying out a SWOT analysis may come up with an entirely different conclusion and strategy to the next person carrying out the analysis, given all else equal.
3. Only as Good as the Ideas Given - another factor of concern -- is the positives and ideas that actually come out of a SWOT analysis are only as good as the 'ideas' people carrying them out. So if you have a talented member of staff she or he may be able to generate better ideas and detailed strategy from the exercise, than that of a 'lesser' talented member.
4. Data and Research - although the actual carrying out of the SWOT analysis is cheap, the actual gathering of information to fill in the 2x2 matrix may actually be rather time consuming and expensive especially for a big organization -- such as getting all employees to fill out a questionnaire or interpreting and compiling detailed industry reports that the company may want to collect first hand.
5. More Research and Data - once the actual analysis has been undertaken and a plan of strategy has been devised -- the company may want to confirm certain details and aspects of the plan through carrying out more research and data collection to see what details and avenues need to be ironed out. Hence, further funding and time will be required to carry out the research for the details of the new business strategy.
Summary of the Advantages and Disadvantages of SWOT Analysis
Although the above list of pros and cons of SWOT analysis is a rather 'tongue in cheek' attempt, hopefully it has given you a greater insight into using and actually understanding the strategical technique. However, for a company that uses SWOT analysis, it has to be considered at least a viable method (after comprehending its limitations and drawbacks) to undertake as part of its future strategy -- even if at the least it is carried out as complementary component to the overall strategical business plan, as it offers numerous clear insights -- as well as being relatively simple and cheap to carry out. If you have any additional advantages and disadvantages of SWOT analysis or experience with carry it out or any general remarks then please share them below in the comments section.