Strategic analysis is an important aspect of business planning. Many organizations employ a SWOT analysis as a component of its internal look at how to plan for future growth and decision-making. The organization's leadership (or decision makers) then utilizes the findings of the SWOT to assess circumstances and assist in decision-making.
What is SWOT?
SWOT is an acronym that stands for strengths, weaknesses, opportunities and threats. These four components can help decision makers determine any forces that will have impact on the organization (both the negatives and positives), affording them the ability to make better choices for the organization and its future.
Collectively, the items examined during a SWOT analysis are the internal and external factors that could affect the business or organization. Strengths and weaknesses are considered to be internal factors and opportunities and threats are categorized as the external factors which are present.
When trying to understand how a SWOT analysis can aid in strategic planning, it is helpful to have a basic understanding of these four components. Breaking down the SWOT components can offer enlightenment and insight as to how all of the internal and external forces can affect the organization.
Strengths are internal environmental factors and can be anything the organization owns or excels at. For instance, strengths can be experience, a new product, prime location, solid budget, great technology capabilities, or any other valuable approach or possession the business has in its facility or possession.
Weaknesses are also internal environmental factors and these are areas where the company is lacking. This could be a poor location, damaged reputation, small budget, or lack of knowledge/expertise, to name a few. In a nutshell, weaknesses are areas or attributes that are absent in the organization.
Opportunities can be vast or they may be limited, but either way should be looked at carefully. Whatever the potential opportunities might be, these external environmental factors can provide the business with different prospects. For example, a company can break into a new market, expand or invest in some other lucrative venture that will either increase profit or benefit the organization in some way. Examples of opportunities are strategic alliances, new market prospects, a competitor going out of business, a unique market segment or development of a product/service.
Threats are also external environmental factors that can pose a problem for the business. These are factors that are beyond the organization's control, but can realistically have a significant impact. Examples of threats are new competitors, price wars, competition has some sort of advantage, or excess taxation. Other external threats may be related to development in a business' location or other larger businesses shutting their doors (i.e. a large corporation shuts down, having a ripple effect on other local businesses).
How SWOT Aids in Strategic Planning
In a breakdown of each of the four segments, ideally decision makers use the findings to accurately assess where the organization stands on each one. This analysis provides valuable information and illuminates where positives can be maximized and any negatives minimized. It also provides management with solid knowledge which can then, in turn, be utilized for strategic planning.
In areas of weakness or threat, decision makers can look for ways to either improve or mitigate these forces. In some instances, these risks or threats may extend beyond the business' control, but in these instances, being prepared is being proactive.
For the positives, the SWOT helps identify internal strengths and where opportunities may lie. In this respect, having knowledge of such forces can help businesses gain a better competitive advantage and also capitalize on opportunity.
Using the SWOT
Once the SWOT is completed, decision makers should have a pretty good picture of where the business stands and what can potentially be gained. It is also provides the means to make a good assessment where improvements and alterations can be performed in order to reduce problematic issues. SWOT components can also offer insight to areas needing clarity and also enlighten any other possibilities that are unknown. It is important to keep in mind that a SWOT does not provide a one-sized fits all answer. Different analysts may see alternative strengths, weaknesses, opportunities and threats, so it is important to consider this as well.
Without a clear vision, a business is likely going to find itself struggling to find direction and stay on focus in a specific direction. Ultimately, this can impact the level of success or failure a company experiences. Once a SWOT is conducted, an organization should have a clearer picture of where it stands and what is to be gained through action or what could be lost if not corrected or addressed. This way the organization is armed with knowledge and can effectively compete or position itself in the market. Overall aiding in strategic planning as the organization moves forward.
In the business sector, a SWOT is often used as a part of a marketing report, although it can also work well as a standalone document.