SWOT analysis means analyzing strengths, weaknesses, opportunities and it is a useful strategic planning tool and is based on the assumption that if managers carefully review internal strengths and weaknesses and external threat and opportunities, a useful strategy for ensuring organisational success can be formulated. It is a simple technique for getting a quick overview of a strategic situation so that such strategies can be formulated as to produce a good between the company’s internal competencies (strength and weaknesses) and environment (opportunities and threats).
Strengths and Weaknesses: “strength” is a positive characteristic that gives a company an important capability. It is an important organisational resource which enhances a company, competitive position. Some of the internal strengths of an organisation are:
- Distinctive competence in key areas
- Manufacturing efficiency
- Skilled workforce Adequate financial resources Superior
- image and reputation
- Economies of scale
- Superior technological skills
- Insulation from strong competitive pressures
- Product or service differentiation
- Proprietary technology.
A “weakness” is a condition or a characteristic which puts the company at disadvantage. Weaknesses make the organisation vulnerable to competitive pressures. These are competitive liabilities and strategic managers must evaluate their impact on the organization’s strategic position when formulating strategic policies and plans. Weaknesses require a close scrutiny because some of them can prove to be fatal. Some of the weaknesses to be reviewed are:
- No clear strategic direction
- Outdated facilities
- Lack of innovation is Complacency
- Poor research and developmental programs
- Lack of management vision, depth and skills
- Inability to raise capital
- Weaker distribution network
- Obsolete technology
- Low employee morale
- Poor track record in implementing strategy
- Too narrow a product line
- Poor market image
- Higher overall unit costs relative to competition
Opportunities and Threats
An “opportunity” is considered as a favorable circumstance which can be utilized for beneficial purposes. It is offered by outside environment and the management can decide as to how to make the best use of it. Such an opportunity may be the result of a favorable change in any one or more of the elements that constitute the external environment. It may also be created by a proactive approach by the management in molding the environment to its own benefit. Some of the opportunities are
- Strong economy
- Possible new markets
- Emerging new technologies
- Complacency among competing organizations
- Vertical or horizontal integration
- Expansion of product line to meet broader range of customer needs
- Falling trade barriers in attractive foreign markets
A “threat” is a characteristic of the external environment which is hostile to the organisation. Management should anticipate such possible threats and prepare its strategies in such a manner that any such threat is neutralized. Some of the elements that can pose a threat are:
- Entry of lower cost foreign competitors Cheaper technology adopted by rivals
- Rising sales of substitute products
- Shortages of resources
- Changing buyer needs and preferences
- Recession in economy
- Adverse shifts in trade policies of foreign governments
- Adverse demographic changes
SWOT analysis involves evaluating a company’s internal environment in terms Of strengths and weaknesses and the external environment in terms of opportunities and threats and formulating strategies that take advantage of all these factors. Such analysis is an essential component of thinking strategically about a company’s situation.