SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position of the business and its environment. Its key purpose is to identify the strategies that will create a firm specific business model that will best align an organization's resources and capabilities to the requirements of the environment in which the firm operates. In other words, it is the foundation for evaluating the internal potential and limitations and the probable/likely opportunities and threats from the external environment.
It views all positive and negative factors inside and outside the firm that affect the success. A consistent study of the environment in which the firm operates helps in forecasting/predicting he changing trends and also helps in including them in the decision-making process of the organization. An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given below:
- Strengths - Strengths are the qualities that enable us to accomplish the organization's mission. These are the basis on which continued success can be made and continued/sustained. Strengths can be either tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a am) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty. Examples of organizational strengths are huge financial resources, broad product line, no debt, committed employees, etc.
- Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential. These nakedness deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should soot By reincarnating research and development facilities, narrow product range, poor decision-making, etc. Weaknesses are controllable. They must be minimized and eliminated. For instance - to overcome obsolete machinery, new machinery can be purchased. Other examples of organizational weaknesses are huge debts, high employee turnover, complex decision making process, narrow product range, large wastage of raw materials, etc.
- Opportunities - Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable. Organizations can gain competitive advantage by making use of opportunities. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise from market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecoms sector and compete with existing firms for revenue.
- Threats - Threats arise when conditions in external environment Jeopardize the reliability and profitability of the organization's business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are - unrest among employees; ever-changing technology; increasing competition leading to excess opacity, price wars and reducing industry profits; etc.
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Advantages of SWOT Analysis
SWOT Analysis is instrumental in strategy formulation and selection.
It is a strong tool, but it involves a great subjective element. It is best when used as a guide, and not as a prescription. Successful businesses build on their strengths, correct their weakness and protect against internal weaknesses and external threats. They also keep a watch on their overall business environment and recognize and exploit new opportunities faster than its competitors. SWOT Analysis helps in strategic planning in following manner:
- It is a source of information for strategic planning.
- Builds organization's strengths.
- Reverse its weaknesses.
- Maximize its response to opportunities.
- Overcome organization's threats.
- It helps in identifying core competencies of the firm.
- It helps in setting of objectives for strategic planning.
- It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out.
SWOT Analysis provide information that helps in synchronizing the firm's resources and capabilities with the competitive environment in which the firm operates.
SWOT analysis framework
Limitations of SWOT Analysis
SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances as very simple because of which the organizations might overlook certain key strategic contact which may occur. Moreover, categorizing aspects as great degree of uncertainty in market. SWOT Analysis does stress upon the significance of these four aspects, but it does not tell how an organization can identify these aspects for itself. There are certain limitations of SWOT Analysis which are not in control of management. These include:
- Price increase;
- Inputs/raw materials;
- Government legislation;
- Economic environment;
- Searching a new market for the product which is not having overseas market due to import restrictions; etc.
Internal limitations may include :
- Insufficient research and development facilities;
- Faulty products due to poor quality control;
- Poor industrial relations;
- Lack of skilled and efficient labor; etc
- Flexible but Vague Proponents of the SWOT approach point to its flexibility as a major benefit. The flexibility of the SOOT framework makes it applicable in numerous settings, including seines, government agencies and other organizations.
However, this flexibility presents a limitation as well. The SOOT framework emphasizes the elements of strengths, weaknesses, opportunities and threats, but provides no real guidance on how individual organizations can identify these elements for themselves. Strategic planners may not have all the information needed to identify strengths and weaknesses.
For example, a business may believe its marketing strategy or customer service is a strength, but top executives may be unaware of existing problems in these areas. Opportunity or Threat?
- Organizations also may have difficulty determining whether something in their external environment presents an opportunity or a threat, and the SOOT framework does not offer a way to distinguish them. Whether something represents an opportunity or a threat may depend on subjective Judgment. Environmentalism resulting from concern about climate change may represent a threat to some analysts, while others may see it as an opportunity. The line separating strengths from weaknesses or opportunities from threats is not always clear, and SOOT offers no methods for drawing such lines.
A SWOT analysis often consists of one- and two-word phrases to identify the strengths, weaknesses, opportunities and threats and includes no details. This lack of detail is another drawback to the SWOT framework. Further, SWOT does not require any Justification for classifying something under the element in which it was classified. Rank and Prioritize The SWOT analysis provides a framework in which organizations can identify their threats.
However, SWOT provides no guidance for organizations to rank each of the elements under these four headings or set priorities. Prevention/Solution Organizations can compensate for the limitations of SOOT analysis through in-depth discussion of weaknesses that focuses on transforming them into strengths. They also should try to airframe threats as opportunities. They also should aim for more detail in their SWOT analysis and weight each strength, weakness,
- Prevention/Solution Organizations can compensate for the limitations of SWOT analysis through in-depth discussion of weaknesses that focuses on transforming them into strengths. They also should try to airframe threats as opportunities. They also should aim for more detail in their SWOT analysis and weight each strength, weakness, opportunity, and threat so as to rank and prioritize each element. HTML#quizzes quench SWOT Can Oversimplify a Problem
A SWOT analysis should be succinct and to the point. This is valuable in terms of communicating a complex situation to others on paper or in a meeting. However, it does oversimplify the problem or challenge by not allowing a detailed analysis or depth of explanation of multiple factors.
For example, a decision to outsource your IT department will have a great impact on the culture and human resources of your organization. While it will improve profitability in the short term, it may lead to great stress among employees who remain and an overall negative impact on culture and performance.
Highly Subjective SWOT requires that you work within a limited outline and that Judgments are made about the positive and negative circumstances influencing the organization. This can be influenced by the SWOT leader's background or made less relevant by uncertainty in external factors such as market instability, which could be a weakness or threat if a small business is seeking financing for example. As a qualitative measure, its subject to interpretation as well which may create differences in opinion.
Only As a framework, SWOT has value.
However, it does not provide the organization's management with specific direction or tell managers how to identify the key aspects for itself. It relies on competent managers to accurately identify and prioritize the most important elements. This is no easy task, whether you operate a start-up company or lead a large non-profit. Government legislation and rapid market shifting may have great impact on your business, but they require deep market research to manage, which is well outside the realm of a SWOT analysis.
Weight Matters, But Not in SWOT Another drawback to the SWOT analysis is that it gives equal weight to every point. It does not give weight to the specific points that might be much more relevant or impacting. For example, the opportunity to outsource your IT department might look good, but for a software company, the risks of intellectual property violations alone could make a decision against such a move an easy one. This risk is great enough to ruin the entire company, and therefore a chance to save 12 percent on development costs might not be worth it.
For example, the opportunity to outsource your IT department might look good, but for a software company, the risks of intellectual property violations alone could make a decision against such a move an easy one. This risk is great enough to ruin the entire company, and therefore a chance to save 12 percent on development costs might not be worth it.
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