To understand the future prospects of a business, it is necessary to implement strategy tools that can analyze the internal and external conditions of the business. SWOT Analysis can be performed by observing how the internal factors match up with the external factors and influence the growth of the business. This article talks about the core strategy tools that deal with the internal strengths and weaknesses faced by a company. It also deals with the external opportunities and threats that a business can face in the future.
An Idea of SWOT Analysis
Every business has objectives. SWOT Analysis is implemented to understand whether those objectives can be fulfilled or not. SWOT stands for the following.
These are the capabilities of a company that can help it to reach the objectives.
These are the drawbacks that a company must eliminate to meet objectives.
This analysis helps in using strengths to realize the opportunities of a company.
This analysis underlines the identification of weaknesses so that threats can be eliminated.
SWOT is one of the core strategy tools that also help in understanding the competitive advantage of a particular organization.
Origin of SWOT Analysis
In the 1960s and 1970s, Albert S. Humphrey used data from Fortune 500 companies and led a conference at the SRI International, the erstwhile Stanford Research Institute. He is said to have pioneered the concept of SWOT Analysis.
Questions of SWOT Analysis
Strengths are the positive features of a business. They are internal attributes of a company and cater to both tangible and intangible aspects.
- What does the company do well?
- What are the resources of the company? (This includes attributes, such as customers, distribution channels, capital, technology, education and skills of employees, etc.)
- What advantages does the company have over its competitors?
- What lowest cost resources can the company obtain?
- Is the company equipped with research and manufacturing capabilities?
- What is the Unique Selling Proposition of the company?
When assessing the strengths of the company, it is better to think of the features of the company. Some of them may emerge as strengths. Moreover, strengths should not only be seen from the internal point of view, but also from the perspective of customers and competitors. For example, if the rival companies produce high quality goods, doing the same is not strength, but just a basic essential for the growth of your business.
Weaknesses are the negative attributes of a business. They are a competitive disadvantage of a business. By identifying weaknesses, competition and future threats can be avoided.
- What factors are responsible for the competitive disadvantage of the company?
- What can be avoided and what can be improved to gain in market competition?
- What are the perceived weaknesses of the company in the market?
- What factors are responsible for the loss in sales (location, access to technology, quantity and quality of resources)?
In this case, the company should assess things from both internal and external stand point. It will help in realizing the drawbacks of the company.
Opportunities are external factors that show why a business should prosper in future.
- What opportunities are present in the market that a company can benefit from?
- What trends exist in the market?
- Do people have a positive perception of the business?
- Has there been any recent change in the market that can be fruitful for the company?
- Is the opportunity still existent and can the company avail the opportunity?
Opportunities can be available by changing government policies, profile of the population, social changes, change in lifestyle and technological changes. If a company can avail these opportunities, it can meet its objectives.
Threats are external factors that can out the strategies of a company at risk. As external factors, these are not under the control of the management of a business. However, a business can prepare contingency to face these threats.
- What are the problems that the company faces?
- Is the management aware of the existing and potential competitors in the market?
- What steps are the competitors taking to gain competitive advantage?
- Are the quality of your products and services changing in the face of competition?
- What factors can place the company at risk?
- Are there any trends in the business environment that can hamper the growth of the business?
- What trends are threatening the marketing strategies of the company?
- Are the changing government policies and technological advancements threatening the position of the company?
- Are there any financial setbacks of the company?
- How has the increase in the prices demanded by suppliers and the lack of raw materials in market affected the business?
- How far can the change in consumer behavior affect the sales of the company?
- Are there new companies in the market selling the same kind of products and services?
Example of SWOT Analysis
Suppose a food company in Houston wants to assess whether it can meet the objectives it has set. The following analysis will help in the endeavor.
Employees have a high morale. Both the market share of the company and the profits of the company have increased. The customer base of the company is loyal.
The capacity of the company to compete with competitors is falling because of the lack of trained employees. The lack of strategic management has taken away the brand power and competitors are selling products at low prices.
The rising health consciousness among customers is a chance for the food company to regain its fame. Moreover, the company is training its employees, so that they can be more efficient in their work. With the increase in quality, competitors can be avoided easily.
The container in which the food is sold is non-biodegradable. When the price of the products is reduced, customers tend to think that the quality of the products is not good.
In a nutshell
So, it can be concluded that SWOT Analysis is the harmonization of internal and external factors that can influence of a business. It is an effective technique to realize whether a company can reach the goals it has set.