The SWOT analysis (abbreviation for: S
pportunities and T
hreats) is a useful method to discover strengths, weaknesses, chances and threats, as the name already implies. Objective of the SWOT analysis is determining methods for how to make use of these chances and minimize dangers. Despite the fact that the analysis has its origin in the military and martial arts, it is widely used for personal and business purposes. When used for business purposes the SWOT analysis helps to efficiently plan big business decisions. It is part of many business plans and is also excessively used by almost any established company. In this case the chances are opportunities to gain more customers through new or improved products or services. If there are any possible risks, countermeasures have to be initiated.
What is the SWOT analysis and where does it come from?
As already mentioned, the SWOT analysis is based on military strategies. It was implemented and developed in the Harvard Business School for the business world, in the 1960s. It is said that the concept behind the SWOT analysis was already in use in the 544 – 496 BC and thus older than most other creative or innovative strategies. The core of the SWOT strategy is the decision which strength a company chooses to take which opportunities and which weaknesses it has to fix in order to avoid threats that may occur. There are many different and similar strategies based on the SWOT analysis, developed by different economics experts and others, that offer various approaches on how to find the strength and the weaknesses and on how to react to opportunities and threats. But in the end they are all based on the same analysis. And to be able to implement one of these strategies, one has to understand at least the foundation of the world-renowned SWOT analysis.
Basic understanding and operation of the SWOT analysis
The general approach starts with the external and internal analysis of a company that can be displayed in a matrix. The next step would be the combination of the results gained from the external and internal insights. Last but not least, all results are displayed in a manageable SWOT matrix that can have different structures. Although the last step can change from user to user.
The external analysis, or also known as the environmental analysis, consists of observing and anticipating changes to the environment of a company, as the market, the technological environment or political situation, for example. The company observes the changes in its environment and decides whether theses changes pose a threat or can be used as a good opportunity. It has to anticipate these changes before they even happen to be able to properly react to them.
To find its own strength and weaknesses a company has to conduct an introspection. All strength and weaknesses of a company are results from the organized management and processes, thus they are created by the company itself. It is important to find every single one of them, not matter how minor and irrelevant it may seem.
Now the strengths, weaknesses, opportunities and threats have to be combined in the best possible way. The objective here is to specifically look out for combinations that maximize the benefit gained from the strengths and opportunities and minimize the loss that may come from the weaknesses and threats. There are four ways to do so:
- Strength-opportunity combination: Which strength can be used to make the most of a given chance? Which strength can even create new strength?
- Strength-threat combination: Which strength can be used to avoid which thread? Which strength could even contain risks?
- Weakness-opportunity combination: How can weaknesses be developed into strengths? Which weakness could contain a new opportunity?
- Weakness-threat combination: Which weakness could cause which threat and how can we eliminate these weaknesses, prevent the threats and avoid harm?
It is allowed and sometimes even desirable to use multiple strength for an objective or try to wipe out several weaknesses or threats with one strength. The SWOT analysis is a superb tool to analyse the strategic strengths and weak points of a company. But what is the meaning of the combinations and how can they be used? Actually every step is a strategy for itself and provides different results. The first combination for example aims to "expand". This is progress in its purest form. The strength-threat combination is where the company "catches up" to everything that it has missed on with its current weaknesses. To do so the company has to make the most out of those weaknesses. In the third step the company has to take preventive measures. It can be compared to an insurance. The last combination is similar to the third one and contains the things that needs to be avoided at all costs. After gathering the results of the four steps, they are usually visualized via SWOT-matrix to make it possible to analyse the results easier and intuitive and to get the best possible outcome.
Possible and frequent mistakes
The implementation of the SWOT analysis to a real life project, especially a bigger one, can be a vast amount of hard work, despite the fact that everything sounded logical and easy. There are several mistakes that are frequently made by many people in different situations, thus it can only be of advantage to know them in beforehand.
- Implementing a SWOT analysis without having a specific objective in mind. Don't even think about starting with the SWOT analysis if you don't have a goal, priorly. Keeping the process abstract will only result in team members having different results and this can be very unproductive.
- Don't confuse external opportunities for internal strengths!
- The SWOT analysis is not an appropriate tool to prioritize. Possible measures are found, but neither decided nor implemented. That step is what you make out of the results.
With keeping these in mind and following the steps properly there shouldn't be any business or personal decision that you can't analyse efficiently. But keep in mind that the SWOT analysis is naturally based on a rational point of view, as many other management tools. Nowadays, rationality is not well-deemed in all cases. It is alright and even desirable for internal matters, but be sure to present yourself properly to the respective public.