SWOT analysis is a process that identifies an organization’s weaknesses, threats, strengths, and opportunities. It comes from the acronym in English SWOT (Strengths, Weaknesses, Opportunities and Threats).
Specifically, SWOT, also known as SWOT or DOFA, is a basic, analytical framework that assesses an organization’s strengths and weaknesses, as well as its potential opportunities and threats. It takes information from an environmental analysis and separates it into internal strengths and weaknesses, as well as their external opportunities and threats.
Origin of the daff analysis
It is considered that its founder was Albert S. Humphrey,who elaborated this technique in the sixties and seventies in the United States in a research of the Stanford Research Institute. What Humphey was aiming for was to discover why corporate planning fails in a company and how its competitiveness can be analyzed with respect to its competitors.
SWOT analysis in the company
It determines what helps the company in meeting its objectives and what obstacles need to be overcome or minimized to achieve the desired results. When using SWOT analysis, an organization has to be realistic about assessing its strengths and weaknesses. This analysis needs to examine where the organization stands today and where it can be placed in the future with a proper business plan.
The SWOT should remain specific, avoiding grey areas and focusing on analysis in relation to competition. For example, how do the organization’s products and services compare to those of the competition? SWOT analysis should be short and simple, and should avoid complexity and over-analysis, as much of the information is subjective. Therefore, it should be used as a guide and not as a recipe.
Weaknesses, threats, strengths and opportunities
A distinction must be made between internal and external factors, i.e. the first two are entirely dependent on the company and the two external ones are variable.
- Weaknesses:Prevent an organization from performing at its optimal level. They have the potential to reduce progress or bring an advantage to the competition. An organization needs to minimize weaknesses and analyze how they can be improved. An insufficient supply network or lack of capital are examples of weaknesses.
- Strengths:describe what an organization excels at, allowing decisions to be made in a way that gains a competitive advantage. For example, a hedge fund may have developed a self-employed trading strategy that returns superior results compared to its competitors. Next, you need to decide how to use those superior results to attract new capital from investors.
- Threats: are all those factors that have the potential to negatively affect an organization. For example, a drought is a threat to a wheat producing company, as it can destroy or reduce the yield of a crop. Market share is likely to be lost if a competitor has not diversified its operations in terms of location. It is prudent for an organization to have a comprehensive contingency plan that addresses potential risks and specifies how to deal with them.
- Opportunities:Refer to favorable external factors that an organization can use to take advantage. For example, an automaker may be able to export its cars in a new market if tariffs in a country are substantially reduced. This will make it likely that sales and market share will increase, which can create a competitive advantage in terms of scale.
Internal analysis and external analysis
To detect the strengths and weaknesses of a company according to the SWOT method, an internal analysis must be carried out before making the decision of what type of business strategy you want to apply. In this regard, the following factors must be carefully studied:
- Marketing efficiency
- The organization of the company
- The template
- Financial resources
After knowing in depth what the situation of a company is, the next step is to know the external factors that can determine its strategy and that are framed in:
- The market
- The sector
- The competition
- The environment
Strategies applicable after SWOT analysis
In order to perform a SWOT analysis correctly, a company must first define which is the business strategy that best suits the achievement of its objectives. This decision will depend on the internal situation of the organization, the competition, the moment that the specific sector is going through and the general economic situation. Taking into account all these factors, we can define four types of strategies:
- Defensive strategies. They are applied when the objective is to enhance internal strengths to combat an external threat, which happens when there is a lot of competition or a crisis occurs in the specific sector.
- Offensive strategies. It is the strategy adopted by leading companies in a sector with new launches at a specific time when the market layout favors it. They are based on maximizing both strength and opportunity.
- Reorientation strategies. It is a set of actions designed to overcome weaknesses in order to take advantage of the opportunities offered by the market.
- Survival strategies. It is the option aimed at avoiding threats and minimizing weaknesses in a crisis situation, although combating external threats without having sufficient internal strength sometimes becomes a nightmare. In this case, many experts recommend waiting for the changes that have produced the crisis in the sector to take hold before making decisions.