SWOT is an acronym for internal Strength (S) and Weakness (W) of an organization, and external Opportunities (O) and Threats (T) facing that organization. A merging of the organization’s resources with the opportunities in the environment results in an assessment of the organization’s opportunities. This merging is frequently called SWOT analysis because it brings together the organization’s Strengths, Weakness, Opportunities, and Threats in order to identify a strategic niche that the organization can exploit. Having completed the SWOT analysis, the organization reassesses its mission and objectives.
In the light of the SWOT analysis and identification of the organization’s opportunities, management reevaluates its mission and objectives. Are they realistic? Do they need modification? If changes are needed, in the organization’s overall direction, that is where they are likely to originate. On the other hand, if no changes are necessary, management is ready to begin the actual formulation of strategies.
- Strength: Strength (internal) is a resource, skill, or other advantages relative to competitors. It is distinctive competence that gives the organization a comparative advantage in the market place. Market leadership, public image, experience, financial and human resources, organization network and alliances, etc., is examples of organizational strength.
- Weakness: A weakness (internal) is a limitation or deficiency in resources, skills, and capabilities that seriously affect performance. Lack of facilities, resources, management capabilities, marketing skills, etc. are sources of weakness.
- Opportunities: An opportunity (external) is a major favorable situation in the organization’s environment. The example of an opportunity could be new market, reduction in compaction, higher economic growth rate, technological changes, and so on.
- Threats: A threat (external) is a major unfavorable situation in the organization’s environment. The entry of a new competitor, increased bargaining power of the suppliers and buyers, major changes in technology and government regulations, slow market growth, etc are some examples of organizational threats.
SWOT analysis provides a useful framework for making the best strategic choice. A business strategy can be seen as an optimal match between the external opportunities and threats, and the organizational strengths and weakness. This process of optimal matching is essential for developing appropriate course of action
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Internal Aspect External Aspect |
Strengths (S) | Weakness (W)
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| Opportunities (O)
|
SO
Strategies |
WO
Strategies |
| Threats (T)
|
ST
Strategies |
WT
Strategies |
- SO: This is the most favorable situation. The organization has several environmental opportunities and has numerous strengths. The organization in this situation has to adopt and aggressive strategy to take advantage of the opportunities.
- WT: This is the least favorable situation. The organization faces environmental threats and also has relative weakness. This situation calls for a defensive strategy. The organization has to reduce the involvement in existing products and markets, and sustain itself until situation improves.
- WO: This is a situation in which the organization faces impressive market opportunities but is constrained by several internal weaknesses. The only strategy in this situation is to eliminate internal weaknesses to exploit market opportunities.
- ST: This is a situation in which the organization’s key strengths face an unfavorable environment. The strategy in this situation is to use current strengths to build long-term opportunities and diversity the business.
In actual situation, it is not easy to identify and visualize the position of a business as shown above. There could be multiple of combination of these positions. Hence, matching the internal strengths and weakness with external opportunities and threats is not always easy. This needs a thorough analysis of the overall position of the organization in terms of the strategy to be pursued. The goal is to then develop good strategy that exploits opportunities and strengths, neutralize threats, and avoid weakness. As a guideline, some relevant question for SWOT analysis are given in Table below:
| Potential Strengths | Potential Opportunities | Potential Weakness | Potential Threats |
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Credit: Strategic Management-MGU