The Importance of SWOT Analysis

SWOT which stands for an abbreviation of (strength, weakness, opportunity and threat; is an analysis that defined as method to examine organization’s internal factors dealing with strengths and weaknesses, and its environmental opportunities and also the threats. SWOT analysis usually use in the preliminary phase of decision making as a general tool which it designed for being antecedent to strategic planning in different case and applications. SWOT Analysis can be used as a model, process, technique or framework to provide information about those factors strengths, of an organization by having many applications with possibility of being used in all the levels of the organization.

SWOT analysis is a part of the strategic planning process. Companies have some internal and external forces in the business environment. As a first step of a strategic planning system, the strategic factors that are related with the potential of the company, should be identified and evaluated. The identification and evaluation of the strategic factors helps to reach an actual strategic plan and as a result the managers are able to gain insight of internal and external nature of the company and establish suitable actions in order to reach good performance. In order to have good performance in strategic planning, the future objectives on the company’s strength and the weaknesses of the company must be considered by the company. Internal strengths and weaknesses are the main components of the strategic management process but it must be reinforced with considering opportunities and threats from the external environment.

Importance of SWOT Analysis

SWOT analysis is the internal analysis of organizational Strengths (what an operation does well) and Weaknesses (what an operation does not do well) and as well as the external analysis of environmental Opportunities (potential favorable conditions for an operation) and Threats (potential unfavorable conditions for an operation); and it is a general tool at the initial stages of policy making and strategic planning and as well, it is a part of the latter stages of analyzing the performance and planning for further development of the organization on. SWOT analysis is used as a technique in order to develop a planning process and solutions for the problems that are related with different internal and external factors and maximize the potential of strengths and opportunities as well as minimizing the negations of weakness and threats.

The first step of SWOT analysis is a systematic evaluation of the organization’s resources and capabilities. Strength in SWOT analysis is connected to competitive advantages and distinguishing competencies of the company in its market environment. But weaknesses can be considered as limitations that can affect the progress of the company in a negative way. This evaluation includes identifying core competencies by considering special strengths which are superior to the competitors. The core competency is a special strength which gives an organization a competitive advantage and it may be found in special knowledge or expertise, superior technologies, efficient manufacturing technologies, or unique product distribution systems, among many other possibilities. Strategy formulation has an aim which is to form strategies that leverage core competencies for competitive advantage by constructing organizational strengths and minimizing the impact of weaknesses. As a first step in the development of a strategic planning system, business managers therefore commence with the identification and evaluation of these strategic factors which assist or hinder the company in reaching its full potential. Normally every company is confronted with a dynamic environment; the relative importance of a strategic factor will change constantly, so the SWOT analysis is correspondingly to be of a permanent nature. The list of strategic factors can be used as a point of departure for the actual strategic plan within a small or medium sized enterprise. It is a flexible instrument. The greatest advantage is that it helps managers of small and medium sized enterprises survey the different management areas, gain insight into the significance within the framework of the company, and accordingly initiate suitable actions.

Good performances within a company are the results of correct interaction of business management with its environment. This environment can be of either an internal or external nature. To operate successfully in this respect, the company must concentrate its future objectives on its strengths, while averting tendencies related to the companies weaknesses. To simplify the way that SWOT analysis usually used, there are to initial steps to follow: 1. Internal Analysis: Examining the capabilities of organization. Carefully examining all strengths and weaknesses and drawing ideas from projects that have both successfully and unsuccessfully completed. 2. External Analysis: Looking at the main points in the environmental analysis, and identifying those points that pose opportunities for organization, and those that pose threats or obstacles to performance. Carefully examining the market in which it intends to launch the product and analyze what the status of the competition.

Responding to internal strengths and weaknesses is therefore an essential component of the strategic management process. But success can only be achieved in this respect to the extent that one is familiar with the opportunities and threats resulting from the external environment. The recognition of the internal strengths and weaknesses, as well as external opportunities and threats, takes place on the basis of a study, which called SWOT analysis. Generally no standard list of crucial factors which apply for all companies exists because of the specificity of this set. Within the framework of this study, however, we chose to concentrate solely on the internal business environment. This therefore only concerns the identification of strengths and weaknesses.

Strengths thereby relate to the competitive advantages and other distinguishing competencies which can be exploited by the company on the market. A distinguishing competence is something which can be done very capably by a company. Weaknesses, on the other hand, are limitations which hinder the progress of a company in a certain direction. Weaknesses are those attributes of the organization that impede achieving the objective and limitations or deficiency in one or more resources or competencies relative to competitors that impedes a firm’s effective performance. Opportunities are outside conditions that help to achieve the objective major situation in a firm’s environment. Key trends are one source of opportunities and identification of a previously overlooked market segment, changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities for the firm. Threats are also outside conditions that impede achieving the objective and impediments to the firm’s current or desired position. The entrance of new competitors, slow market growth, increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations could represent threats to a firm’s success.

Taking strategic actions is advised for the organizations to preserve or sustain strengths, offset weaknesses, avert or mitigate threats, and capitalize on opportunities. Strategies can consider as the balancing act between the external environment like opportunities and threats and the internal capabilities of the firm such as strengths and weaknesses. Basically SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations.

As a first step in the development of a strategic planning system, business managers should therefore commence with the identification and evaluation of these strategic factors which assist or hinder the company in reaching its full potential. Because every company is confronted with a dynamic environment, the relative importance of a strategic factor will change constantly, so this analysis is accordingly to be of a permanent nature. In identifying SWOT a particular factor is relevant only with reference to a specific objective. For example, a large cash balance is strength if the objective is expansion. If the objective is to discourage a hostile take-over, a large cash balance is a weakness. The SWOT analysis headings provide a good framework for reviewing strategy, position and direction of a company or business proposition, or any other idea. Completing a SWOT analysis is sometimes simple and useful which can be used for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports.

The strengths and weaknesses can be found in the functional company fields, or they may be a consequence of abnormal interaction between different fields. Furthermore, the strengths and the weaknesses of an aspect must be measured at different levels of the organization; this can be at group level, at individual company level or at product or market level. The evaluation of the performances of the past may not be neglected with the measuring of strengths and weaknesses because it provides historic insight into the strategy of the company previously implemented as well as the successes accordingly achieved. Historic investigations may not only be limited to the pure analysis of the paths followed by the company in the past and the results achieved, they must also devote attention to the reasons for this success. With the lists compiled, sort and group facts and ideas in relation to the objectives. It may be necessary for the SWOT participants to select their five most important items from the list in order to gain a wider view. Clarity of objectives is a key to this process, as evaluation and elimination will be necessary to cull the wheat from the chaff. Although some aspects may require further information or research, a clear picture should, at this stage, start to emerge in response to the objectives.

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