I’ve had the opportunity to do some thinking about SWOT analyses lately. When I was working through my undergraduate program (and even now in my MBA program) SWOT analyses are often necessary for completing a project. With that in mind, I decided to write up a brief explanation of what a SWOT analysis is, what environments it covers (internal vs. external), how it can be used, etc.
I assume that most readers will know what a SWOT analysis is, but for the sake of comprehensiveness, I’ll briefly recap that a SWOT analysis is used to identity the Strengths, Weaknesses, Opportunities, and Threats in of an organization. It can be helpful in identifying issues surrounding considerations such as strategy and competition, as well as opportunities to increase and sustain high levels of performance.
A simple diagram illustrating this is as follows:
Internal vs. External Environments
As demonstrated in the above diagram, SWOT helps to analyze both the internal and external environments. The strengths and weaknesses of an organization refer to those elements that the organization has control over, such as product, employees, and strategy. The opportunities and threats refer to elements that the organization does not have control over, such as political policies, societal values, and emerging technologies (those that are not developed within the organization).
Analyzing the External Environment
Generally speaking, analyzing the internal environment is easier than analyzing the external environment as most of the internal data is either readily available, or is easier to collect. Analyzing the external environment can be a bit more difficult.
Although this may seem somewhat simplistic, it may be helpful to remember the acronym PEST when beginning an analysis of the external environment. PEST stands for “political”, “economic”, “societal”, and “technological” and helps to identify external areas that may affect the organization.
For example, political policies, such as those surrounding health care, can have a large impact on the organizations that operate within that space. Changes to the economy, whether positive or negative, will effect the purchasing power of customers. The ebb and flow of societal values, sentiments, sympathies, and trends may influence the way that a product or service is perceived. Finally, technological advancements often have the potential to effect virtually every part of an organization.
Although there may be opportunities and threats outside of PEST’s scope, this provides a good starting point when performing an external analysis.
The Context of a SWOT Analysis
When performing a SWOT analysis, it is always helpful to consider the context in which the organization operates. For example, a SWOT analysis performed for a for-profit organization will almost certainly be performed in the context of the marketplace, and with the goal of determining or improving the organization’s strategic competitive advantage. Within a non- or not-for-profit organization, the context and goals will differ, and may emphasize a desire for increased productivity, efficiency, and effectiveness.
I recently had the opportunity to move from a not-for-profit organization to a for-profit organization and the difference in emphasis is clear. The not-for-profit organization was obsessed with results – that is, with the effectiveness of their services. In the for-profit organization, the emphasis is on providing the best possible experience to the customers, which – by maintaining an exceptional level of customer satisfaction – increases the organization’s competitive advantage.
A Brief Example
If you’ve gotten this far, congratulations! I know that this post has been rather dry, but I hope that you’ve found it informative as well. Before wrapping things up, I thought I’d provide a very basic example of a SWOT analysis.
We are going to say that the company in question is about to release a new and innovative technology. Since I’m a Star Trek fan (and so are you – even if you don’t know it yet), the new technology is in the form of the Food Replicator 1000. It converts energy into matter – food, specifically.
This product allows customers to replicate whatever food they want! From a chocolate sundae, to a Caesar salad, to panipopo and puligi (those are Samoan deserts – also, if you cook panipopo, hit me up!). All you have to do is power on the Food Replicator 1000, select the food you want (or enter in your own recipe) and within a few seconds it is materialized for you.
SWOT Analysis for the Makers of the Food Replicator 1000
Again, this is a very basic example. If you’re looking to cheat on your homework, this won’t cut it. Besides, don’t cheat. What would your sweet grandma think?
- Brand recognition: Brand recognition is one of the company’s core competencies. Through consistent, integrated marketing strategies, the company has helped consumers to recognize the Food Replicator 1000 brand and become familiar with the values that the brand represents, fostering an environment of trust.
- Excellent relationships with current suppliers: This company works hard to foster and promote excellent relationships with suppliers. Doing so helps ensure fair costs, and a reliable supply of the materials necessary in manufacturing the Food Replicator 1000.
- Entering markets where experience is negligible: This company continues to expand its product line into new and innovative territory. Although these opportunities are exciting, they also present the risk of “sailing in uncharted waters”. Many of the company’s products are unique and the company thus lacks the historic data that could provide insights as it would for more mature products.
- Entering a new market where demand is not well established: One of the risks associated with innovation is that demand for new products is often not well established and recognized by consumers in the same way that it would be for more traditional products.
- Innovative technologies to enhance features and innovation: As technological knowledge progresses and interest in tech-focused careers continues to grow, the company’s Research and Development teams have access both to new technologies where-with to develop new products, and enhance existing products, and larger pools of qualified professionals to assist in R&D functions.
- Social trend towards greater freedom of choice: Today’s consumers value the freedom of choice and variety. They want to be able to find, and quickly utilize products that meet very specific needs and criteria. This company’s dedication to innovation and creativity may place it in a position to take advantage of this emerging social trend.
- Substitute products: Although this company seeks originality and innovation in its product mix, it often builds upon established product paradigms in designing and inventing new products. As a result, traditional products still pose a threat as substitute products. For example, some customers may place the value of a traditional “home cooked meal” over the convenience that the Food Replicator 1000 offers. These customers may be more inclined to purchase a traditional oven/stove top rather than the Food Replicator 1000.
- Low-cost foreign producers: Without the regulations and standards that this company must adhere to by operating in the United States, off-shore firms are often able to imitate the company’s products and deliver them at prices that the company simply cannot match.
The goal of his post was to provide you with a basic understanding of a SWOT analysis and what it is used for. I know that this subject isn’t the most exciting, but having a knowledge of these concepts is essential for anyone interested in business, management, or related fields.
If you have any questions, please post below!