SWOT Analysis is a framework wherein it evaluates the internal and external factors of the business in attaining its objectives. It is very useful when generating an effective strategic plans or alternatives. SWOT is the acronym for Strengths, Weaknesses, Opportunities and Threats. It defines for different aspects of the situation within the business itself.
SWOT analysis is a tool that can be used by the managers by reviewing the organization’s strengths, weaknesses, opportunities and threats, then a helpful and concrete strategy can be formulated in order to ensure that the success of the organization will soon be realized.
SWOT analysis’ aim is to know the factors relevant to the internal and external parts of the business. There are two main categories to derive the information from. These are: Internal Factors, of which the strengths and weaknesses are taken into account within the organization; and External Factors, the opportunities and threats as represented by the external environment.
The strengths and weaknesses of the organization are considered internal factors. These internal factors usually use the 4 P’s; and other aspects such as finance, manufacturing capabilities. For the external factors it usually include: socio-cultural change, macroeconomic matters, change in technology, legislation, and changes in the market place. The information derived from the internal and external factors are placed in a matrix form. Out of the results, the process of analyzing begins. This will be helpful in critically analyzing the current situation of the business, if it is heading towards the right direction in achieving its objectives or not. In this manner, there can be a development of a strategic plan out of the SWOT.
SWOT analysis is another tool and method used in categorization. It may be a helpful tool to use but it has some disadvantages. Disadvantages such as: has the ability of persuading companies to have a long list of information than focusing on thinking the important things in achieving its goals or objectives; presentation of uncritical list of results without having a clear priority, for instance, the balance between strong threats and weak opportunities.
The real deal here is that the information that resulted from the listing in the form of matrix for the SWOT is that it will lead to a formulation of a strategic plan. It will be a source of the basic data that will be used in generating an alternative strategic plan. It has a vital role in the strategic planning process, if this tool will be used.
It should be pointed out that the information given should not be biased. It should the real facts and circumstances that are happening within the organization and outside the environment. This is an assurance that the results that will be given in relation to the formulation of a strategic plan will be accurate and geared to reach and realize the organization’s objectives.
The first thing to do in the SWOT analysis is identifying what are the strengths of the organization. Strengths are the things that the organization has been doing well or is good at it. It might be a competitive advantage over other organization in the playing field, competence or a skill. These can be identified with based on the ability of the organization and the resources that are available. Strengths are internal factors. Therefore, you have to look deeper within your organization and focus on what is going on within the organization based on its abilities and resources that are available.
As to ability, three factors should be considered: versatility, which means the ability to adapt to a changing environment; growth, the ability of the organization in maintaining a continuing growth; markets, the ability of the organization to create or enter into new markets.
As to resources, there are three factors to be considered: availability, the ability of the organization to get the needed resources; quality, which pertains to the quality of the resources that are available; allocation, the ability of the organization to distribute resources efficiently and effectively.
Another internal factor in the SWOT analysis is the Weaknesses. Weaknesses are the things that the organization does poorly compared to other organizations; these can also pertains to things that the organization lacks; or certain conditions that hinder or put the organization in a disadvantage to reach its goals and be successful. Weaknesses can be determined through analyzing what are the organization’s losses, failures, defeats and inabilities that do not match up to adapt to the rapidly changing environment. There are some root causes why such weaknesses arisen. These are might be of the following: lack of resources, slow deliveries, inadequate processes, inability to incorporate technology within the organization, insufficiency of quality, and the most common root cause is the lack of the management when it comes to managerial skills.
Through analyzing what are the weaknesses of the organization there are certain possible results that might arise these are: aggression, to change the attention from the organization’s weakness; protection, this is done by having strategies to lessen the weaknesses; correction, which means the identified defect will be corrected at the earliest time possible.
Opportunities are one of the external factors in the SWOT Analysis. These pertain to the areas where the organization has the most potential to develop something unique or will be of great advantage with regard to the organization. These are realistic views that will help the organization for its future development.
Opportunities are always there. There must be a creation of a formula that will help the organization to define what comes within the course of the opportunity in order to focus on those certain areas and as well to pursue those opportunities as effectively as possible. There are some factors that should be considered to base the formula with. These factors are: product or service, capabilities required, target market, resources needed, return on investment, and the level of risk.
Threats are considered as another external factor in the SWOT analysis. Threats can lead to the lowering down of the organization’s future performance. There are certain causes why such threats are present. Causes like: using of a cheaper technology, the entry of low-cost competitors to the market, new regulations implemented, and as well as market changes.
The important thing to take note is to identify what are the threats that are present. These can be identified by making a list of risks that the organization is currently facing. By this way by using the list it there can be a great chance of converting these threats into opportunities.
With SWOT analysis, there will be a way of identifying the areas where you can have the most beneficial strategies and targets based on the current situation of the organization. The analyzing SWOT is done through referring to the SWOT matrix. There are four quadrants that are present in the matrix.
Quadrant 1: Strengths and Opportunities
This will aid the organization in formulating strategies by taking advantage of the strengths in order to pursue the best opportunities at your very own disposal. This is very vital especially when the opportunities are there for a short period of time.
Quadrant 2: Strengths and Threats
This will aid the organization by formulating strategies by using its strengths in order to lessen or eliminate the threats that the organization is currently facing.
Quadrant 3: Weaknesses and Opportunities
This quadrant can aid the organization through the formulation of strategies by opening up the opportunities along the road by reducing some weaknesses that are currently present.
Quadrant 4: Weaknesses and Threats
Through this quadrant there will be a formulation of strategies that will help in mitigating or even avoiding threats that has resulted from the organization’s very own weaknesses.
For short term goals or objectives, the organization should focus on at least one or two quadrants. For long term, it is advisable to include the goals coming from each of the four quadrants in order to create balance.