Importance of SWOT Analysis

A SWOT analysis is one of the most important strategic tools available to a company, division or department. The acronym SWOT stands for strengths, weaknesses, opportunities and threats. The significance of SWOT analysis is that it provides a good way for companies to examine both positive and negative attributes within a single analysis, determining how best to compete in the market at large.

The Meaning of SWOT Analysis

SWOT analysis is an in-depth look at exactly how a company operates. It examines the strengths of the company, acknowledges its weak points and identifies both opportunities and threats in its market. These are all useful pieces of information that in most cases will help a company or department to succeed. In conducting a SWOT analysis, a company evaluates its current position in the market and compares it to the future opportunities and risks that could affect it moving forward.

Providing a Simple Value

Simplicity and a broad perspective are two core traits that combine to make a SWOT analysis so important in strategic planning. It can be a simple tool to use because the process involves listing all items in each category in a spreadsheet or table. Depending on who is performing the analysis, it is common to involve business or division leaders, regular employees and even clients. The broad perspective stems from the fact that you identify everything that makes your company successful, but also your areas of vulnerability.

Looking to the Future

What really makes SWOT powerful is its usefulness in setting a course to take advantage of prime business opportunities. Without a strategic plan, companies can just aimlessly drift around without a strategic direction, or operate without development. In highly competitive industries, failing to seize openings is almost as catastrophic as making a major mistake. If a new customer segment emerges due to shifts in preferences, for instance, it is often a race to see which company best serves the need first.

SWOT allows you to map out this possible opportunity well in advance, and begin planning to deliver a quality solution and marketing plan before the opening hits.

Self-Preservation and Protection

Though it isn't always pleasant to scrutinize your weaknesses or deficiencies, top companies know where they stand in all critical areas relative to the competition. Walmart is renowned for its low-price leadership in discount retail, for example, but company leaders likely recognize criticism of its limited customer services. With some weaknesses, you have opportunities to improve. With strategic limitations tied to its low-price strategy, the goal for Walmart is more to downplay the weakness, target customers who prefer low prices, and promote that core benefit.

Threats are another key SWOT element in guarding against risks. Companies that don't use a planning tool like SWOT may be caught off guard when threats emerge. In contrast, effective use of SWOT helps a business adjust or prepare for pending threats. Some businesses wait until a recession slows revenue, for instance, while others recognize the potential for recession in advance, alter promote strategies and trim budgets. Other potential threats identified through SWOT include shifting customer preferences, technological changes and environmental concerns.

Why Is SWOT Analysis Important?

Performing a SWOT analysis helps companies to recognize both threats and opportunities that they need to be aware of. There are many benefits of SWOT analysis in healthcare, for example, where recognizing both the dangers and opportunities present can result in safer and more productive care of patients. By undergoing SWOT analysis, companies can better compete in their industries while passing on benefits such as lower costs and higher quality service to their customers.

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About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.