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SWOT (strengths, weaknesses, opportunities, threats) analysis is a survey of the internal and external environment in which a business or other organization operates. The analysis provides information that enables organizations to allocate their resources in such a way as to develop an advantage in meeting strategic goals. SWOT analysis is an important tool in the strategic planning process, but it has limitations.
Flexible but Vague
Proponents of the SWOT approach point to its flexibility as a major benefit. The flexibility of the SWOT framework makes it applicable in numerous settings, including business, government agencies and other organizations. However, this flexibility presents a limitation as well.
The SWOT framework emphasizes the elements of strengths, weaknesses, opportunities and threats, but provides no real guidance on how individual organizations can identify these elements for themselves. Strategic planners may not have all the information needed to identify strengths and weaknesses. For example, a business may believe its marketing strategy or customer service is a strength, but top executives may be unaware of existing problems in these areas.
Opportunity or Threat?
Organizations also may have difficulty determining whether something in their external environment presents an opportunity or a threat, and the SWOT framework does not offer a way to distinguish between them. Whether something represents an opportunity or a threat may depend on subjective judgment. Environmentalism resulting from concern about climate change may represent a threat to some analysts, while others may see it as an opportunity. The line separating strengths from weaknesses or opportunities from threats is not always clear, and SWOT offers no methods for drawing such lines.
Lack of Detail
The SWOT analysis provides a framework in which organizations can identify their internal strengths and weaknesses, as well as assess the external opportunities and threats. However, one of the problems with SWOT analysis is that it doesn't offer a way to rank each of the elements under these four headings or set priorities.
In fact, a SWOT analysis often consists of one- and two-word phrases to identify the strengths, weaknesses, opportunities and threats and includes no further details. This lack of detail is a major drawback to the SWOT framework. Further, SWOT does not require any justification for classifying something under the element in which it was classified.
Organizations can compensate for the limitations of SWOT analysis through in-depth discussion of weaknesses that focuses on transforming them into strengths. They also should try to reframe threats as opportunities. They also should aim for more detail in their SWOT analysis and weight each strength, weakness, opportunity and threat so as to rank and prioritize each element.
Quality of Data
The value of a SWOT analysis is limited by the quality of the data that goes into it. The involvement of numerous department heads, managers and employees will produce a lot of information. Some of it will be useful, but much will not. One of the problems is to sort out the relevant information from a daunting data base.
Another problem with data is that it reflects the opinions, biases and experience of the people submitting the information. They are selecting data that they think is important, and this may not coincide with the goals of management conducting the SWOT analysis. Plus, data entered into a SWOT analysis is captured at a specific point in time. The analysis does not allow for changes in this information over time, thereby giving the data a limited shelf life.
SWOT analysis is a useful management tool for assessing the current competitive environment and making decisions about where the company needs to concentrate its resources for future growth.
Shane Hall is a writer and research analyst with more than 20 years of experience. His work has appeared in "Brookings Papers on Education Policy," "Population and Development" and various Texas newspapers. Hall has a Doctor of Philosophy in political economy and is a former college instructor of economics and political science.