A SWOT analysis is a strategic management tool meant to help a business conceptualize different facets of its own operations. The term SWOT is an acronym for strengths, weaknesses, opportunities and threats. The four categories are divided into external and internal analysis: strengths and weaknesses are considered internal and opportunities and threats are external.
A SWOT analysis is a way for business managers to brainstorm and think about various important elements of a business in an organized framework. A SWOT analysis can be carried out by having a brainstorming session where managers meet and make a list of all the companies’ perceived strengths and weaknesses and then opportunities and threats.
A SWOT analysis typically consists of a list of the four elements that make up its name in a side by side or box orientation for ease of comparison and analysis. In a SWOT, strengths are things that the company does well or assets that the company has such as strong customer relationships or a great product. Weaknesses are areas where the company could use improvement, for instance low consumer awareness about the company or inadequate access to loans could be weaknesses. Opportunities are external factors which the company may be able to harness and turn to an advantage. For instance, a government grant program from green energy could be an opportunity for a startup company dealing with producing green energy. Threats are external factors that could harm a business. Examples of threats are new legislation or taxes that limit profits or new sources of competition.
A SWOT analysis is a relatively simple and quick way for managers to think about and discuss broad issues about the company. It allows for creativity and idea generation which can bring new markets, investments to light. For instance, if a SWOT shows that a company weakness is poor consumer knowledge about the company's products, an external opportunity such as a fair frequented by the company's target customer might present a good way to break down that weakness.
The ultimate goal of a SWOT analysis is to capitalize on strengths and opportunities while diminishing or overcoming weaknesses and threats. Ideally, a SWOT analysis would lead to ideas to turn weaknesses into strengths and turn threats into opportunities. For instance, if a new competitor is gaining market share and is seen as a threat, a partnership with the new company or buying out the new company might turn the threat into an opportunity.
Since a SWOT analysis can deal with a wide range of issues it is important to include managers from different departments in the brainstorming process. A team of people from a certain department might know many strengths and weaknesses that are specific to their area, but they might not be as aware of issues that lie outside their area of expertise.