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The Definition of SWOT Analysis

  Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
  Written by: Jill Harness      Updated January 16, 2019
SWOT analysis business strategy management

One of the best ways to evaluate how your business or project is going is to perform a SWOT, meaning you should analyze your strengths, weaknesses, opportunities and threats. A SWOT analysis is a quick tool that lets you visualize how something is performing and what challenges could stand in the way of your success. The strengths and weaknesses sections focus on internal influences, while opportunities and threats look at external factors.

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  • A SWOT analysis is a way to easily visualize strengths, weaknesses, opportunities and threats to see how something is doing and what could prevent its success.

SWOT Analysis Definition

While it is most commonly used by businesses, a SWOT analysis can also be used to evaluate specific projects, products, nonprofit agencies, industries, locations, governments, departments, personal growth, potential investments and more. Essentially, the model looks at what a business or other entity can or cannot do and what could help and hinder its success in the future while factoring in both internal and external influences.

The framework was created by Albert Humphrey, a scientist at the Stanford Research Institute, who looked at data from Fortune 500 companies in order to perfect this method of business evaluation. The model is so popular now that it is used by entities across the globe. You will often even see it translated into other languages. For example, in Spanish, SWOT is instead called FODA, which stands for fortalezas, oportunidades, debilidades y amenazas (strengths, opportunities, weaknesses and threats).

By using a SWOT analysis, a business or other group can quickly see what is helping it to achieve its goals and what obstacles are standing in the way of those successes. The company can then build a strategy for how to overcome those obstacles or at least minimize the potential damage from them.

Basic SWOT Layout

A SWOT analysis is made up of a large square broken into four smaller square quadrants. The quadrants are then labeled as strengths, weaknesses, opportunities and threats.

Strengths and weaknesses focus on internal factors, while opportunities and threats focus on external influences. By laying out these factors, you can view the SWOT to quickly ascertain where a company or project stands at a given point in time. It is worth noting that not all points under a heading may be of equal importance, so just because one section is bigger does not mean that it outweighs the others.

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What Are Strengths and Weaknesses?

Strengths and weaknesses in a SWOT refer to internal attributes that may affect a particular outcome. The strengths should describe where the organization excels and what makes it better than its competition: for example, a strong brand, a dedicated fan base or proprietary technology. Weaknesses should describe which internal factors are working against a successful outcome, preventing it from performing at its peak level. Examples of weaknesses may include high employee turnover, high levels of debt or a lack of capital.

When creating your list of strengths, consider the following questions. What are the advantages you offer customers? What do you do better than the competition, and why should customers choose you over them? What are your unique selling points? Try to be realistic and consider things from a consumer perspective rather than your own, as you are likely to be biased in your evaluation of your own product or company, and the SWOT works best when performed from an objective perspective.

When considering your weaknesses, you might want to ask people outside your company for suggestions to make sure you don't miss anything, especially since some of the questions that need to be answered may be difficult.

Be sure to consider the following when creating your SWOT. What could your organization improve? What should your organization avoid? What do customers see as your weaknesses? What makes you lose customers or market share?

What Are Opportunities and Threats?

These two factors are based on outside influences. Opportunities refer to external factors that can help give an organization a competitive advantage or something on which to capitalize: for example, market trends, celebrity endorsements or inexpensive labor costs. Threats are things that may jeopardize an entity's success. Common threats include things like rising material costs, increasing competition or a small labor supply.

When considering opportunities and threats, be sure to look at factors such as technological developments, governmental policy changes, changes in the market and new suppliers. Be sure to ask yourself: What trends will impact the business? What is the financial situation of the organization? Could new technologies help or hurt the project?

How to Do a SWOT

First, strive to be objective and look at things from the perspective of the consumer. If you know your ingredients are sourced from the best possible farms in the area, but your competitors tend to source from the second-best farms, assume the typical customer won't notice the difference. If necessary, ask a customer or friend for their thoughts so you do not position yourself higher than you should in your SWOT and render it ineffective.

Before you start your SWOT, consider what exactly you're measuring. Don't focus on the whole company if you really are interested in how one product is doing. You might want to get an overview of the overall success of a company, or you might be trying to look at a specific goal, such as the likelihood of an expansion.

You can be as specific or general as you want when performing a SWOT, but be sure you know your focus before you get started, or you may have strengths focusing on just one product and weaknesses focusing on a specific plant location. In some cases, you may want to perform smaller SWOTs focusing on products or projects that can then be combined to create a larger company or department SWOT.

Working With the Matrix

While there are many templates available for a SWOT analysis, the easiest way to get started is to simply divide a chart into four sections labeled strengths, weaknesses, opportunities and threats. A template might be beneficial in helping to guide the discussion, though.

Some people try to focus on one area when filling out a SWOT, such as just strengths, but when you first start brainstorming, it can be easier to start putting entries into the right sections as you think of them. Once you start slowing down with your ideas, you can focus on adding to each section individually. If you get stuck, you can look online for brainstorming SWOT questions that will help move things along, such as "What does your company do better than others?" or "What areas do you need to improve?"

Reviewing Your SWOT

Because you'll be brainstorming as you initially add entries, make sure you go through your points before finishing the analysis to clarify vague points, eliminate duplicate entries and ensure everything is in the right section (internal factors are often added to the external sections and vice versa). You may notice the external factors outweigh the internal factors, as internal issues are easier to see since you work with them directly on a regular basis. If that's the case, it can be beneficial to return to the matrix, focusing solely on external factors.

SWOT Analysis Example

A SWOT analysis of the Coca-Cola company in 2015 had strengths including the company's brand awareness and large distribution network, weaknesses like a lack of healthy beverage options, opportunities including new emerging markets and threats such as foreign currency fluctuations and increased consumer desire for healthy beverages. To address these concerns, the company ramped up its marketing, advertising and promotional activities in other countries and expanded its selection of perceived healthy beverages. Within a year, its stock climbed from $39 per share to $46.

About the Author

Jill Harness is a blogger with experience researching and writing on all types of subjects including business topics. She specializes in writing SEO content for private clients, particularly attorneys. You can find out more about Jill's experience and learn how to contact her through her website, www.jillharness.com.

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