To answer the strategic question of where a business should go, the leaders of that business conduct internal and external reviews to understand what the company does well and what is required to be operationally and financially effective. In such instances, a business frequently maps company objectives to its strengths, weaknesses, opportunities and threats to identify valid strategic alternatives.
During a brainstorming session, a company’s leaders define a business objective and use the SWOT tool to analyze business strengths that will help the company accomplish a goal and the weaknesses that will hamper the company’s efforts. Participants also state the conditions — the opportunities — that will support the achievement of the objective and the threats that will complicate their efforts.
If the final analysis indicates the objective might be achieved, the goal becomes an element of the company’s strategy. If not, another objective is selected and the brainstorming session, employing the SWOT analysis, is repeated.
Companies use the SWOT analysis to structure strategic planning brainstorming sessions, which facilitate the evaluation of business alternatives. For example, SWOT analysis is effective in analyzing the introduction of new services and products, participation in joint ventures, the commitment to business expansion and the implementation of new business functions and processes. SWOT analysis is also useful in assessing vendors, product markets and technologies.
The conduct of a SWOT analysis is consistent regardless of the objective of the brainstorming session for which it is used or the organizational level at which the analysis is performed. Whether used to conduct a competitive analysis, strategic planning or other study, the focus of the SWOT analysis is to identify environmental factors that are either favorable or unfavorable to the achievement of a particular objective.
Neither technical skill nor extensive training is required to conduct a SWOT analysis. As a result, an external consultant is not required to obtain satisfactory results from the analysis. Any staff member who has knowledge of the business and its industry can perform the analysis. In addition, an employee can perform the analysis relatively quickly, conserving company resources.
The result of a brainstorming session that employs the SWOT analysis will be four lists noting strengths, weaknesses, threats and opportunities. However, the analysis does not provide a means to identify the significance of one item versus another within a list or different items in the separate lists. Therefore, additional analysis is required to evaluate the impact of the individual strengths, weaknesses, opportunities and threats on the objective of the study.
A SWOT analysis is a subjective process, which produces a result that reflects the bias of the participants of the study. In addition, the analysis considers data that is available at a particular moment and may become outdated quickly. Thus the analysis may lead to business decisions based on unreliable or irrelevant data.