Look at any mall map and it will let you know: "You are here." How else could you plot a course without that starting information? For a business looking to formulate a new strategic path, a SWOT analysis provides that starting information. The company inventories strengths, weaknesses, opportunities and threats -- where the SWOT acronym comes from -- and from this determines strategic goals. Finally, with the company's advantages and disadvantages newly revealed by the SWOT analysis, a business can produce a focused and refined strategic plan to generate new business and achieve company goals.
The strengths of a company comprise everything the company can bring to bear to seize opportunities or defend itself against threats. Leaders should assess all business areas: personnel, research and development, production, marketing, management and finances. Examine depth of employee talent and expertise, morale, productivity and retention rate. In marketing, look for strengths such as great customer service or a stellar sales team. Research and development strengths might include the ability to quickly get a product to market.
Inventorying its weaknesses helps a company understand what it can realistically achieve. It also alerts a company to vulnerabilities a competitor can exploit. The same areas assessed in identifying strengths should also be examined for weaknesses. Sometimes changing a weakness to a strength becomes one of the company's goals.
Management finds opportunities by looking outside the company to the present and future marketplace. The inventory of opportunities yields possible directions a company can take, such as entering a new niche or location, or doing business a new way. Looking into future opportunities, a company might re-evaluate and rewrite its mission statement.
External conditions produce threats. Looking to factors including competitors, changing consumer behavior, market conditions and economic climate helps companies skirt or lessen the impact of market challenges. Forewarned is forearmed.
A productive method of analyzing the SWOT inventory compares internal strengths and weaknesses against external opportunities and threats. Where strength meets opportunity, a company should likely mobilize to benefit from the favorable situation. Matching strengths to threats reveals places where strategic action can most easily bolster a company's defenses. Weaknesses to threats, on the other hand, exposes holes in the company. Finally, examining where weakness intersects with opportunity gives management possible areas of gain if weaknesses can be transformed to strengths. Analyzing this way leads managers to a better understanding of where a company should be headed and why, and the resources to deploy to get there.