SWOT Analysis Helps Strategic Plan Development
Internal Company and External Environment Analysis Can Reveal Much
Oct 17, 2009
It is important to specify the objectives to be achieved in advance because some strength that helps certain objectives can become weakness in the context of other objectives. For example, a large installed production capacity can be a strength if the objective is to enter new markets that have unfulfilled demand. The same strength can become a possible weakness if the objective is to enter a new line of business in the context of changing market conditions.
What is SWOT Analysis?
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The analysis is a preliminary to strategic planning exercise. The whole exercise starts with the setting of clear objectives to be achieved; this objective can be a future business scenario towards which the company wants to move.
Once the objective is specified, a situation analysis is done to identify and list existing factors that can prove helpful in achieving the objectives and also those that can pose problems. The situation analysis looks at both internal factors and external environmental factors. The internal analysis seeks to reveal the strengths and weakness of the company, while the external analysis looks at marketing and competitive environment as well as other factors that can affect the particular business or businesses in general.
The SWOT Matrix
The results of the analysis are represented in a matrix with four quadrants, representing Strengths, Weaknesses, Opportunities and Threats. The following list illustrates typical factors that are included under these heads:
- Strengths: Technology Know-how, Strong Brand Name, Established Distribution Channels, Good Product Reputation, Excellent Customer Relationship, Effective Management
- Weaknesses: Lack of technical skills, No Brand Name, Poorly Organized Distribution Network, Quality Problems, Poor Customer Retention Record
- Opportunities: New Technologies, Changing Market Conditions, Removal of Geographic Trade Barriers, Changing Population Age Structure, New Distribution Channels
- Threats: All the items listed as opportunities can work in reverse, posing threats to a particular business. For example, new technologies can make the company's product obsolete, and removal of trade barriers can flood the market with competing products from other countries
While analyzing external factors, a PESTLE analysis can prove helpful. PESTLE stands for:
- Political factors such as taxation policy, labor laws, trade tariffs and other government regulations, and political stability in the country
- Economic factors such as growth, interest rate and exchange rate
- Sociocultural factors such as attitude to work, health awareness, and age distribution and growth of population
- Technological factors such as R&D, pace of technology changes and new technologies
- Legal factors such as environment law, consumer protection law, discrimination law and antitrust law
- Environmental factors such as weather patterns and climate change
It must be noted that only those factors that affect strategy formulation are relevant in the analysis. If a factor is not going to affect strategy one way or other, it should be ignored.
Strategic Planning
The findings of the SWOT analysis should be consciously used in planning the strategies to achieve predefined objectives. Otherwise, the analysis becomes a mere listing exercise.
- Analyze existing strategies to identify those that need to be reoriented
- Define strategic issues that need to be addressed to achieve defined goals, including any gaps that exist in existing strategies
- Develop strategies that will help achieve the objectives; this can ultimately involve modifying the objectives if their achievement is considered unrealistic
- Establish metrics that can help monitor the success in achieving the objectives
- Develop specific operational, resourcing and financing plans to implement the strategy
The strategic planning is related to the SWOT findings by:
- Identifying how the strengths can be utilized to pursue those opportunities that are a good fit for these strengths
- If there are some excellent opportunities that are not such a good fit, identifying ways to overcome the weaknesses that stand in the way of pursuing these
- In the case of potential threats, identifying how the strengths of the company can be used to minimize the degree of vulnerability
- Where the vulnerabilities are related to the company's weaknesses, developing a plan to prevent the threats from destroying the business
SWOT analysis is a strategic planning preliminary. It seeks to list the strengths and weaknesses of the planning entity, and the opportunities and threats in the external environment that can help or hinder achieving defined objectives.
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