The definition of a SWOT analysis according to Wikipedia is: "SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective."
When a SWOT analysis is done on an organization, both internal and external factors are reviewed. During the internal assessment, the organizations Strengths and Weaknesses are examined in depth. The external assessment reviews Opportunities, external to the organization, that the business can take advantage of and external Threats that might impact the organization as it does business.
An organization's Strengths are areas that the organization should capitalize on. Maximize the strengths and minimize the weaknesses can only be done when the business is aware of what they are. Examples of an organization's strengths are: a new product has been released and is bringing in higher than expected returns, all branches are integrated with software that enhances communication between the branches and creates one unified bill for its clients, or quality statistics far exceed industry standards. Examples of an organization's weaknesses might include: The inventory storage facility is not big enough, the executive team is maturing and eighty percent of them plan to retire in the next three to five years, or technology is outdated.
As the organization works on developing its strategic plan, it will take both the Strengths and Weaknesses into account. In the above examples, it can capitalize on the higher than expected returns and possibly plan for more research and development, or invest some of the returns on expanding or rebuilding the inventory storage facility or investing in new technology. It might utilize its quality reputation or even its convenient unified billing in future marketing. Finally, a succession plan should be determined and resources allocated to developing future leaders.
As mentioned earlier, the external assessment reviews Opportunities, external to the organization, that the business can take advantage of and external Threats that might impact the organization. Examples of external Opportunities might include the following: the nearest competitor went out of business, road construction was recently completed and new traffic flows go directly in front of the business, or new legislation was recently passed that will favorably impact the business. Examples of external Threats might include: postage rates may be going up, a large non-competing manufacturing organization recently opened that is impacting your labor pool, or interest rates are likely to increase within the year.
While developing the strategic plan both the Opportunities and Threats must be taken into account in the planning process. In the above example, several strategies can be developed. One to attract the customers of the competing failed business and another to develop a marketing plan to take advantage of the new traffic flows and new legislation. It may also look at alternative shipping methods, methods to improve efficiencies to deal with labor shortages and a plan to deal with higher interest rates.
Performing the SWOT analysis allows the organization to plan for possible problems and diminish the possibility of being blindsided when either such internal or external events occur. It also allows the business to capitalize on its internal strengths and take advantage of external opportunities.
