Greek philosopher Socrates have always emphasized the importance of knowing oneself more than anyone else through his ever-famous aphorism
“Know thyself*”
No, this isn’t some article debating on philosophical complexities- not at all! But what we’re going to instead talk about and understand is the SWOT analysis. In terms of business, the SWOT analysis framework is a method for identifying and assessing an organization’s strengths, weaknesses, opportunities and threats.
Albert Humphrey is credited with developing the SWOT framework, which was tested at the Stanford Research Institute in the 1960s and 1970s. The SWOT analysis, which was developed for business and is based on data from Fortune 500 corporations, has been used as a decision-making tool by organizations of all sorts.
The fundamental purpose of SWOT analysis is to assist businesses in raising awareness of the elements that must be considered when making a business decision. SWOT analyzes the internal and external aspects that might affect the viability of a choice.
SWOT analysis is most widely employed by businesses, but it is also utilized for personal assessment by nonprofit groups and- to a lesser extent- individuals.
What is SWOT Analysis?
SWOT analysis is a framework for assessing a company’s competitive situation and developing strategic plans. A SWOT analysis evaluates internal and external elements, as well as present and possible future opportunities.
A SWOT analysis is intended to assist a realistic, fact-based, data-driven examination of an organization’s, initiative’s, or industry’s strengths and weaknesses. The organization must maintain the accuracy of the study by avoiding preconceived notions or gray regions and instead concentrating on real-life scenarios. Companies should use it as a guideline rather than a prescription.
Let’s check in on each aspect of the SWOT analysis
Strengths
Strengths indicate what a business excels at and what differentiates it from the competitors, such as a strong brand, a dedicated client base, a solid financial sheet, innovative technology and so on. For example, a certain fund may have created an exclusive trading technique that outperforms the market. The company must next determine how to exploit the results to attract fresh investors.
Some questions to keep in mind considering the “strength” aspect are
- What distinguishes us from the competition?
- What are our resources?
- What are the best-performing products?
- Is your customer-base strong?
- How skilled are your employees?
Weaknesses
Weaknesses prevent an organization from operating at its best. A bad brand, higher-than-average turnover, high levels of debt, an insufficient supply chain, or a lack of capital are examples of areas where the company must improve in order to remain competitive.
The questions that one must consider in terms of the “weakness” aspect are
- Where can we make improvements?
- What items aren’t doing well?
- What expertise do you lack?
- What complaints are you getting from customers on a regular basis?
- Where do we have a scarcity of resources?
Opportunities
Opportunities are external variables that might provide a business with a competitive edge. For example: if a government lowers tariffs, a car manufacturer may be able to export its vehicles into a new market, increasing sales and market share.
The questions that firms should consider in terms of grabbing better “opportunities” are:
- What technology can we employ to enhance operations?
- How can you turn challenges into vital opportunities?
- What industries can support you or vice versa?
- Can we grow our primary business?
- What additional market segments can we investigate?
Threats
Threats are circumstances that have the potential to cause harm to an organization. A drought, for example, poses a risk to a wheat-producing firm since it might destroy or diminish crop production. Other prevalent dangers include growing material costs, increased competition, a scarcity of manpower and so on.
The questions for any potential “threats” are
- What new requirements are jeopardizing operations?
- What do our rivals excel at?
- Is any particular weakness preventing you from reaching your goals?
- Is any industrial change becoming a potential threat to your firm?
- What consumer trends pose a threat to business?
Why Should Companies Run a SWOT Analysis?
SWOT analysis may be used before committing to any type of firm activity, whether you are investigating new projects, overhauling internal procedures, assessing pivot possibilities or changing a strategy midway through its implementation. It’s sometimes a good idea to run a SWOT analysis on a broader scale only to check on the current state of your organization so you can optimize operations as needed. The research may show you which critical aspects of your business are working best, as well as which procedures need to be adjusted.
Don’t make the mistake of thinking about your business operations informally, hoping that everything will fall into place. You can see the big picture of your organization if you make the effort to create a SWOT analysis, properly. From there, you may identify strategies to strengthen or remove your company’s problems while capitalizing on its strengths.
While the business owner should be involved in developing a SWOT analysis, it is generally beneficial to include other team members in the process. Solicit feedback from a wide range of team members and freely debate any ideas offered. The team’s cumulative knowledge will enable you to fully examine your business from all angles.
The Bottom Line
The SWOT analysis is a straightforward yet comprehensive technique for identifying not just the flaws and threats of an action plan, but also the strengths and opportunities it creates. It is critical to maximize strengths, reduce dangers and capitalize on available opportunities. A SWOT analysis is important for strategic planning and identifying a company’s objectives.
