SWOT analysis

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SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats)

A SWOT analysis, also called situational analysis, is a very useful tool that managers use in order to evaluate the strengths and weaknesses in an organization’s internal environment and the opportunities and threats in its external environment. Through SWOT analysis, managers can help a company increment its internal strengths and reduce its internal weaknesses while incrementing external opportunities and reducing external threats. A SWOT analysis begins with an examination of internal strengths and weaknesses. This can be done by evaluating a company’s distinctive competence, which is what the company can perform better than its competitors, and its core capabilities, which are the internal decision-making routines that determine how efficiently inputs can be turned into outputs. The second part of a SWOT analysis is to look outside the company and evaluate the opportunities and threats in the external environment. This evaluation can be done by using environmental scanning, which requires searching the environment for significant events that could affect the company. In addition, SWOT analysis is very versatile, and can be used in a number of personal or business situations including deciding on a career change, entering into a new market, buying from a new supplier, or implementing a new technology. While seeming simple in nature, this method of analysis, used in conjunction with a PEST or a SCAN analysis, can bring to light a large amount of valuable information. SWOT is very flexible in terms of the level of detail and depth of analysis that it requires. The conventional 5 step process follows:

DEFINITION

According to BusinessDictionary.com the definition of competitive strategy:

Situational analysis in which internal strengths and weaknesses of an organization, and external opportunities and threats faced by it are closely examined to chart a strategy. SWOT stands for strengths, weaknesses, opportunities, and threats. (SWOT Analysis) .

(1) Gathering the Data

The accuracy of SWOT is dependent upon the amount of data that is available. Any analysis with a lack of data may suffer from a biased viewpoint and an incorrect hypothesis may be formulated. This would corrupt the sole purpose of the analysis as being an objective summary tool. Data collection can be very time consuming and tedious, so it is important to allow sufficient time. A organization should also involve as many representative planning partners as possible during data generation.

In order to supply this wealth of information that is needed, a company may look into the following sources. Most of these sources are typically existing within the organization, but they may need to be updated or refocused. Remember, the main advantage of SWOT is its ability to integrate with other organizational processes and analysis, such as the following:

Internal Sources
  • Value Chain Analysis (reviewing activities)
  • Cultural Web (reviewing human resources)
  • Profit and Loss/ Cash Flow Analysis (financial analysis)
External Sources
  • Porter’s Five Forces (threat of substitute products, threat of established rivals, threat of new entrants, bargaining power of suppliers, bargaining power of customers)
  • PESTEL (Political, Economic, Social, Technological, Environment, Legal Influence)

(2) Analyzing the Topics

After the sources are determined and the data is compiled, the organization or other analyzing entity will formulate and discuss what general topics and areas is the analysis to be focused. The analysis is not limited to these criteria, but they are used as a guide to keep the study on track. Properly-done SWOT data gathering will help identify these topics.

The internal "strength and weaknesses" are things the firm has full control of. These help the organization have distinct knowledge of what it is, and isn't, good at. When writing these internal criteria it is best practice to consider them from the perspective of the firm, as well as, the customers of the firm.

The external "opportunities and threats" portion of the SWOT analysis deals more with influences and conditions outside of the organization. These are usually seen as influences that are out of full control of the organization.

Internal
  • Finance – Is the organization profitable?
  • Business processes- Are these effective/efficient?
  • IT- Is IT integrated into all business processes(MIS)?
  • Communication- Are there effective lines of communication?
  • Management and Leadership- What are the management and leadership styles?
  • Cost- What unique or lowest cost resources do you have access to?
  • Competitive Advantage- What do you do better than anyone else? What advantages do you or your company have?
  • Resources- What unique or lowest cost resources do you have access to?
  • Sales- What are the factors that have led to an increase or decrease in sales?
External
  • Competitors- What does their SWOT look like? Are competitors doing or changing anything?
  • Markets- Are there any new markets for our products or services? Is there any new products or services for our market?
  • Political/Environmental Climate- Is there any government legislation?
  • Demographics – Are there any age or socio-economic factors?
  • Technology- Are there any new technological breakthroughs? Is changing technology giving competitors the edge?
  • Barriers- What barriers exist in the marketplace?
  • Trends- Are there any trends or patterns in the market? Are the industry, technology, socio-cultural trends changing?


(3) Constructing the SWOT / Methodologies and Formats

There are three common formats for constructing a SWOT analysis. During construction, align the SWOT with the mission, vision, and goals of the firm or individual. This step is also referred to as the IS Strategic Planning Process for classifying the data, and rating the data based on importance.

Scoring System

The first is a scoring system where each of the previously described topics is scored and these results are plotted on a SWOT grid. The scoring range is from 1-10 where 10 is of the most significant. Evans and Wright warn that this may not be the best method as people often are over sensitive to weaknesses and may exaggerate their actual scores.

2X2 Matrix List

The matrix list simply defines what topics in each of the four SWOT areas should be addressed. An administrative team will then review each of these topics and will assess the various interpretations. The major flaw of this approach is that when personal interpretation comes into play it is easy to be too optimistic with strengths and opportunities and too pessimistic with weaknesses and threats. (Evans and Wright)


SWOT Pyramid

This approach to SWOT analysis focuses on breaking down the SWOT process into several smaller SWOTs. The ending result is a "pyramidization" of SWOT’s. The advantage of this approach is that often the SWOT process is an overwhelming task especially for larger companies. Unfortunately, the time constraints on the analysis will result in incomplete or insufficient data. This approach would break down the process into more manageable subsets: the individual product level, product group (or family) level, then on an strategic level and finally on a corporate level. First, outcomes of the lower level SWOTs are synthesized. Note: A company must start performing SWOT analysis at the lowest possible level (for example at the product level) and then “move up” until a corporate SWOT can be developed. Mayer describes a common example of this process: "It is possible to perform a single SWOT analysis on GE as a large, powerful, financially strong, global conglomerate. At the same time, within GE an almost endless number of business/product/operation specific SWOT's can also be performed which could then form the basis for higher level or more broadly based SWOT analysis."


(4) SWOT Results/Effect on Strategy

In its most simplistic form, a SWOT analysis leads to one of four major conclusions. These results will identify the relationships between strengths/weaknesses and opportunities/threats, so that result driven strategies can be developed.

  • 1. Strengths outweigh weaknesses, opportunities outweigh threats – supports a growth strategy.
  • 2. Strengths outweigh weaknesses, threats outweigh opportunities – supports a maintenance strategy.
  • 3. Weaknesses outweigh strengths, opportunities outweigh threats – supports a harvest strategy.
  • 4. Weaknesses outweigh strengths, threats outweigh opportunities – supports a retrenchment strategy.

(Sherman)

(5) TOWS

TOWS compares the internal elements to the external elements and determines the interplay between them. Evans and Wright describe how these four aspects intermingle within the following ways:

  • How can we use our strengths to take advantage or seize the opportunities?
  • How can we overcome or eradicate our weaknesses by taking advantage of the opportunities?
  • How can we use our strengths to avoid or negate the threats?
  • How can we minimize our weaknesses and avoid the threats?

Benefits

A lot of time and effort should be put into a SWOT analysis for it to be beneficial. Strategic planning expert Roger Kaufman, points out that when done rigorously, a SWOT analysis can offer many benefits.

SWOT Analysis for Business and Personal Benefits

Business Benefits
  • A perspective of the state of an organization and the risks to be managed
  • A look at the effectiveness of current operations, and possibly identifying new ones
  • The generation of data that can be used to help planners in creating tactics and strategies based on hard evidence.
  • Identifying relationships between internal and external issues.
  • Understand internal and external attributes that works with or against your business.
  • Sustain competitive in the market by targeting niches in the market. [1]
  • Simple but important tool to use due the possibilities of discovering overlooked markets which as a result, could increase the market share as well as profit for the business. [2]
Personal Benefits
  • SWOT Analysis for personal benefits goes toward a person career.
  • Understand their strengths and weakness which pertains to their knowledge and skills obtained.
  • Exploit their environment to their benefits to advance in their career.
  • If using PEST analysis along with SWOT Analysis, a decision based on Politics, Economic, Social and Technology analysis will benefit a person.
  • Sustain competitive amongst others by matching or excelling in certain personal strengths.


Approaches to SWOT

Conventional SWOT

This article primarily explains the conventional approach to SWOT. This approach is simplistic and usually refers to only the time period in question. Therefore it does not integrate experience from past situations or possess the ability to forecast changes in the future. Mayer criticizes this approach as being "too rigid, static and deterministic."

Knowledge-Based SWOT

A newer approach to SWOT incorporates the use of a knowledge base. This approach will handle more complex situations that result from the inclusion of previous experience and future change. In framework, a knowledge based system will be constructed using expert system technology. Mayer explains that this tool will formulate the “correct interaction of business management with its internal and external environment... further assisting managers of small and medium sized companies in performing a SWOT analysis.” A disadvantage of the system is high start up costs, but over time will become easier to use and less resource consuming.

Resource-Based SWOT

The resource based system focuses on the resources and capabilities (R/Cs) of the organization. Although the conventional method commonly uses the sources previously described, these sources lack the level of depth and detail needed to form the most accurate results. First, the (R/Cs) are identified at the lower levels, then they are summed to formulate the higher level (R/Cs). This process is continued until the highest level is reached. Mayer explains this approach as being "dynamic and interactive" as it involves the inclusion of customer value and “defensive and offensive analysis of a company’s competitive posture.”


Re-engineering of SWOT

A major disadvantage but a proposed improvement to SWOT surround the climate of change. Mayer suggests that a fifth element be included: Change. He explains his reasoning "Because changes in global business activities are frequent, profound and accelerating, the established strategic planning tools, Product Life Cycle analysis and SWOT analysis, need to be reengineered in order for them to continue to be effective instruments for achieving sustainable competitive advantage." His proposal would add the element Change, but with two subsets: Internal Change (Chi) and External Change (Che). This innovative analysis would be renamed the SWOTChi/e analysis.


*SWOT Examples*

Clearwire® SWOT Analysis

Clearwire® is an ever expanding wireless Internet Service Provider (ISP) that utilizes 4G WiMax technology to deliver high-speed mobile internet to its customer base.

Strengths

  • One strength this company has is strong backing from other well-known companies with its main partner being Sprint®. Other companies such as Google®, T-Mobile®, Best Buy®, and DirecTV® are also a strong supporter of Clearwire® and its 4G WiMax technology.
  • The mission statement of Clearwire® is as follows:
"Empower a smarter, more connected world with the fastest, most cost-efficient, and highest capacity 4G network -- enabling people everywhere to have the magic of the Internet with them all of the time."

Weaknesses

  • While Clearwire® is ever expanding its market, its main weakness may be that of the technology itself. 4G WiMax is RF based and as such, it just can't cover everywhere. The density of objects greatly affect the efficiency of RF transmissions; therefore, if the customer has a brick house and lots of trees between him and the tower then the quality and amount of the signal will be adversely affected.
  • Another slight weakness is that other companies are starting to introduce 4G wireless internet in the form of LTE or Long Term Evolution. However, Clearwires'® network is fully backward compatible with LTE. The two companies that currently have this technology are Verizon® and AT&T®.

Opportunites

  • Clearwire® is continually offering more and more mobile products to its lineup. In 2010, Clearwire® released three dual-band, 3G and 4G, devices. The 3G side utilizes Sprint's® MVNO network while the 4G side is accomplished via the Clearwire® WiMax network.
  • Another opportunity that this company has is its ever expanding network through multiple markets throughout the United States as well as Europe.
  • Clearwire® is also steadily assembling more partners as the technology is gaining acceptance from the market.

Threats

  • Although Clearwire® provides service in areas that do not have any other internet service providers, it also has to compete in areas where other ISP's dominate the city. These other competitors could be either cable or DSL internet service providers.
  • Another threat is the landscape within the market itself.
University of West Florida Academic Programs SWOT Analysis

University of West Florida is a mid-sized public university (Admin) that is located in Pensacola, Florida.

Strengths

  • Classrooms have an average of 24 students per class which provide more one on one time compare to university with larger student’s enrollment per classroom.
  • Average freshman G.P.A. while in high school was 3.4 on a 4.0 scale.
  • College of Business is accredited by the AACSB.
  • Highly qualified professors
  • The use of graduate assistant to teach classes is at a very minimum. Allowing students to learn from professors instead of graduate assistance allows students to learn from more experience members than entry level members.
  • Students range from all ages to all nationalities to provide a melting pot environment. Creating a homogenous environment which exposes students to other cultures and age groups.

Weaknesses

  • There are limited amounts of faculty and advisors to serve the growing enrollment of students.
  • Not optimizing the university’s available classrooms. Extra unused rooms goes to waste as students must fight to get into the needed course to receive their degree.

Opportunites

  • Must restructure the academic programs to satisfy both employees and students.
  • Constantly update technology and techniques to be competitive in the work place environment.
  • Research and develop new programs for the university to attract students to the university.
  • Partner with more institutions to transitions from a smaller college to the University of West Florida. (nwf2uwf)

Threats

  • Accepting graduating high school students who are not prepared academically for the University level. (Retention)
  • Local academic institutions surrounding the University pulling enrollment away from the university. (Retention)
  • Online classes offered by other academic institutions located domestically or globally. (Retention)


*SWOT ANALYSIS using segmentation*


Resources

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Kaufman, Roger A. Strategic Planning for Success: Aligning People, Performance, and Payoffs. San Francisco : John Wiley & Sons, Inc. (US), 2003.

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Management Information System. 2013. http://catalog.uwf.edu/undergraduate/managementinformationsystems. Retrieved January 27, 2013

NWF2UWF. 2013. https://nwf2.uwf.edu Retrieved January 26, 2013

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SWOT Analysis From Wikipedia. September 14, 2008. http://en.wikipedia.org/wiki/SWOT_analysis Accessed September 15, 2008

SWOT Analysis - Discover New Opportunities, Manage and Eliminate Threats. 2008. http://www.mindtools.com/pages/article/newTMC_05.htm Accessed September 15, 2008

SWOT Analysis - Discover New Opportunities, Manage and Eliminate Threats. 2013. http://www.mindtools.com/pages/article/newTMC_05.htm Accessed January 24, 2013

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The University of West Florida - Retention Study and Retention Plan. 2013. https://nautical.uwf.edu/files/org/EDFApc/Retention_report.pdf. Accessed January 25, 2013

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