SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. It is the most common tool used for analysis of the overall strategic position of a company and its external environment. The main purpose is to identify the strategies most appropriate for the business model that will utilise the company’s resources and capabilities to the changing demands of external environment in which the company operates in. In other words, it is a tool to help evaluate internal strengths and limitations and possible opportunities and threats the external environment may bring. It evaluates the positive and negative forces that could affect the company’s success helping you to make informed decisions as you’re able to forecast and predict trends.
There are the internal strengths of your company that allow you to achieve your company aims and objectives. They’re the basis on which your company can succeed and can be either intangible or tangible. They could possibly be in the expertise that your company possess, the high calibre and quality of your employees (individually or as a team) and the distinct features that gives your company its unique selling point. Anything that is a beneficial asset that aids your company in being a success and gives it a competitive advantage is a strength. Examples of these are a unique patent your company hold and only you can manufacture, minimum amount of debt or having a strong brand name everyone recognises.
These are weaknesses within the company that may be limiting its full potential and prevent you from achieving your objectives. These weaknesses will hinder the growth and success of the company, items you should be aware of and be on your agenda to improve. They may not necessarily be a weakness to the company but maybe something which you as a company owner think could be improved on. Weaknesses could be too many levels in the organisational structure, high levels of absenteeism or large wastage of stock.
These are the opportunities that the external environment of your company presents which you could be taking advantage of. By being able to spot these opportunities and take advantage of them at the right time for the benefit of your company, it could help you to gain a competitive advantage. Being aware of them means you can have a strategy and plan ready to execute when the timing is right. Opportunities could come in the form of changes in the market, new government legislation, or changes in competition. Remember opportunities don’t come by all the time so be ready to seek it out and seize it to use to your company’s benefit.
Threats arise in the external environment when conditions may potentially jeopardise the success and profitability of your company. As it’s something happening in the macro environment, they’re mostly uncontrollable and may even have been unforeseeable. If they coincide with the weaknesses of your organisation then you really need to be alert and paying attention. When a threat does present itself, make sure to react to it quickly and strategically making logical and clearly thought out decisions. Examples of threats are price wars, unexpected increase in competition leading to excess capacity or restrictions on international trade.