SWOT Analysis is a tool to analyse your business operations to seek growth opportunities and is an important step in evaluating your business model. So what exactly is it?
SWOT stands for strengths, weaknesses, opportunities and threats. Strengths and weaknesses are internal factors and opportunities and threats are external or environmental. The object of the analysis is first to identify all of the factors that are likely to be significant, and secondly, to create plans/strategies to boost any strengths, eliminate or minimise weaknesses, avoid any potential threats and take advantage of any opportunities.
Definitions Used for SWOT Analysis
Strengths
An internal strength is something that the business is good at or a characteristic that gives it an important capability. It might be important expertise, a valuable or scarce resource, a skill or a capability that gives the business a competitive advantage.
The internal strengths represent competitive assets and might include:
- core competencies,
- adequate financial support,
- economies of scale,
- cost advantages,
- proven management,
- manufacturing capability,
- innovative product design,
- innovative delivery systems, etc.
Weaknesses
An internal weakness is any problem, deficiency or limitation that puts the business at a disadvantage and causes it to perform poorly. It may or may not make the business vulnerable, depending on how attractive the missing skill, capability or resource is in the market.
The internal weaknesses represent competitive liabilities and might include:
- no clear direction,
- old or obsolete equipment,
- missing skills or core competencies,
- internal operating problems,
- shortage of working capital or under-financed operations,
- high costs, etc.
Opportunities
These factors are the conditions (or emerging conditions) within the market that could enable the business to generate profitable business growth, give it an advantage over its competitors, or enable the company to cover an external threat.
Opportunities might include:
- an opening in a new market segment,
- ways to improve or expand the product line,
- falling trade barriers,
- new technology, etc.
Threats
External threats are market conditions that, if unaddressed, are likely to make the business vulnerable to loss of market share or a reduction in profitability. Threats might include:
- entry of new competitors into the market,
- a stagnant or declining market,
- government intervention in the market,
- recession,
- changes to customer needs, etc
