A SWOT analysis is a popular tool to effectively evaluate the strengths, weaknesses, opportunities and threats to a company. It effectively becomes the foundation on which you can make informed decisions that can grow and develop your company. Despite its popularity, though, there are some blind spots and disadvantages to this fantastic tool. But what are they?
In this article, we outline the pros and cons of a SWOT analysis, when to make one, and how to put it into action. Read on to learn about one of the most used strategic planning tools in the business world.
Table of Contents
What Is A SWOT Analysis?
SWOT is short for strengths, weaknesses, opportunities, and threats:
- Strengths – An organisation’s strengths can be defined by their advantages in the market. For example, a brand with a strong reputation like Apple will likely sell products just because they’re Apple. To determine your strategic position, consult management, review financial statements, evaluate operational efficiency etc. Unique selling points, skills, resources and contacts are where you should start. Write down only what you can use in the marketplace.
- Weaknesses – A weakness is something that holds your company’s efficiency and productivity back. These are often the internal issues and vulnerabilities that put organisations at risk of potential business loss. High employee turnover is an example, as this implies difficulty with consistency and morale and could signal the loss of potential skill.
- Opportunities – Business opportunities are the chances that organisations can take to improve their overall performance, such as finding openings in new markets that you can expand into. This requires a good knowledge of the industry you work in, as well as having analytical skills and strategic focus to properly identify trends.
- Threats – External factors that may undermine your business, such as intense competition, are effectively the “offence” against your business. Noting these threats, and tallying them up in detail means you can begin to formulate a plan against them.
These four elements allow companies to gain insight into their overall situation. The framework’s goal is to play on strengths, address weaknesses, cash in opportunities, and eliminate any potential risks to the company.
SWOT Analysis Advantages
SWOT analysis can have several benefits if you can succeed in applying it.
Establishes Priority
SWOT can systematically assess the current internal and external factors that play into your business’s success and failure. Whilst not entirely comprehensive and all-encompassing, it highlights the most key issues for your organisation and lays the groundwork for coming up with a strategic process to address them.
Even if you were to miss factors, so long as you act on what you have, you will go a long way toward developing your business. Furthermore, anything you miss you will likely come across again during this process, as you’ll actively be creating new strengths and weaknesses as you develop.
Provides Strategic Insights
One of the biggest reasons you should assess all four SWOT components is to know a company’s strategic position and competitiveness across the industry. You can’t do a SWOT analysis without knowing your industry, and knowing your industry means knowing both your customers and your competitors.
Once you have the information and data down that outlines your capabilities, it becomes so much easier to understand what is and what isn’t within the realm of possibility for your organisation. This means your options in decision-making become clear.
Fosters Collaboration
SWOT analysis is a great way to promote collaboration since different teams and departments work together. This isn’t just a social activity, but it also provides a full understanding of everyone’s place and responsibilities within the company. This can bridge the gaps between departments.
Generates Future Scenarios
It’s good to keep an eye on what’s coming in business to be proactive about potential future opportunities and threats. Viewing SWOT analysis as an ongoing process allows business owners and their managers to continuously update and revise their strategies. With an in-depth analysis of everything, they can discuss how their strengths or weaknesses may interact with any future situations.
Simple And Flexible
SWOT is a very simple framework that is flexible enough to be applied across all types of organisations, departments, initiatives, markets, and more. So, if you feel there’s just one department that needs an assessment, you don’t have to waste time analysing the entire business. Furthermore, there’s ZERO financial investment for conducting a SWOT assessment. Tons of paid tools and models exist, but SWOT analysis helps and just needs time.
Disadvantages Of A SWOT Analysis
Even after being widely used, the SWOT analysis process does have some disadvantages that you might need to consider.
Subjective Perspectives
SWOT heavily relies on the knowledge and perceptions of everyone involved in the assessment. Having a variety of people is both an advantage and a disadvantage sometimes.
When dealing with people across different departments, you will find that many of them have their priorities, preoccupations, and ideas of limitations within the company. This is especially true the larger a company is. It’s best to ensure that all concerns and conflicting opinions are registered and acted upon, ensuring that internal factors remain positive.
Not A Standalone Tool
You cannot use SWOT as the only tool for decisive solutions. It can help you with some very useful information, but you will need to pair it with other models if you want to validate your findings and make data-driven business decisions.
Alternatives can include:
| PEST Analysis | Analyses political, economic, social, and technological factors affecting the organisation. | Provides context to SWOT by identifying external opportunities and risks. |
| Porter’s Five Forces | Examines supplier power, buyer power, competitive rivalry, threat of substitution, and new entry. | Helps understand industry dynamics influencing SWOT analysis. |
| Scenario Planning | Imagine possible future scenarios and stress-test strategies based on external factors. | SWOT informs the development of scenarios to test strategic resilience. |
| Benchmarking | Compares operational and financial metrics against industry peers. | Assists in identifying performance gaps and opportunities for improvement in SWOT analysis. |
| Value Chain Analysis | Identifies inefficiencies and highlights activities creating the most value. | Provides insights into areas of strength and weakness within the organisation’s value chain. |
Static View
SWOT analysis is not a one-off. Just like your company evolves with time, the SWOT will too. This means that the SWOT process is something that must be treated dynamically, constantly updating it.
Business leaders must engage in comprehensive discussions about various strategic issues simultaneously. What you analyse now might not be true in a month, especially if you are from a fast-growing and evolving industry. So long as you work on what you have, you will make progress, however, mitigating this disadvantage.
Overemphasis On Strengths
Some organisations end up overly focused on leveraging current strengths with SWOT rather than developing new capabilities for the future. This unbalanced perspective can negatively affect your growth.
Furthermore, complex organisational and competitive dynamics cannot be understood with an oversimplified SWOT analysis explanation. So rather than assuming things, managers should dig deeper and pair SWOT with other methods for the best results.
Lacks Implementation Details
As mentioned earlier too, there are no actionable steps defined. Managers do get a hold of the priorities, but they don’t get a plan of execution.
Knowing these limitations can help you maximise benefits while mitigating any risks of incomplete or incorrect analysis. SWOT should be treated as a part of the planning rather than the entire planning.
Best Practices For Using SWOT Analysis In Strategic Planning
The following are the best practices to maximise the value derived from SWOT assessments:
- Objectives – Define the objectives and decisions clearly before beginning the analysis.
- Assets –Take a holistic approach and include all business units, functions, markets, and geographies.
- Include all relevant departments – Assemble a multi-talented and diverse team to improve the depth and quality of SWOT.
- External information – Gather insights from external stakeholders such as customers and partners and internal teams, combining quantitative and qualitative information.
- Full evaluation – Be critical while evaluating strengths and identify sustainable long-term advantages.
- Prioritise Weaknesses – Urgent weaknesses should be addressed on priority, and you must focus on opportunities to transform them into strengths.
- Ensure versatility – The assessment should be dynamic, update it periodically or with changing conditions.
- Use data only –Maintain objectivity and avoid biases, assumptions, or politics that may falsify the assessment.
- Use sparingly – Use SWOT as an input into your organisation’s strategy development, but always validate findings through other means or tools.
Putting SWOT Into Action
How well your organisation puts SWOT into action determines how well you can get the best value out of it.
- Pair Strengths and Opportunities – Identify how your organisation can use its strengths to capitalise on weaknesses. For example, if there is an opening in the market for innovative products, and you have a strong R&D team, then you can pursue this with great effectiveness.
- Pair Weaknesses and Threats – Assess how your integral weaknesses would compromise you should threats come into play. The shift to digital is affecting all walks of life, for example, so if your weakness was a lack of presence online, then see how you can mitigate this by devoting resources and time to development.
- Define clear objectives – Identify your strategies only after setting clear, measurable objectives. Apply strategic thinking to link and analyse relationships between different SWOT components.
- Integrate with strategic planning – Ensure all SWOT factors are integrated into a broader strategic plan, ensuring all parts of the organisation are working toward the same goal.
Mitigating external threats
Any unfavourable conditions that may hinder an organisation’s performance in the future are considered threats and these could be identified during SWOT. Some of the common external threats to be aware of include:
- Increasing competition – new competitors in the market or alternate products or services.
- Market decline – negative market size and declining trends.
- Technological disruption – outdated offerings due to ever-changing technology.
- Supply chain disruption – volatility in costs, availability, or delivery of products or services.
- Adverse economic conditions – recessions, inflation, and currency or market fluctuations that curb demand.
- Demographic shifts – ageing populations, declining birth rates, urbanisation and other demographic changes that shrink your target markets.
- Increasing regulations – too many legal burdens that raise production costs and restrict business activities.
- Negative media – negative publicity, social media backlash, underperforming Corporate Social Responsibility events.
SWOT Conclusions
SWOT analysis is designed to improve strategic planning and business decision-making by revealing issues as a priority. Being an easy-to-implement tool that can be applied to so many scenarios, SWOT assessments are found everywhere in business and management practice.
For business leaders and managers looking to optimise strategic planning, SWOT remains a valuable tool in their arsenal. Intelligent execution of this method can help executives enhance their knowledge of the business environment and any potential threats.
