Importance of SWOT Analysis

A SWOT analysis is a tool for companies to assess the industry and to develop strategies to remain competitive. This is a simple way to focus aspects of the company and business sector and to organize the findings to evaluate the current status of the business, future prospects and the economic climate. A SWOT analysis promotes critical and specific thinking to enhance strategic plans and objectives. The SWOT analysis has been used as a business concept since the 1960s and has shown its value when applied to organizations, management structure and marketing.

  1. History

    • Albert Humphrey from Stanford University is credited as the developer of the Strengths, Weaknesses, Opportunities and Threats--or SWOT--analysis, which derived from the Team Action Model research project. TAM is a business concept that supports executives in effectively managing change. SWOT extends from the TAM concept. George Albert Smith Jr. and C. Roland Christiensen from Harvard Business School are credited with the acronym during the 1950s and 1960s to evaluate gaps and resources within companies as an organizational strategy. The SWOT concepts were refined over the years to become one of today's marketing tools.

    Significance

    • The SWOT analysis is a key component in strategic planning. The analysis subjectively evaluates the impact of internal and external factors for a business objective. Internal processes and resources are considered strengths and weaknesses (S and W, respectively). External factors affecting the business and industry are considered opportunities and threats (O and T, respectively). An evaluation of these factors develops a strategic perspective that includes the competitive landscape and current market conditions.

    Features

    • SWOT analysis can include:
      Strengths: Experience and expertise; new and current products; quality and reputation; resources and access to distributors; location
      Weaknesses: Deficiencies in access and experience; brand name recognition and reputation; perceived value; costs
      Opportunities: Emerging markets and technologies; strategic partnerships and alliances; changes in regulations and policies; expansion into other geographic areas or industries; diminishing competition
      Threats: Generic or updated products or technologies; increased scrutiny and tighter regulations; competitors entering the marketplace; increased costs for resources

    Considerations

    • A SWOT analysis is subjective yet concise. Overanalysis and generalizations have limited value in preparing a strategic perspective. The factors in the SWOT analysis should reflect the actual internal status of the business and its future prospects, as well as external forces within the industry so that an action plan can be prepared. Other tools such as Porter's Five Force analysis can supplement information in a SWOT.

    Misconceptions

    • Strategy should not be based solely on a SWOT analysis. The value of a SWOT analysis is to prepare a snapshot of the current competitive landscape and to identify areas that can be improved, internally. A SWOT analysis can provide companies with discrete insight regarding prioritizing strategies and tactics to gain an advantage. Preparing a SWOT analysis is not complicated; it should be revisited on a regular basis to evaluate the impact of strategies in an ever-changing economy.

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