SWOT analysis is an extremely important tool that is used to develop business strategies. It is a simple yet powerful tool that various businesses use, be it for building a startup or guiding a pre-existing company. SWOT is the acronym for Strength, Weakness, Opportunities, and Threats. This article is all about the Advantages and Disadvantages of Swot Analysis.
The SWOT analysis of a company or organization is designed to be based on facts, be realistic, and driven by data to look at the strengths and weaknesses of the organization, initiative, or within the industry. It has many positive aspects but since no tool can be perfect, it has both its benefits and limitations.
Though it was used to analyze businesses initially it is now being used by nonprofits, governments, and individuals like entrepreneurs and investors.
The four elements under SWOT analysis are:
These factors are which the company expertizes in and they are responsible for the success of the company. The continued success of the company is due to them and helps the company reach its goals.
They include the organization’s strong capabilities in various spheres like customer goodwill, process capabilities, financial resources, brand product line, brand loyalty, etc.
These factors prevent the organization from achieving its goals and full potential. It also hampers not only the organization’s success but also its growth.
They keep the organization from reaching the required standards. The factors may be narrow product range, declining machinery, inadequate facilities for research and development, poor decision making.
These factors are available in the environment the organization operates. The planning and executing of the strategies is done by the identification of such opportunities and enjoying their benefits.
The company can gain an advantage in the competitive market if they recognize and grasp the opportunities in time. Some such factors that give rise to such opportunities include technology, competition, and industry or government.
They are pre-existing factors of the external environment that affects the organization’s profits and reliability. Threats like that are not only uncontrollable but also put the stability and survival of the company at a risk.
The factors may be price wars, increase in competition, new technologies, reduction in profits, and unrest among the employees of the company.
Factors – External and Internal
Any SWOT analysis is divided into two main categories:
While the strengths and weaknesses are current or backward-looking, the opportunities and threats are forward-looking.
The company’s strengths and weaknesses are internal factors. Strengths provide the nosiness with an advantage in the competitive market. Weaknesses are what a company needs to overcome for improving its performance. Some of the examples of internal factors are as follows:
- The company’s culture
- The image of the company
- Brand awareness
- The key staff
- The company’s organizational structure
- Efficiency in operations
- Assets and financial resources
- Market share
- Operational capacity
The company’s opportunities and threats are external factors. Opportunities are present in the external environment that the company could pursue generating value. Threats prevent the company from achieving its goals and mission as well as create any value. Some of the examples of external factors are as follows:
- Changes in the society
- Regulations by the government
- Market trends
- Economic environment
Advantages of SWOT Analysis
The SWOT analysis encourages simplification. In a company, various influential factors take place at the same time or in regular intervals. The SWOT analysis helps in better understanding the bigger goals all the while focusing on the finer details of the smaller goals.
- Identifying threats and opportunities
SWOT is an abbreviation of strengths, weaknesses, opportunities, and threats. Just as the name suggests it helps the company in the process of identification of existing opportunities and threats in the particular market.
Since it offers scalable results local communities can have data expansion to regional, national, and international levels. It helps the businesses identify and utilize the strengths and weaknesses to their greatest advantage.
- Additional identification tools
The SWOT analysis helps a group decide the appropriate tools necessary for accomplishing goals. Such tools can get evaluated based on their usefulness. Before the implementation for determining the effectiveness, the methods can also get analyzed. This results in the organization have the advantage of finding available opportunities at the particular moment.
- Low cost
SWOT analysis does not require any expensive software. It also doesn’t need any consultant for guiding the process. Anyone can do it. All that is required is a time and spreadsheet for filling out the SWOT analysis.
- Offense and defense
A SWOT analysis helps the leader in uncovering market opportunities that make profits and in fending off new competitors. It enables one in creating a plan to maximize strength or manage weaknesses of threats based on the particular scenario.
- Comprehensive data integration
The creation of a SWOT analysis requires lots of work. A combination of qualitative and quantitative information is benefitting the leaders. The access to data can cause an increase in communication, improvement of planning, and resulting in a better decision-making process.
Disadvantages of SWOT Analysis
Simplification of concepts makes them approachable to more individuals. The problem that arises due to continuous encouragement of simplicity by SWOT can cause oversimplification of a concern or issue at the highest level. Due to the lack of a full overview, addressing the situation becomes harder.
- Not always objective
Every individual has a unique mindset and different points of interest. Those who are involved in the SWOT analysis might involve their natural tendencies and biases. Hence such vested interests, the individual might not even apply the analysis objectively. Such traits should be taken into consideration before the process begins else it would be difficult to achieve a truly beneficial outcome.
- No limits
There is no real limit naturally while the SWOT analysis is being used. It can get difficult during the initial stages in determining the relevant and less relevant matters.
- Unknown factors
The SWOT analysis can only work on the known factors that are present no matter how good the planning is or how much expertise is available. Unknown factors that are present may affect the results in unexpected ways. Even simple matters like inadequacy in the definition of current factors can be the reason for influence and have negative results for an expected outcome.
- Vague terms
The outcome of the SWOT analysis can be viewed as a wastage of time at times due to it working more on general stuff than the specific. The reason is that the simplification due to it looks for common ground wherever located. This may give rise to internal jargon of various phrasings that may be vague, meaningless, ambitious, or interpreted in multiple ways.
- No obligation for verification
The statements or analysis aspects are taken at a word. There is no such requirement related to the research that would let someone influence the results for personal benefits. A SWOT analysis does not provide any solution in case a disagreement occurs. This may give rise to a situation of stalemate between the opposite sides who are not willing for a compromise.
The SWOT Process
The SWOT analysis is a pretty straightforward process when done, though its strength in its flexibility and experienced application:
- To decide the amount of information to be collected and who would do that. The team approach is at times of more power than an individual’s view.
- Identification of the appropriate sources of information.
- Gathering the information.
- To plot all the findings.
- Identifying the most important issues.
- Identifying the strategic options.
- Writing a document on the discussion.
- Dissemination and discussion regarding the findings.
- Making decisions on which activities to be a priority based on the value and goals of the organization.
SWOT Analysis Tips
A few helpful tips for carrying out a SWOT analysis are:
- Collaboration is an analysis involving different perspectives that would as a result deliver a better outcome.
- Using the organization’s available resources and expertise.
- Can be in conjunction with other techniques like PESTLE analysis.
- Incorporation of the analysis for an ongoing process to observe the changes in a business environment.
- Not getting bogged down or demotivated after collecting huge amounts of data. This is done without proper analysis or understanding of the findings.
- Not jumping to conclusions about the future at present or past.
A bird’s eye view of the position of the company is provided by its SWOT analysis. It not only suggests a feasible concept but also a strategic plan for the organization. The popularity of SWOT analysis is due to its flexible nature while evaluating ideas and strategies. No matter how much it is needed, no complete solutions are provided. It only leads one on the path of further discussions and analysis.
Frequently Asked Questions
- Does advanced technology serve as a strength?
Companies that are technologically advanced use it as their opportunity to produce more results. But there are few times it can also have a negative impact.
- Is doing a SWOT analysis cheap?
An individual or group only needs time and a spreadsheet for making a SWOT analysis.
- Give two external factor examples of SWOT analysis
Customers and suppliers are two important external factors of the SWOT analysis.