SWOT analysis - 3.1.3

SWOT analysis - An investigation conducted by a business to identify internal strengths and weaknesses and external opportunities and threats within the business, its resources and its environment. Strengths Weaknesses Opportunities Threats



AIM = to discover what the business does better than the competition, what competitors do better, whether the business makes the most of opportunities available and how the business should respond to changes in the external environment.

Internal strengths and weaknesses 

• The business must prioritise those that are important to success. For example, brand image, sales and revenue, market shares and capacity utilisation.
• They are internal so are within the control of the business
• They relate to the present situation

Strengths = Things the business is good at, giving them a clear advantage over rivals. Distinctive capabilities and resources are also strengths which will help the business achieve its objectives. They also help to build up a competitive advantage.

Weaknesses = Things that can cause the business a competitive disadvantage due to being things the business executes poorly or lacks. This may hinder or constrain the business in achieving its objectives. 

 

 External opportunities and threats

• The business should focus on areas such as current and predicted population numbers for current and potential market segments, new legislation, technological changes, commodity prices and economic factors such as rises in inflation or unemployment.
• However, they're external to the business so are largely out of the businesses control

Opportunities = This is any feature of the external environment which creates positive potential for the business to achieve its objectives.

Threats = This can be any external development that may hinder or prevent the business from achieving its objectives.

Evaluating SWOT analysis 

Advantages of SWOT analysis	Disadvantages of SWOT analysis
Easy to understand	Too often lacks focus or contains too many elements
Logical structure	Can quickly get out of date
Focuses on strategic issues	Is an independent assessment? Or are people from within the business creating the SWOT analysis, leading to a biased perspective.
Encourages analysis of external environment
Encourages a business to develop strategies to convert weaknesses into strengths.