Define: SWOT Analysis

UK Accounting Glossary

Definition: SWOT Analysis


Quick Summary of SWOT Analysis


A SWOT analysis is an incredibly simple, yet powerful tool to help you develop your business strategy, whether you’re building a startup or guiding an existing company.



What is the dictionary definition of SWOT Analysis?

Dictionary Definition


SWOT provides an analysis matrix for identifying the Strengths, Weaknesses, Opportunities and Threats to an organisation, and acts as a form of appraisal as to it’s current position at a particular time and as to it’s future potential.


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Full Definition of SWOT Analysis


A SWOT analysis is an approach to determine the strengths, weaknesses, opportunities for and threats to an organisation.
This approach is accredited to Albert Humphrey who developed this approach in the late ’60s and early ’70s.
Since its inception, a SWOT analysis has been used by businesses and individuals alike to determine where they stand, and how they can move forward.
When using a SWOT analysis in a business context it can help you carve out your segment of the market and grow into others.
When using a SWOT analysis for personal use it can identify strengths and areas for growth; ultimately helping you to develop the career of your dreams.

A SWOT analysis is a tool to help you identify the strengths, weaknesses, opportunities and threats in a situation. Often people will draw a diagram and fill in the boxes as laid out in the diagram below.

SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

Strengths and weaknesses are internal to your company – things that you have some control over and can change.

Opportunities and threats are external – things that are going on outside your company, in the larger market. You can take advantage of opportunities and protect against threats, but you can’t change them.

Examples include competitors, prices of raw materials, and customer shopping trends.

Here we will look at how we can use a SWOT analysis as a tool to support your business.

SWOT Analysis for Business

What can make a SWOT analysis a useful and powerful tool is that with spending a bit of time in thought, opportunities can be uncovered that your business is in a position to exploit. Moreover, by being aware of the weaknesses of your company you can develop contingency plans and invest to improve upon those. As a result, you are able to meet and overcome threats to your business.

When using the SWOT analysis to analyse your competitors and yourself you become more able to craft a corporate strategy to set your business apart so that it can compete effectively in its chosen marketplace.

How to successfully conduct a SWOT analysis

There s no right or wrong way to conduct your SWOT analysis, however, below is a good and constructive process to follow.

1. Gather your team

Gather your team for a SWOT analysis. Many heads are better than 1 and may identify key areas that you have not identified yourself. It is a good idea to gather people from as many departments as you have, and form different paygrades, not just the senior management as this will provide varying and fresh perspectives on your business.

2. Give people unscripted time

It’s a good idea to explain the process of a SWOT analysis and then provide people with silent, unscripted time with post-it notes. This allows some free thought, it allows more creativity and does not stifle individual input with ‘group-think’ or with managers weighing in and everyone following suit. It is a good idea to model this, put up some ideas of your own, or potential ideas and then allow them time to come up with their own.

3. Bring ideas together

After 5-10 minutes bring the ideas together and group them in similar categories. It is a good idea to allow people the opportunity to continually add ideas as they come to them, as new ideas can be sparked by other ideas.

4. Vote on which to focus on

ALoow everyone 5-10 votes to cast on the aspects of the SWOT analysis that they feel is most important. This will allow you to rank these in order and give you discussion points for you to focus on. People will often use sticky dots or a tally chart on the sticky note to help them keep count.

5. Discuss and strategize

You should now have a list of prioritised ideas for your group to discuss and strategise over. Normally this is led by a member of the senior management. This should then be repeated for each of the four categories in the SWOT analysis.

Variations upon the above theme that suit your business can be used.

Some areas that should be addressed whilst conducting your SWOT analysis/a template for a SWOT analysis

Here are some key points to consider when conducting your businesses SWOT analysis

STRENGTHS

Things that can be considered strengths are internal to your company. You should also consider your strengths from the perspective of your competitors. Some things you may consider when considering your business’s strengths are as follows:

  • What advantages are there for your business, what advantages does your business have?
  • In which areas do you perform better than anyone else?
  • What lowest-cost or unique resources can your business draw upon that others can’t?
  • What do others in your market identify as your strengths?
  • What factors contribute to or mean that you “get the sale”?
  • What USP’s or Unique Selling Points does your company have?
  • What business processes are working well?
  • What assets does your team already have? Reputation? Knowledge? Network? Education? Skills?
  • What physical assets does your company already have? Customers? Patents? Technology? Equipment? Cash?
  • Do you have any competitive advantages over your competition?

It should be remembered when identifying your strengths that if your competitors also have it it is not a strength but a necessity of the industry in which you are working. For example, if you are selling exceptional quality goods, yet so are your competitors, this is just a market necessity and not to be considered a strength.

WEAKNESSES

Weaknesses are also internal factors, however, these detract from your strengths. Things to consider when thinking about your weaknesses are as follows:

  • What can you or your business improve?
  • What should you or your business avoid?
  • What do others that operate in your market see as weaknesses?
  • What factors are losing your business sales?
  • Does your business need anything to be competitive?
  • Are there any business processes that require improvement?
  • Are there any tangible assets that your company requires, such as equipment or money?
  • Do you have any personnel gaps?
  • What about your location? Is it best suited for success?

You should consider weaknesses from both an internal and an external viewpoint. Do your competitors or customers view anything you’re doing as a weakness? Is there anything that your competitors are doing better than you?

OPPORTUNITIES

Opportunities are any external factors to your business that can or are likely to contribute to your business’s financial success. Some things you may wish to consider when you are considering the opportunities that face your business are as follows:

  • Is the market your business operates in growing. Are there any trends that will ensure a growth in sales?
  • Do you know of any upcoming events that your company can take advantage of to ensure further growth of the business?
  • Are there any regulation changes that may impact your company positively?
  • Do your customers think positively of your business, can this be utilised? Referral schemes etc.
  • Can you spot any good opportunities?
  • Are there any interesting trends that you know of?

Useful opportunities can come from such things as:

  • Changes in markets and technology on both a narrow and broad scale.
  • Changes in regulations and government policy to your field.
  • Changes in population profiles, social patterns, lifestyle changes, etc.
  • Any local events. E.g festivals.

When looking for opportunities it can be useful to look at the strengths that you have already identified and see whether these can open up any new opportunities for your business. This can also be applied to looking at your weaknesses. If you fixed them, what more opportunities might arise?

THREATS

In any industry, there will be external factors over which you have no control. These can potentially be considered as threats. In some cases, it can be a good idea to develop contingency plans for what to do if these seriously threaten your business. Some things to consider when you are conducting the threat part of your SWOT analysis are as follows:

  • Who are the potential competitors who may decide to enter your market?
  • Will you always be able to get the raw materials from suppliers at the price that you need?
  • Could technological advances force you to change your business model?
  • Are consumer behaviours changing in such a way that it will negatively affect your business?
  • Are trends in the market are a potential threat?
  • What obstacles does your business face?
  • Your competitors, what are they doing?
  • Are quality specifications or standards for your products, services or job changing?
  • Does your company have cash-flow or bad debt issues?
  • Could any of the weaknesses that you have identified threaten your business?

When looking at threats it is best for you to be honest with yourself about your business’s position.

 

The above is a rough guide of things to consider and how to conduct a SWOT analysis. This will vary depending on your industry and what works best for you as an individual or an organisation. However you choose to conduct a SWOT analysis, it is considered ‘good practice’ to complete one and to do so with some regularity.


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Examples of SWOT Analysis in a sentence


The team used the SWOT Analysis method to evaluate their start-up business and all came to the similar conclusion that it was not a feasible idea.


SWOT Analysis FAQ's


What are some weaknesses in SWOT?

When you are conducting your SWOT analysis it is important to remember that this tool for analysis also has limitations.  A SWOT analysis should only form one part of the planning process for your company. If any complex issues arise, you will most likely have to conduct a more thorough and in-depth analysis to arrive at a decision.

A SWOT analysis only looks at things that can be considered to be strengths, weaknesses, opportunities or threats. It does not take into account the grey areas. Yes, your shop may have a great location, however, the rent might be too high for your business. The black and white approach of a SWOT analysis can make it difficult to address some of these more complex issues.

Further limitations to your SWOT analysis may include but not be limited to:

  • A SWOT analysis does not prioritise issues
  • They do not offer solutions or provide you with an answer
  • They can generate a lot of ideas, however, prioritising them may be difficult
  • Not all the information that is generated will be useful.

A SWOT analysis will not provide answers and can generate a lot of information. Nonetheless, it is often a good way to start the development of plans or to identify threats; yet will most likely not be a tool to help you complete them or to overcome complex threats.

How do you write a good SWOT analysis?
  1. Decide the objective of your SWOT analysis. Choose a key project or strategy to analyse and place it on top of the page.
  2. Create a large square that is then divided into four smaller squares.
  3. Each box should be labelled. Strength, Weaknesses, Opportunities and Threats.
  4. Add strengths, weaknesses, opportunities and threats.
  5. Draw conclusions and strategise.
What is a SWOT analysis describe the 4 areas?

A SWOT analysis is an in-depth analysis of a business’s current position broken down into four main parts. Strengths, Weaknesses, Opportunities and Threats.

What are weaknesses in SWOT?

A SWOT analysis is an analysis of the current position of a person or company. It is broken down into four main parts. Strengths, Weaknesses, Opportunites and Threats. Some things to consider when you are looking at the weaknesses of your organisation in a SWOT analysis are as follows:

  • In which areas could you improve?
  • What do you need to avoid?
  • What do your competitors consider to be your weaknesses?
  • Are there any factors that lose you sales?
  • What do your customers think of you and your business?
  • What is stopping your business being competitive?
  • Are there any areas in your business that require improvement?
  • Is your company lacking essential tangible assets, for example, machinery or money?
  • Does your company have any skill or personnel gaps?
  • How does your location affect your business?

These are just some of the things that you may consider when you are conducting the weaknesses section in your SWOT analysis.

What are the advantages of SWOT analysis?

By conducting a SWOT analysis you can identify any threats or opportunities that are facing your business. A SWOT analysis can be completed with little or no cost to you and your business. Anyone, including you, who understands your business can conduct a complete SWOT analysis of your business. In turn, this means that you can begin to strategise and plan for your business without the added expense of an outside specialist or consultant.

Furthermore, by using a SWOT analysis you can:

  • gain a deeper understanding of your business
  • identify and address weaknesses
  • identify and plan contingencies for any threats
  • identify and make the most of opportunities
  • know and play to your strengths
  • set business goals and develop the strategies needed to actualise them.

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This glossary post was last updated: 27th January 2019.