In business, it is vital to change and adapt to innovation, and it is also crucial to be able to adequately assess the potential of these changes when developing a strategic plan for a firm. SWOT analysis is among the commonly used techniques in business that allow one to evaluate all aspects of a particular initiative, product, business activity, or even marketing strategy. This paper aims to examine the SWOT technique based on scholarly articles and provide recommendations that managers can use when applying this tool.
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Background and Application
The nature of strategic planning requires the company’s executives to be proactive in their decision-making process instead of merely responding to the changes in the industry, which requires a technique that simplifies and structures the process. SWOT is an easy method that can be used in a variety of domains, for instance, when developing a new product or starting a new business venture. It is commonly applied in strategic management to adequately evaluate the planning process and ensure that resource allocation is correct (Gurel & Tat, 2017).
The distinct characteristic of SWOT is that it allows managers to examine both the inner factors and external components of a strategic development plan. Another important feature of SWOT is that it will enable assessing “how competition in this environment is likely to evolve and what implications that evolution has for the threats and opportunities an organization is facing” (Gurel & Tat, 2017, p. 994). Also, SWOT helps identify the source of competitive advantage that a firm can use to overcome its competitors.
Firstly, it is necessary to identify the elements of SWOT analysis and ways of applying it in practice. According to Parsons (2018), “SWOT stands for Strengths, Weaknesses, Opportunities, and Threats” (para.1). The first two elements are consistent with the internal environment of a company, while the opportunities and threats allow examining the industry as a whole. This can include external factors such as industry trends, competitors, or consumer behavior change.
The matrix structure of this analysis allows one to compare strengths to weaknesses. Additionally, opportunities are compared to threats in a standard SWOT matrix, although the TOWS tool, which will be discussed later, allows altering these elements. Verbonchu and Condurache (2016) explain other approaches, for instance, comparing strengths to opportunities, strengths to weaknesses, strengths to threats, and weaknesses to threats. This approach allows developing a more comprehensive model of understanding a company’s position and prospects.
In a sense, SWOT is similar to brainstorming, because it requires an analysis of various factors and ideas that relate to the company. However, unlike brainstorming, SWOT has a clear structure of elements subjected to analysis and an identified strategy for further examination of the findings. Gurel and Tat (2017) argue that SWOT is an appropriate technique under the systems approach because it views the organization as a whole, considering its environment as well. Therefore, SWOT is a more comprehensive method of interpreting a company’s position.
Next, it is crucial to understand what questions can help managers develop an adequate SWOT matrix. The analytical inquiries that can help identify the current position of the firm are related to the examination of strengths and weaknesses that a company currently has. Gurel and Tat (2017) provide the following definition of a businesses’ strengths – “characteristic that adds value to something” (p. 993). Therefore, one question that can be asked is which elements distinguish this company from its competitors.
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This can be any positive or favorable characteristic, for instance, skill or resource, of a firm that is considered an advantage by its management. Another question is what the disadvantages of this company are. This helps identify the weaknesses in the form of competency, resource, or another process that adversely impacts the business activity. Based on these answers, one can determine the current positive and negative characteristics of a firm, which is a primary characteristic of its market position.
A business consultant can carry out a SWOT analysis for a firm. His or her role, in this case, is in gathering industry information and evaluating the company’s position. Parsons (2018) argues that leaders of the company have to be involved in the development of SWOT. However, one can say that engaging industry experts can be beneficial because they can have a less bias view of the situation and poses more insight into future changes.
This is especially necessary when entering a new market that a business is unfamiliar with, and in this case, help from external consultants can be very beneficial. Paterson (2018) also recommends gathering a group of people who can offer insight from different perspectives. Therefore, SWOT can be carried out by managers without the help of consultants. If possible, the former can be engaged in the process to improve the accuracy of results.
An additional tool that can further improve the analysis conducted using SWOT is TOWS. According to the Mind Tools Content Team. (n.d. b), this is a variation of SWOT that uses the same elements but compares them differently. Unlike the original SWOT approach, TOWS has more emphasis on the external aspects affecting the firm, and it is a variation of this technique. Another additional tool that can enhance the analysis is PESTEL, which evaluates all the essential factors of the business environment and provides a complete picture of the businesses’ current competitive position.
In SWOT, one can arrange different political or social factors impacting the firm depending on how they affect it, while PESTEL focuses mainly on the nature of these components. This approach allows accounting for all political, economic, social, technologic, environmental, and legal factors on the macro-level (“Marketing theories – PESTEL analysis,” n.d.). Thus, determining the impact of the government on business regulation or legal implications of operations can be managed using this technique. Alternatively, one can analyze the environmental effect that the activities have, which is necessary for developing a corporate social responsibility strategy. It should be noted that this tool only accounts for external factors, unlike SWOT.
Both of these tools can be used when evaluating the firm’s market position. The Mind Tools Content Team (n.d. a) argues that although SWOT is an excellent tool, it often produces misleading results because the questions are too broad. The content team argues that the contemporary strategic management theory should be applied to ensure adequate results and their interpretation. In addition, executives have to know the limitations that this approach has that will be reviewed in the next paragraphs.
The degree to which a company can compare market opportunities to its capabilities using SWOT alone depends on the accuracy of the information that the firm can obtain and the ability to adequately evaluate the business’s results. For instance, one can use industry reports, accessible data about competition, and consumer behavior analysis. David, David, and David (2016) argue that most organizations aim to transform their weaknesses into strengths to fully concentrate on opportunities. Unarguably, the actual ability of a firm to determine opportunities and threats depends is limited due to the simplicity of SWOT. However, SWOT has several limitations, and using a different tool, such as PESTEL can improve the understanding of external elements affecting the company.
After competing SWOT, it is necessary to use other analysis techniques and tools that can be used to interpret its results. According to David et al. (2016), most companies use the “WO, ST, or WT strategies” to be able to leverage their strengths and opportunities (p. 342). Therefore, the primary strategy is to group the factors from different categories to be able to compare them. Furgison (n.d.) recommends examining the strengths that can be applied to leverage the opportunities and minimize threats while ensuring that weaknesses are aligned with strengths. Additionally, ensuring that a plan for mitigating weaknesses to avoid the threats is also part of the approach to analyzing SWOT.
Another issue that should be mentioned is connected to the simplicity of this technique, which made it successful in different industries but should be considered when interpreting the results. Roghanian, Ghorbani, and Alipour (2018) state that SWOT is often organized as a list, which has several negative implications for the interpretation of the results and a difficultly for managers to interpret the results. Also, prioritizing is not a usual approach applied when developing a SWOT analysis, which can distract managers from adequately assessing all factors, mainly negative. One solution to this issue can be the use of fuzzy logic, which refers to a strategy of applying degrees to the imperfect information. However, this approach is sophisticated and requires a sufficient understanding of mathematics that can be a challenge for some managers.
In case managers find a disconnect between the firm’s competitive position and their capabilities, they can develop a strategic plan that targets their strengths and opportunities presented by the market. Opportunities are a crucial aspect of SWOT since they provide an understanding of the market needs that can be leveraged by the business with its current strengths. Also, as was previously mentioned, a general strategy is to minimize the weaknesses or transform them into strengths and avoid threats from the external environment. In general, the idea behind SWOT is to highlight what a company can do to initiate improvement. Therefore, examining the data extracted from SWOT and applying it in the strategic planning process is crucial.
Overall, this paper examined the SWOT tool commonly applied in strategic analysis, which allows executives to identify the current position of their enterprise and opportunities they can use for further expansion and development. Analytical questions which aid in examining the market position relate to the weaknesses and strengths. A business consultant can help a firm gather data that is vital for an adequate understanding of the industry.
Strengths can be compared to opportunities and threats and weaknesses are minimized through opportunities and evaluated in comparison to threats. Although SWOT is a comprehensive tool, a firm should rely on other methods of analyses as well when determining market opportunities. PESTEL is another approach that can help determine the competitive position. The first strategy of interpreting the results of SWOT is grouping all elements and prioritizing them. Managers can leverage their strengths, minimize weaknesses and threats, and use opportunities in case of a disconnect between the current market position and capabilities of a company.
David, M. E., David, F. R., & David, F. R. (2016). The quantitative strategic planning matrix: A new marketing tool. Journal of Strategic Marketing, 25(4), 342-352. Web.
Furgison, L. (n.d.). SWOT analysis step 5: Developing actionable strategies. Web.
Gurel, E., & Tat, M. (2017). SWOT analysis: A theoretical review. The Journal of International Social Research Volume, 10(51), 994-1006. Web.
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Marketing theories – PESTEL analysis. (n.d.). Web.
The Mind Tools Content Team. (n.d. a). SWOT analysis. Web.
The Mind Tools Content Team. (n.d. b). Using the TOWS matrix. Web.
Parsons, N. (2018). What is a SWOT analysis, and how to do it right (with examples). Web.
Roghanian, E., Ghorbani, G., & Alipour, M. (2018). Application of intuitionistic fuzzy numbers in SWOT analysis. International Journal of Industrial and Systems Engineering 28(2), 152-165. Web.
Verbonchu, I., & Condurache, A. (2016). Diagnostics vs. SWOT analysis. Review of International Comparative Management, 17(2), 114-122.