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SWOT Analysis - What is SWOT Analysis? - Definition, Study notes of Finance

SWOT AnalysisSWOT AnalysisA SWOT analysis is an analytical tool that can help analyze a business. "SWOT" stands for strengths, weaknesses, opportunities, and threats. This type of analysis represents an effort to examine the interaction between the particular characteristics of your business and the external marketplace in which you compete. The internal portion of a SWOT analysis looks at the individual strengths and weaknesses of your specific business.  Similarly, the external analy

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SWOT Analysis
A SWOT analysis is an analytical tool that can help analyze a business. "SWOT" stands
for strengths, weaknesses, opportunities, and threats. This type of analysis represents an
effort to examine the interaction between the particular characteristics of your business
and the external marketplace in which you compete.
The internal portion of a SWOT analysis looks at the individual strengths and weaknesses
of your specific business. Similarly, the external analysis looks at the opportunities
presented by the marketplace and the threats that you face in your chosen market.
Strengths
Every organization has some strength. In some cases this is obvious, for example,
dominant market shares. In other cases, it is a matter of perspective, for instance, a
company is very small and hence has the ability to move fast. It is important to note that
companies that are in a bad position also have strengths. Whether these strengths are
adequate is an issue for analysis. A strength could be:
your specialist marketing expertise.
a new, innovative product or service
location of your business
quality processes and procedures
state-of-the-art equipment
any other aspect of your business that adds value to your product or service
Weaknesses
Every organization also has some weakness. In some cases, this is obvious; say for
example, a stricter regulatory environment. In other cases, it is a matter of perspective,
for example, a company has 99% market share and is open to attack from every new
player. It is important to note that companies that are extremely competent in what they
do, also have weaknesses. How badly these weaknesses will affect the company is a
matter of analysis. A weakness could be:
lack of marketing expertise
undifferentiated products and service (i.e. in relation to your competitors)
location of your business
poor quality goods or services
damaged reputation
problems managing inventories
poorly motivated or untrained staff
inefficient or obsolete production methods
Opportunities
All organizations have some opportunities that they can gain from. These could range
from diversification to sale of operations. Identifying hidden opportunities is the mark of
an astute analyst. An opportunity could be:
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SWOT Analysis

A SWOT analysis^ is an analytical tool that can help analyze a business. "SWOT" stands for strengths, weaknesses, opportunities, and threats. This type of analysis represents an effort to examine the interaction between the particular characteristics of your business and the external marketplace in which you compete.

The internal portion of a SWOT analysis looks at the individual strengths and weaknesses of your specific business. Similarly, the external analysis looks at the opportunities presented by the marketplace and the threats that you face in your chosen market.

Strengths Every organization has some strength. In some cases this is obvious, for example,

dominant market shares. In other cases, it is a matter of perspective, for instance, a company is very small and hence has the ability to move fast. It is important to note that companies that are in a bad position also have strengths. Whether these strengths are adequate is an issue for analysis. A strength could be:

your specialist marketing expertise.

a new, innovative product or service

location of your business

quality processes and procedures

state-of-the-art equipment

any other aspect of your business that adds value to your product or service

Weaknesses Every organization also has some weakness. In some cases, this is obvious; say for

example, a stricter regulatory environment. In other cases, it is a matter of perspective, for example, a company has 99% market share and is open to attack from every new player. It is important to note that companies that are extremely competent in what they do, also have weaknesses. How badly these weaknesses will affect the company is a matter of analysis. A weakness could be:

lack of marketing expertise

undifferentiated products and service (i.e. in relation to your competitors)

location of your business

poor quality goods or services

damaged reputation

problems managing inventories

poorly motivated or untrained staff

inefficient or obsolete production methods

Opportunities All organizations have some opportunities that they can gain from. These could range from diversification to sale of operations. Identifying hidden opportunities is the mark of an astute analyst. An opportunity could be:

a developing market such as the Internet.

mergers, joint ventures or strategic alliances

moving into new market segments that offer improved profits

a new international market

a market vacated by an ineffective competitor

Threats No organization is immune to threats. These could be internal, such as falling productivity. Or they could be external, such as lower priced international competition. A threat could be:

a new competitor in your home market

price wars with competitors

a competitor has a new, innovative product or service

competitors have superior access to channels of distribution

taxation is introduced on your product or service

Simple rules for successful SWOT analysis

Analysis should distinguish between where your organization is today, and where it could be in the futures

Be specific. Avoid grey areas.

The SWOT framework offers a good starting point for analysis, but don’t ignore your common sense, gut feel and experience.

Analyze in context to your competition i.e. better then or worse than your competition

Keep your SWOT short and simple. Avoid complexity and over analysis

SWOT is subjective—two people rarely come up with the same final version.

Questions to help you determine SWOTs

Strengths

What is golden about your company? What do you do well (in sales, marketing, operations, management)? What are your assets? What are your core competencies? (I.e., what are essential business operations you do very well?_ What are the most profitable products/services? What experience do you have?

Weaknesses

What looks a bit rusty inside your company? What do you need (customer service, marketing, accounting, planning)? Where do you lack resources? What can you do better? Where are you losing money?