SWOT Analysis Definition, Advantages and Disadvantages

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. In SWOT, Strengths and Weaknesses are known to be internal factors over which you have some control. Whereas, Opportunities and Threats are considered external factors over which you don’t have much control. SWOT analysis is a tool used to analyse the strategic position of a business or an individual. It helps you identify the improvement areas and opportunities in an open market. The marketing strategy and the business models are often defined based on the SWOT analysis. The main benefit of SWOT analysis is that it can help you analyse the internal and external factors which can determine your success.

Definition of SWOT

To understand SWOT better, let us first look at the definition of four key components of SWOT. You can find these details below.

• Strengths – The first key component of SWOT is strengths. These are the Unique Selling Points or the qualities that make you stand out from the crowd. In business language, Strengths are the pointers that make a product successful. The strengths here can be intangible or tangible. These are the areas where you have expertise. This can include process capabilities, human competencies, financial resources, services, products, goodwill, etc.
• Weaknesses – The second component of SWOT analysis is weaknesses. These are the pointers which prevent you from meeting your goals. These are the improvement areas which slow down or lower the rate of success. In other words, you can say that weaknesses are the area in which you don’t meet the expected standards. Some weaknesses include old machinery, narrow product range, insufficient research or lack of agility. The goal should be to minimise and eliminate the weaknesses that you have. For example, in case of a lack of flexibility, you can adopt the agile practice to make the organisation more adaptive towards the changes.
• Opportunities – The third component of SWOT analysis is opportunities. These are the areas where you or the organisation can benefit from the external factor and improve profitability. These areas can help you gain a competitive advantage over any other thing. You need to recognise the opportunity on time and take benefit of the opportunity as quickly as possible. The opportunity can arise mainly because of external factors like policies, government, market, competition, etc.
• Threats – The last component here is Threats, which are the conditions that can impact profitability negatively. These are the vulnerabilities which others can exploit. You can’t control the threats. When the organisation face a threat, the survivability of the product or the organisation is at stake. An example of a threat in the corporate world could be a price war or restrictive policies.

Advantages of SWOT Analysis

1. Simple & Straightforward – SWOT analysis is simple to complete. It doesn’t require any training or technical expertise. Everyone can contribute to SWOT analysis, and it is also very straightforward. You can have brainstorming sessions to complete the SWOT analysis.

2. Multi-Level Analysis – SWOT analysis helps you with multi-level analysis. You get to understand some of the vital information, and you can use it to your advantage. You can correlate the risk and the opportunities. It also helps you be aware of the vulnerabilities and eliminate the weaknesses.

3. Helps Strategize – Another important part of SWOT analysis is that it can help you with strategic planning. It enables you to identify and take advantage of the opportunities. The SWOT analysis can also help the organisation plan its resources for the long-term strategy. With the help of this tool, the chances of success can be amplified.

4. Shows Opportunities – You can easily identify opportunities with the help of SWOT analysis, and you can take advantage of those when opportunity knocks on your door. A regular SWOT review is beneficial for the organisation and its profitability.

5. Risk Mitigation – Since you are aware of threats and weaknesses, you can also make a risk mitigation plan for those. This will improve the chances of survivability in a situation of crisis. You can have disaster recovery plans in place depending on your threats.

6. Identifies Cash Cows – Many organisations also take the help of SWOT analysis to identify the cash cows. They further make those products better to ensure that the competition is not a threat to them. So, SWOT analysis is again beneficial in adding more profits for the company.

Disadvantages of SWOT Analysis

1. Time-Consuming – One thing that may discourage organisations from completing a SWOT analysis is that it can be time-consuming. You need to have a proper analysis in place to support each point you are highlighting. You need to do proper research about the elements, or else the SWOT analysis may be inaccurate.

2. Unpredictable – SWOT analysis can also be unpredictable. New weaknesses, threats or opportunities may appear anytime without any indication. This can impact the organisation’s plan, and it is even a bigger problem when the organisation is not adaptable to changes in a short duration.

3. Absence of Recommendations – The last point on our list is the absence of recommendations in the SWOT analysis. It doesn’t give you any points on how to deal with threats or utilise the opportunities. You need to do additional analysis for the same.

Final Verdict

SWOT analysis is a very useful tool that is deployed by most businesses. You can also use it in your personal life, and it will help you create informed decisions. SWOT analysis helps an entity identify its strengths and the area of improvement. It can be time-consuming to complete a SWOT analysis, but it is certainly one of the most powerful tools you will come across.