Key Principles of SWOT Analysis
It is very dangerous to make investments and dive into business environment without having the most complete information on company strengths, weaknesses, opportunities and threats which is SWOT analysis.
SWOT analysis has gained tremendous popularity among business owners and top managers.
Information obtained through this analysis type helps make smart decisions and choose appropriate strategies. By the way strategic planning is virtually impossible without evaluation of current performance of the company and its position in the market.
SWOT analysis can be compared to preparation for soccer games – the rival team evaluates your strong and weak points, as well as thinks over the ways to use their own advantages: fast forwards, strong defense, reliable goalkeeper etc.
This simple example demonstrates how businesses prepare to enter markets, launch new products or services. SWOT analysis is sometimes performed by individuals to assess own personal strengths, weaknesses, opportunities and threats. In this article we will talk about SWOT analysis and its components.
To begin with, we should mention that SWOT analysis covers both internal and environment. Strengths and opportunities refer to internal environment, i.e. resources inside the company. Opportunities and threats refer to external environment that does not depend on the company. Strengths and opportunities demonstrate advantages of the company as well as weak points that can potentially lead to problems while opportunities and threats represent possible dangers as well as ways to favorably use advantages.
Strengths are all strong points that contribute to competitive advantage. That may be just anything, from use of the latest IT Technologies to the most competent personnel in the particular area. Such advantages are evaluated as compared to the same characteristics of the key rivals. Strengths are identified taken into account goals and strategies. Sometimes, in case goals are unattainable, no strengths can ever help.
Weaknesses are those characteristics that do not contribute to competitive advantage of a company, and just to the contrary hamper it on the way to achieve goals. Among the most typical weaknesses are: in effective feedback and reporting system in the company, inefficient organization structure, lack of strategic vision etc.
Evaluation of weaknesses should and with relevant decision making as there is no point in SWOT analysis if no decisions are made at all.
Opportunities are chances for a company to achieve success in the external environment, i.e. markets. This category explains how the company should use strands to accomplish adopted goals. Opportunities in the market can be really unlimited: from making greater profits to monopolizing markets. We should stress again that opportunities have to be identified only in case realistic goals were set.
Threats are all those external factors that make it implementation of adopted strategic goals impossible. Among the common threads are changes in the markets, appearance of new products and rival companies, tough competition in the market etc.
Threats are related to company weaknesses, as well as opportunities are linked to strengths. Thus, in order to avoid threats weaknesses must be addressed while in order to take advantage of opportunities strengths should be efficiently used.