SWOT analysis is a framework for identifying and analyzing an organization's strengths, weaknesses, opportunities and threats. These words make up the SWOT acronym.
The primary goal of SWOT analysis is to increase awareness of the factors that go into making a business decision or establishing a business strategy. To do this, SWOT analyzes the internal and external environment and the factors that can impact the viability of a decision.
Businesses commonly use SWOT analysis, but it is also used by nonprofit organizations and, to a lesser degree, individuals for personal assessment. SWOT is also used to assess initiatives, products or projects. As an example, CIOs could use SWOT to help create a strategic business planning template or perform a competitive analysis.
The SWOT framework is credited to Albert Humphrey, who tested the approach in the 1960s and 1970s at the Stanford Research Institute. SWOT analysis was originally developed for business and based on data from Fortune 500 companies. It has been adopted by organizations of all types as a brainstorming aid to making business decisions.
When and why should you do a SWOT analysis?
SWOT analysis is often used either at the start of, or as part of, a strategic planning process. The framework is considered a powerful support for decision-making because it enables an organization to uncover opportunities for success that were previously unarticulated. It also highlights threats before they become overly burdensome.
SWOT analysis can identify a market niche in which a business has a competitive advantage. It can also help individuals plot a career path that maximizes their strengths and alert them to threats that could thwart success.
This type of analysis is most effective when it's used to pragmatically recognize and include business issues and concerns. Consequently, SWOT often involves a diverse cross-functional team capable of sharing thoughts and ideas freely. The most effective teams would use actual experiences and data -- such as revenue or cost figures -- to build the SWOT analysis.
A SWOT analysis matrix is made up of these four elements.Elements of a SWOT analysis
As its name states, a SWOT analysis examines four elements:
- Internal attributes and resources that support a successful outcome, such as a diverse product line, loyal customers or strong customer service.
- Internal factors and resources that make success more difficult to attain, such as a weak brand, excessive debt or inadequate staffing or training.
- External factors that the organization can capitalize on or take advantage of, such as favorable export tariffs, tax incentives or new enabling technologies.
- External factors that could jeopardize the entity's success, such as increasing competition, weakening demand or an uncertain supply chain.
A SWOT matrix is often used to organize the items identified under each of these four elements. The matrix is usually a square divided into four quadrants, with each quadrant representing one of the specific elements. Decision-makers identify and list specific strengths in the first quadrant, weaknesses in the next, then opportunities and, lastly, threats.
Organizations or individuals doing a SWOT analysis can opt to use various SWOT analysis templates. These templates are generally variations of the standard four-quadrant SWOT matrix.
How to do a SWOT analysis
A SWOT analysis generally requires decision-makers to first specify the objective they hope to achieve for the business, organization, initiative or individual. From there, the decision-makers list the strengths and weaknesses as well as opportunities and threats.
Various tools exist to guide the decision-making process. They frequently provide questions that fall under each of the four SWOT elements.
For example, participants might be asked the following to identify their company's strengths: "What do you do better than anyone else?" and "what advantages do you have?" To identify weaknesses, they may be asked "where do you need improvement?" Similarly, they'd run through questions such as "what market trends could increase sales?" and "where do your competitors have market share advantages?" to identify opportunities and threats.
Example of a SWOT analysis
The end result of a SWOT analysis should be a chart or list of a subject's characteristics. The following is an example of a SWOT analysis of an imaginary retail employee:
- Strengths: good communication skills, on time for shifts, handles customers well, gets along well with all departments, physical strength, good availability.
- Weaknesses: takes long smoke breaks, has low technical skill, very prone to spending time chatting.
- Opportunities: storefront worker, greeting customers and assisting them to find products, helping keep customers satisfied, assisting customers post-purchase and ensuring buying confidence, stocking shelves.
- Threats: occasionally missing time during peak business due to breaks, sometimes too much time spent per customer post-sale, too much time in interdepartmental chat.
How to use a SWOT analysis
A SWOT analysis should be used to help an entity gain insight into its current and future position in the marketplace or against a stated goal.
Organizations or individuals using this analysis can see competitive advantages, positive prospects as well as existing and potential problems. With that information, they can develop business plans or personal or organizational goals to capitalize on positives and address deficiencies.
Once SWOT factors are identified, decision-makers can assess if an initiative, project or product is worth pursuing and what is needed to make it successful. As such, the analysis aims to help an organization match its resources to the competitive environment.
A SWOT analysis can be used to assess and consider a range of goals and action plans, such as the following:
- the creation and development of business products or services;
- making hiring, promotion or other human resources decisions;
- evaluating and improving customer service opportunities and performance;
- setting business strategies to improve competitiveness or improve business performance; and
- making investments in technologies, geographical locations or markets.
SWOT analysis is similar to PEST analysis, which stands for political, economic, social and technological. PEST analysis lets organizations analyze external factors that affect its operations and competitiveness.
SWOT analysis pros and cons
Among the advantages of using a SWOT approach are the following:
- The analysis creates a visual representation of the factors that are most likely to impact whether the business, project, initiative or individual can successfully achieve an objective.
- By involving experienced cross-discipline team members, a SWOT analysis can encourage many different perspectives and approaches.
- Such diversity can allow a SWOT analysis to flesh out each element and expose creative ideas and overlooked problems that might otherwise go unnoticed.
Although a SWOT snapshot is important for understanding the many dynamics that affect success, the analysis does have limits, such as the following:
- The analysis may not include all relevant factors because some strengths, weaknesses, opportunities and threats can easily be overlooked or misunderstood.
- The input for each element can often be empirical or subjective and give a skewed perspective.
- Because it only captures factors at a particular point in time and doesn't allow for how those factors could change over time, the insight SWOT offers can have a limited shelf life.
Learn how to assess an organization's needs and implement a technology strategy in this step-by-step guide.
SWOT [strengths, weaknesses, opportunities, and threats] analysis is a framework used to evaluate a company's competitive position and to develop strategic planning. SWOT analysis assesses internal and external factors, as well as current and future potential.
A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization, initiatives, or within its industry. The organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on real-life contexts. Companies should use it as a guide and not necessarily as a prescription.
- SWOT analysis is a strategic planning technique that provides assessment tools.
- Identifying core strengths, weaknesses, opportunities, and threats leads to fact-based analysis, fresh perspectives, and new ideas.
- SWOT analysis works best when diverse groups or voices within an organization are free to provide realistic data points rather than prescribed messaging.
SWOT analysis is a technique for assessing the performance, competition, risk, and potential of a business, as well as part of a business such as a product line or division, an industry, or other entity.
Using internal and external data, the technique can guide businesses toward strategies more likely to be successful, and away from those in which they have been, or are likely to be, less successful. Independent SWOT analysts, investors, or competitors can also guide them on whether a company, product line, or industry might be strong or weak and why.
Julie Bang. Investopedia, 2019.Analysts present a SWOT analysis as a square segmented into four quadrants, each dedicated to an element of SWOT. This visual arrangement provides a quick overview of the company’s position. Although all the points under a particular heading may not be of equal importance, they all should represent key insights into the balance of opportunities and threats, advantages and disadvantages, and so forth.
SWOT Analysis was first used to analyze businesses. Now it's often used by governments, nonprofits, and individuals, including investors and entrepreneurs.
Strengths describe what an organization excels at and what separates it from the competition: a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results. It must then decide how to use those results to attract new investors.
Weaknesses stop an organization from performing at its optimum level. They are areas where the business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital.
Opportunities refer to favorable external factors that could give an organization a competitive advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and market share.
Threats refer to factors that have the potential to harm an organization. For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats include things like rising costs for materials, increasing competition, tight labor supply. and so on.
| Strengths1. What is our competitive advantage?2. What resources do we have? 3. What products are performing well? |
Weaknesses1. Where can we improve?2. What products are underperforming? 3. Where are we lacking resources? |
| Threats1. What new regulations threaten operations?2. What do our competitors do well? 3. What consumer trends threaten business? |
Opportunities1. What technology can we use to improve operations?2. Can we expand our core operations? 3. What new market segments can we explore? |
What occurs within the company serves as a great source of information for the strengths and weaknesses categories of the SWOT analysis. Examples of internal factors include financial and human resources, tangible and intangible [brand name] assets, and operational efficiencies.
Potential questions to list internal factors are:
- [Strength] What are we doing well?
- [Strength] What is our strongest asset?
- [Weakness] What are our detractors?
- [Weakness] What are our lowest-performing product lines?
What happens outside of the company is equally as important to the success of a company as internal factors. External influences, such as monetary policies, market changes, and access to suppliers, are categories to pull from to create a list of opportunities and weaknesses.
Potential questions to list external factors are:
- [Opportunity] What trends are evident in the marketplace?
- [Opportunity] What demographics are we not targeting?
- [Threat] How many competitors exist, and what is their market share?
- [Threat] Are there new regulations that potentially could harm our operations or products?
Use a SWOT analysis to identify challenges affecting your business and opportunities that can enhance it. However, note that it is one of many techniques, not a prescription.
In 2015, a Value Line SWOT analysis of The Coca-Cola Company noted strengths such as its globally famous brand name, vast distribution network, and opportunities in emerging markets. However, it also noted weaknesses and threats such as foreign currency fluctuations, growing public interest in "healthy" beverages, and competition from healthy beverage providers.
Its SWOT analysis prompted Value Line to pose some tough questions about Coca-Cola's strategy, but also to note that the company "will probably remain a top-tier beverage provider" that offered conservative investors "a reliable source of income and a bit of capital gains exposure."
Five years later, the Value Line SWOT analysis proved effective as Coca-Cola remains the 6th strongest brand in the world [as it was then]. Coca-Cola's shares [traded under ticker symbol KO] have increased in value by over 60% during the five years after the analysis was completed.
To get a better picture of a SWOT analysis, consider the example of a fictitious organic smoothie company. To better understand how it competes within the smoothie market and what it can do better, it conducted a SWOT analysis. Through this analysis, it identified that its strengths were good sourcing of ingredients, personalized customer service, and a strong relationship with suppliers. Peering within its operations, it identified a few areas of weakness: little product diversification, high turnover rates, and outdated equipment.
Examining how the external environment affects its business, it identified opportunities in emerging technology, untapped demographics, and a culture shift towards healthy living. It also found threats, such as a winter freeze damaging crops, a global pandemic, and kinks in the supply chain. In conjunction with other planning techniques, the company used the SWOT analysis to leverage its strengths and external opportunities to eliminate threats and strengthen areas where it is weak.
SWOT [strengths, weaknesses, opportunities, and threats] analysis is a method for identifying and analyzing internal strengths and weaknesses and external opportunities and threats that shape current and future operations and help develop strategic goals. SWOT analyses are not limited to companies. Individuals can also use SWOT analysis to engage in constructive introspection and form personal improvement goals.
Home Depot conducted a SWOT analysis, creating a balanced list of its internal advantages and disadvantages and external factors threatening its market position and growth strategy. High-quality customer service, strong brand recognition, and positive relationships with suppliers were some of its notable strengths; whereas, a constricted supply chain, interdependence on the U.S. market, and a replicable business model were listed as its weaknesses.
Closely related to its weaknesses, Home Depot's threats were the presence of close rivals, available substitutes, and the condition of the U.S. market. It found from this study and other analysis that expanding its supply chain and global footprint would be key to its growth.
Creating a SWOT analysis involves identifying and analyzing the strengths, weaknesses, opportunities, and threats of a company. It is recommended to first create a list of questions to answer for each element. The questions serve as a guide for completing the SWOT analysis and creating a balanced list. The SWOT framework can be constructed in list format, as free text, or, most commonly, as a 4-cell table, with quadrants dedicated to each element. Strengths and weaknesses are listed first, followed by opportunities and threats.
Threats are external forces that may adversely affect the success of a company. They consist of competitive advantages of rivals, uncontrollable influences such as natural disasters, governmental policies, and more. Identifying threats can help expose barriers to success and position companies to develop strategies to overcome them.
Strengths in a SWOT analysis are the favorable internal activities, processes, and behaviors of a company [what a company does well]. These are the factors that contribute to the success of the company and its brand. Strengths, such as highly-rated customer service and effective supply chain management, help companies sustain and enhance their competitive advantage.
A SWOT analysis is a great way to guide business-strategy meetings. It's powerful to have everyone in the room discuss the company's core strengths and weaknesses, define the opportunities and threats, and brainstorm ideas. Oftentimes, the SWOT analysis you envision before the session changes throughout to reflect factors you were unaware of and would never have captured if not for the group’s input.
A company can use a SWOT for overall business strategy sessions or for a specific segment such as marketing, production, or sales. This way, you can see how the overall strategy developed from the SWOT analysis will filter down to the segments below before committing to it. You can also work in reverse with a segment-specific SWOT analysis that feeds into an overall SWOT analysis.
Although a useful planning tool, SWOT has limitations. It is one of several business planning techniques to consider and should not be used alone. Also, each point listed within the categories is not prioritized the same. SWOT does not account for the differences in weight. Therefore, a deeper analysis is needed, using another planning technique.