Swot Analysis

SWOT ANALYSIS MATRIX

One of the most widely used strategic planning tools is a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. Most companies use, in one form or another, SWOT analysis as a basic guide for strategic planning. The worth of a SWOT analysis is often dependent on the objective insight of those management individuals who conduct the SWOT analysis. If management (or consultant management) is able to provide objective, relevant information for the analysis, the results are extremely useful for the company.

A SWOT analysis involves a company's assessment of its internal position by identifying the company's strengths and weaknesses. In addition, the company must determine its external position by defining its opportunities and threats.

Strengths represent those skills in which a company exceeds and/or the key assets of the firm. Examples of strengths are a group of highly skilled employees, cutting-edge technology, and high-quality products. Weaknesses are those areas in which a firm does not perform well; examples include continued conflict between functional areas, high production costs, and a poor financial position.

Opportunities are those current or future circumstances in the environment that might provide favorable conditions for the firm. Examples of opportunities include an increase in the market population, a decrease in competition and a legislation that is favorable to the industry. Threats are those current or future circumstances in the environment, which might provide unfavorable conditions for the firm. Examples of threats include increased supplier costs, a competitor's new product-development process, and a legislation that is unfavorable to the industry.

After a firm has identified its strengths and weaknesses, it should determine the significance of each factor. A management team should review all strengths and weaknesses to determine the level (minor or major) of each strength and weakness. The importance (low or high) of each strength and weakness should also be identified. As shown in Figure 3, the combination of level of performance and importance yields four possibilities.

Cell 1 contains important areas in which the company is exhibiting poor performance. When a company identifies these areas it becomes aware of the need to improve its efforts in order to strengthen its performance. Important areas in which the company is performing very well are located in Cell 2. A company should continue its current efforts in these areas. Cell 3 contains unimportant areas in which the firm is performing poorly. Since these areas are a low priority for the company, it