The SWOT Analysis – A Business Tool to Evaluate the Current and Future Situation

The SWOT Analysis is a simple yet effective business decision-making tool that helps to assess the internal and external business environment. It can also be used to evaluate the current and future situation of a business, a brand, a proposal or a decision. 

The acronym ‘SWOT’ stands for Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are internal factors while opportunities and threats are external factors relevant to the issue under investigation.

The SWOT Analysis is a strategic business tool that is used by businesses to help reach business objectives. It helps the business to focus on key issues as the first stage of planning further will require looking at the Strengths, Weaknesses, Opportunities and Threats involved in a project or a business venture.

In order to conduct The SWOT Analysis, managers need to identify, analyze and evaluate the strengths and weaknesses inside the business’s internal environment and the opportunities and threats that come from outside of the business – the external environment.

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Internal factors

Strengths and weaknesses are internal aspects that are favorable compared with competitors and within the total control of the business. They are related to four business functions: Marketing, Finance, Production / Operations and Human Resources (HR).

Strengths 

Strengths refer to any aspect of the business that adds value to the provision of goods and services. These strengths contribute to the company being able to attract, satisfy and retain its customers in the long-term perspective. For example, strong brand recognition, awareness and loyalty; good corporate image; highly knowledgeable, skilled and experienced employees; specialist marketing expertise including strong Product Portfolio, wide distribution network and Unique Selling Point (USP); convenient location, etc.

STRATEGY: Develop and protect your strengths to better achieve business aims and objectives.

Weaknesses

Weaknesses refer to internal factors that are unfavorable when compared with rival business on the market as they create competitive disadvantages. They are likely to prevent or delay the business from achieving its future goals. In order to progress, companies need to acknowledge its weaknesses in order to improve upon them and manage them. This can play a key role in helping the business to set objectives and develop new strategies. For example, unethical employees; outdated technology, etc. 

STRATEGY: In ode to remain strong and competitive, neutralize, reduce or remove the weaknesses.

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External factors

Opportunities and threats are external aspects that are outside the control of the business which are related to the environment, the economic situation, social changes or technological advances such as the Internet, etc.

Opportunities

Opportunities may help the business to succeed in the future – expand the size and increase profits. For example, growing customer base; rapid economic growth, etc.

STRATEGY: Use the strengths to take advantage of the opportunities that arise.

Threats

Threats may cause problems for the business that will result in limiting the prospects for an organization. By generating new ideas, the company can use a particular strength to defend against threats in the market. For example, product recalls; price wars; natural disasters; technological breakdowns; changes in fashion; price wars; oil crises; economic recession; infectious diseases like SARS or Ebola, etc.

STRATEGY: Be aware of possible external threats and prepare a plan to counteract them.

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Benefits of using The SWOT Analysis

There are plenty of benefits for businesses and managers resulting from having The SWOT Analysis in place. This tool can be extremely useful for investigating, analyzing and evaluation all sorts of business situations to aid decision making. 

You can analyze your competitors and the threats posed by rival companies. You can assess opportunities for the development and growth of the organization. You can assess risk of investing capital in a certain project or location. You can review corporate strategy deciding on the direction of the business. You can also plan strategically to expand overseas, change the type of your business organization or diversify. 

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How to construct The SWOT Analysis?

Strengths and weaknesses are the internal factors that an organization currently faces. Opportunities and threats are the external factors that the organization is likely to face in the near future. 

These criteria examples relate to assessing a new business venture or proposition. Many listed of the following criteria can apply to other quadrants, and the examples are not exhaustive. You should identify and use any other criteria that are appropriate to your situation.

What might be the strength for one business, it might be the weakness for another business. And, what might be the threat for one business, it might be the opportunity for another business. 

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Examples of The SWOT Analysis

EXAMPLE 1: Sunshine Convenience store in Malaysia
Sunshine Convenience Store, located in Lanai Kiara Condominium, KL, Malaysia, is run by a sole trade. It mainly serves the residents of the condominium providing food, snacks, beverages, etc.

Strengths:
1. Flexible working hours as the owner is the boss of the business. 
2. Provision of personalized services means closer relationship with customers. 
3. Quick decision-making as the owner is the only decision maker. 

Weaknesses:
1. Inexperience of running a business, the owner started the business last year.
2. No prior education or knowledge in business management.
3. Insufficient funds to pay first bills.

Opportunities:
1. Lack of competition as it is the only convenience store in the neighborhood. 
2. The number of residents has been growing by 20% every year.
3. Large number of local workers that can be hired for relatively low cost.

Threats:
1. May have to close down, if bills cannot be paid on time.
2. Few customers during holidays leading to less profit.
3. Two new supermarkets are scheduled to be opened by the end of the year.

EXAMPLE 2: Abbey the bank
Abbey is a mortgage bank. In the same way that a shop sells goods, Abbey sells financial products. These are products such as bank accounts, mortgages and credit cards. Abbey is part of the financial services industry. [1] Times Higher Education Case Studies

Strengths: 
1. Its main strength was its expert knowledge of finance. This meant that it should focus on this area.

Weaknesses: 
1. Its main weakness was its size. As only the 6th largest bank, it could not offer the same range of products as bigger banks. This meant that it should offer a simpler range.

Opportunities: 
1. The main opportunity was to provide simpler products which customers would better understand.

Threats: 
1. The main threat was from other banks, who might want to take over Abbey, so it needed to become stronger. 

EXAMPLE 3: MFI, the largest seller of kitchens and bedrooms in the UK
MFI is the UK’s largest seller of kitchens, bedrooms and the things that go in them. It makes them, sells them and supplies services to buyers. As the number one in the country, it is known as the market leader. To stay as market leader MFI needs to keep growing, so that it can compete. Market research showed that people thought MFI sold sofas, even though it did not. This led MFI to try out the sale of sofas in test stores.[2] Times Higher Education Case Studies

Strengths: 
1. Its well-known brand name. It also had good resources such as first-class managers, staff and distribution.

Weaknesses: 
1. It did not have the factory space to expand. It is also in a market where people only tend to buy when incomes are rising and the future looks good.

Opportunities: 
1. To tap into the increased fashion sense of the public. It also offered it the chance to widen its range of products.

Threats: 
1. Other high street competitors.

EXAMPLE 4: IKEA
IKEA is an internationally known home furnishing retailer. It has grown rapidly since it was founded in 1943. Today it is the world's largest furniture retailer, recognized for its Scandinavian style. The majority of IKEA's furniture is flat-pack, ready to be assembled by the consumer. [3] Times Higher Education Case Studies

Strengths:
1. A strong global brand which attracts key consumer groups. It promises the same quality and range worldwide.
2. Its vision – ‘to create a better everyday life for many people’.
3. A strong concept – based on offering a wide range of well designed, functional products at low prices.
4. A ‘democratic design’ – reaching an ideal balance between function, quality, design and price. IKEA’s ‘Cost Consciousness’ means that low prices are considered when each product is designed from the outset.
5. IKEA has strengths right through its production processes: 
- Increasing use of renewable materials – IKEA improved its overall use from 71% in 2007to 75% in 2009. 
- ‘Smarter’ use of raw materials – IKEA increased the use of recycled or reclaimed waste products in energy production across all stores from 84% in 2007 to 90% in 2009. 
- Volume commitments – IKEA believes in creating long-term partnerships with its suppliers in order to buy large volumes over a number of years, so IKEA can negotiate lower prices. 
- Economies of scale – bulk buying at cheaper unit costs.
- Sourcing materials close to the supply chain to reduce transport costs. Delivering products directly from the supplier to IKEA stores to reduces handling costs, road miles and lowers the carbon footprint. 
- Using new technologies to reduce the amount of raw materials needed.

Weaknesses:
1. The size and scale of its global business. It is hard to control standards and quality. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA’s supply chain, affecting consumer views of IKEA’s products. The IWAY code is backed up by training and inspectors visiting factories to make sure that suppliers meet its requirements.
2. The need for low cost products. This needs to be balanced against producing good quality. IKEA also needs to differentiate itself and its products from competitors. IKEA believes there is no compromise between being able to offer good quality products and low prices.
3. IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The scale of the business makes this a difficult task. IKEA produces publications in print and online and carries out major TV and radio campaigns to enable the business to communicate with different target audiences.

Opportunities:
1. A growing demand for greener products. 
2. A growing demand for low priced products. Trends in the current financial climate may result in consumers trading down from more expensive stores. 
3. Demand for reduced water usage and lower carbon footprints.

Threats:
1. Social trends. Such as the slowdown in first time buyers entering the housing market. This is a core market segment for IKEA products. 
2. Market forces. More competitors entering the low-price household and furnishings markets. IKEA needs to reinforce its unique qualities to compete with these 
3. Economic factors. The recession slows down consumer spending and disposable income reduces.

EXAMPLE 5: Amazon 

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Evaluation of The SWOT Analysis

Advantages of The SWOT Analysis include:

1. Quick and easy to construct. Completing The SWOT Analysis is usually quite simple and quick, and does not require any specialist knowledge.

2. Broad application. The SWOT Analysis has a wide range of applications, for example it can be used to respond to the threat of rival companies entering the market. 

3. Enables businesses to evaluate current position. The SWOT Analysis helps to determine the business’s position in the market helping to formulate business strategy for its long-term survival. It encourages forecasting in the decision-making process. 

4. Helps with objective decision-marking. The SWOT Analysis can help to reduce the risks of decision-making by demanding objective and logical thought processes.

Disadvantages of The SWOT Analysis include:

1. Too simplistic. It is rather simplistic without details being fully analyzed. 

2. Static. The model is static whereas the business environment is always changing, so it can get out of date quickly.

3. Requires acknowledgement of weaknesses. The analysis is only useful, if managers acknowledge their weaknesses and are willing to act upon them. 

4. Must be used together with other decision-making tools. The SWOT analysis is not typically used in isolation, but with other business tools such as The STEEPLE Analysis or The Force Field Analysis.

5. Subjective. The SWOT Analysis may not be objective as two different people rarely come up with the same outcomes. So, it should be used by adding weighting criteria to each factor to increase validity. 

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How to teach The SWOT Analysis?

The SWOT Analysis basic teaching plan may look like this:

1. The teacher defines The SWOT Analysis and shows examples in which situations managers can use this decision-making tool. Students brainstorm their own decisions which they make on daily basis. (Setting the context)

2. The teacher describes both internal and external factors, and looks at advantages and disadvantages of the analysis. (Modeling and deconstruction)

3. The teacher explains The SWOT Analysis template, and both the teacher and the students come up with examples of strengths, weaknesses, opportunities and threats to assess the current and future situation of Sunshine Convenience Store in Malaysia. (Joint construction)

4. The students prepare The SWOT Analysis for a decision to open a convenience store near their school. (Independent construction)

5. Differentiated homework – Either prepare The SWOT Analysis for Abbey the bank, based on Times Higher Education 100 Case Studies (difficult option), or prepare The SWOT Analysis for a decision to open a convenience store near your school (easy option).

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