SWOT analysis is a well established and straight forward technique to analyse an organisation. Its origins are back in the 1960’s as a tool to assist strategic planning. At first the idea was to assess an organisation using the SOFT acronym.
What an organisation is good at in the present is Satisfactory (later to become strength). What an organisation is bad at in the present is a Fault, later to become weakness. What is good in the future is an Opportunity, whereas what is bad in the future is a Threat. This was later changed to the now familiar SWOT (strengths, weaknesses, opportunities, threats) acronym.
Most models and tools help provide a structure to enable you to do the thinking needed to understand the context. They are valuable to the extent that they help you structure your thoughts, but they do not replace the need for you to get the right people together to do that thinking!
What is SWOT?
A SWOT analysis is useful in bringing together an analysis of both the internal and external environments, by not only considering the current context but also thinking about the future. A PESTLE analysis provides an external focus, whilst SWOT combines that external analysis with an internal assessment of the organization. Its merits are based on it being a simple tool to use, and one that integrates several factors. Critics argue though that it can be overly simplistic.
The combination of an external focus with the internal perspective enables you to assess the opportunties and threats from outside the organisation and the strengths and weaknesses from inside the organisation, this is commonly referred to as a SWOT analysis (strengths, weaknesses, opportunities and threats).
The SWOT Process
SWOT analysis uses a two-by-two matrix to structure your thinking. You can use it to think about the external context with a view to thinking about the future, and then assess the internal context to judge your current position.
The external context is often developed using a PESTLE analysis, which focuses on what may impact the organisation from its wider environment. You may decide to use a PESTLE analysis to gather this information and then separate some of the key areas you have identified in a PESTLE analysis into opportunities or threats.
List each possibility under the heading of “opportunities” and “threats”.
Think about the future needs based on factors outside the organization
What external factors might provide the greatest opportunity for your organization?
What external factors represent a possible threat in the future?
Then consider the strengths and weaknesses of your organization.
List each possibility under the heading of “Strengths” and “Weaknesses”.
Think about the current capability within the organisation.
List your strengths, what you do well now that can help you achieve your goals.
Then list your weaknesses, the things you don’t do so well that may be harmful to your goals.
Having spent some time thinking through each of the four areas, you now need to draw some implications from your analysis:
- Strengths – how can you build on them and further develop them?
- Weaknesses – how do you reduce their possible impact? Can you get better at any of these areas?
- Opportunities – How can you prioritise these to create the biggest impact?
- Threats – How can you eliminate or significantly reduce these?
Getting the Right Ingredients
SWOT analysis is a means of structuring your thinking but as with any structure it has weaknesses. To guard against possible limitations of the process, get together the right people to ask and answer the questions. When possible strengths, weaknesses, opportunities and threats have been identified, build an evidence base behind the analysis, check and challenge the assumptions that have been made.
Who knows about the situation?Reg Revans, the father of action learning, suggested that in any analysis situation it is vital to ask three “who’s”:
- Who cares that something is done that the situation is improved?
- Who can do something about the situation?
When you get the right people together then a structure like SWOT can be a great way to access their expertise, insight and experience.
Summary – Know Your Business inside and out!
SWOT analysis provides a tool to help you know you business inside out – literally. Developing an understanding of your environment is a crucial step towards developing your strategy and providing the information and intelligence to inform your Business Goal Setting process.
Organizations don’t exist in a vacuum. The business industry environment is constantly changing and being aware of those changes is a crucial skill. One of the best known tools to help assess that external environment is PESTLE analysis. SWOT analysis then combines the assessment of the external context with the strengths and weaknesses of the internal environment, providing a comprehensive overview from which to start to plan your strategy and goals.
You can find out more about business planning by reading our series on the subject, starting with business goal setting.