SWOT analysis is a technique for assessing a company’s performance, competition, risk and potential.
SWOT analysis evaluates internal and external factors, as well as the current and future potential of a company to improve its opportunities.
Want to know more? In this article, we explain what a SWOT analysis is, its components and how to perform it.
What is a SWOT analysis?
A SWOT analysis – short for strengths, weaknesses, opportunities and threats – is a technique used to assess a company’s performance, risk and competitive position and to develop strategic planning.
In this way, a SWOT analysis can also be used to evaluate part of the company, for example, a product line or a particular industry.
Using internal and external data, SWOT analysis guides companies towards the strategies most likely to succeed, since the identification of strengths, weaknesses, opportunities and threats leads to a fact-based business analysis, new perspectives, ideas and innovative solutions.
SWOT analysis is a strategic planning technique that provides assessment tools.
In this sense, a SWOT analysis extracts information from both internal factors – the company’s strengths and weaknesses – and external factors – opportunities and threats – that can have a decisive impact on decisions.
Why is SWOT analysis important?
A SWOT analysis is used to strategically identify a company’s areas of improvement and competitive advantages.
Using this information, a business can make better decisions to preserve what it does well, capitalize on its strengths, mitigate risk related to weaknesses, and plan for events that may negatively affect the company in the future.
Similarly, a company can use the information provided by SWOT analysis for use in overall business strategy or in a specific segment, such as marketing, production, product development, market research or sales.
Components of the SWOT analysis
Strengths
Strengths show what an organization excels at and what separates it from the competition. For example, a strong brand, loyal customer base, strong balance sheet, unique technology, etc.
Weaknesses
Weaknesses prevent an organization from performing as it should. These are areas in which the company must improve to remain competitive. For example, a weak brand, an inadequate supply chain, a strategic design that does not work, or a lack of capital.
Opportunities
Opportunities refer to favorable external factors that could generate a competitive advantage for the organization. For example, if a country reduces tariffs, a car manufacturer can export its cars to a new market, increasing sales and market share.
Threats
Threats refer to factors that have the potential to harm a business. For example, drought is a threat to an agricultural business. Other common threats include factors such as rising material costs, increased competition, labor shortages, etc.
How to perform a SWOT analysis
The four steps used to conduct a SWOT analysis comprise the acronym SWOT: Strengths, Weaknesses, Threats, Opportunities and Opportunities. These four aspects can be divided into two analysis steps.
First, a company assesses its internal capabilities and determines its strengths and weaknesses. Next, the company looks outward and evaluates external factors affecting its business, which can either create opportunities or threaten existing operations.
In this regard, it is advisable to develop a list of questions that respond to each element to be analyzed.
The questions serve as a guide to complete the SWOT analysis and create a balanced list.
Similarly, the SWOT method can be designed in list format, as free text or, more commonly, as a 4-cell table, with quadrants dedicated to each element. Strengths and weaknesses are listed first, followed by opportunities and threats.
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