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Strategic analysis is a crucial tool in modern management, as it provides managers with the ideas, models, and methods to make the most appropriate strategic decisions for their companies. Strengths, Weaknesses, Opportunities and Threats analysis (S.W.O.T. analysis) aims at identifying strong and weak features of a corporation and at putting them in relation with a range of opportunities and threats: a clear depiction of the factual situation eases strategic decision-making remarkably.
Portfolio analysis refers to an approach that represents the various business elements of a multi-business company graphically, with the goal of assessing the maximum outcome for a given level of risk (Grant, 2016). This paper will discuss some aspects of the S.W.O.T. and portfolio analysis, highlighting similarities and differences.
The idea of assessing strengths, weaknesses, opportunities, and threats to predict the possible outcomes of a corporate strategy about a given objective dates back to a corpus of researches conducted during the 1960s and the 1970s.
The grounding principle of the S.W.O.T. analysis states that the performance of an economic agent whose target is a specific objective is influenced by the interactions between the management, the distinctive features of the agent itself, and the scenario where the agent is supposed to perform (Bull et al., 2016). Analyzing strong and weak sides of a company and relating them to the external factors that might affect the desired outcome provides a versatile tool that can be utilized in several ways, including to identify the best solution to achieve an objective, to solve a problem, and to highlight priorities on the basis of strengths and weaknesses.
The economist Harry Markowitz introduced the Modern Portfolio Theory in 1952. Portfolio analysis refers to a complex management process aimed at identifying the objectives of investment, quantifying capital market expectations, choosing the asset mix, formulating portfolio strategy, and selecting securities, and implementing the portfolio (Chandra, 2017). The value and composition of a portfolio need to be re-balanced periodically depending on the fluctuations of the market. Similarly, the performance of a portfolio should be assessed on a regular basis to understand if the return of the investment is proportionate to the risks.
Substantially, Portfolio analysis is a quantitative methodology that allows managers to determine the most suitable asset mix through a series of measurable terms which consent to define the return and risk of an investment. The process is based on mathematical equations whose variables derive from historical data and future prospects. However, a certain degree of uncertainty in prospects makes Portfolio analysis a theoretical model, with some inherent risks in its implementation.
S.W.O.T. analysis and Portfolio analysis represent two different approaches to contemporary strategy analysis. The former offers a flexible tool to understand the actual status of a company concerning a specific target; the latter consents to the definition of a portfolio through a series of mathematical formulas. To be truly effective, both approaches require periodical revising, implementing, and evaluating.
However, S.W.O.T. analysis seems to be more grounded in reality: the definition of strengths, weaknesses, opportunities, and threats takes into consideration both internal and external variables, allowing managers to make decisions based on reliable info. On the other hand, Portfolio analysis suggests investment decisions based on empirical processes which foresee future outcomes derived from historical data. However, they might fail to consider more recent fluctuations, data, and tendencies in the economic market.
Bull, J. W., Jobstvogtb, N., Böhnke-Henrichsc, A., Mascarenhasd, A., Sitase, N., Baulcomb, C., … Koss, R. (2016). Strengths, Weaknesses, Opportunities and Threats: A SWOT analysis of the ecosystem services framework. Ecosystem Service, 17, 99-111.
Chandra, P. (2017). Investment analysis and portfolio management. Chennai, India: McGraw Hill Education.
Grant, R. M. (2016). Contemporary strategy analysis. Text and cases (9th ed.). Chichester, UK: Wiley.