SWOT analysis is a matrix whose elements can be broken down into Strengths, Weaknesses, Opportunities, and Threats. In the analysis, the aforementioned elements, which happen to be present in any business, product, or place, are looked at and decisions made regarding the same.
SWOT analysis majorly entails determining the external and internal factors of a project or business venture and consider their favourability. From the comparisons of the internal and external environments, a strategic fit is arrived at. For instance, with the help of SWOT analysis, a business is able to operate in a competitive market environment.
The elements of the SWOT matrix stand for the following
Strengths: These are the features of the business or project that give the latter competitive advantage over other businesses in the market. They could include assets, human resource, technological resources and prospects, just to mention a few.
Weaknesses: These include features of the business that place it at a disadvantaged position over the other businesses in the market. Weakness could include high employee turnover, unsolved legal disputes, and business restrictions, among others.
Opportunities: These are features that the business has its disposition, which could be exploited to its benefit. Mergers and acquisitions are examples of opportunities.
Threats: These are elements in the external environment that could have a negative impact on the performance of the business. Currency fluctuations are an example of a threat in the business environment.
The four elements of the SWOT matrix are classified into two broad groups of internal and external factors. Strengths and weaknesses fall into the class of internal factors of the organisation, while opportunities and threats are manifested in the external environment. The external factors mainly entail matters of the macroeconomy, socio-cultural, law, and changes in the market environment.
In most cases, businesses have no control of the external factors and the only way of dealing with them is by safeguarding or shielding the business or projects from the impact of the external factors. Internal factors mostly entail matters that can be controlled by the business management.
The application of SWOT analysis is diversified ranging from projects, profit-making and non-profit making organisations, sole-entrepreneurship, and companies, among others. It is of significance in decision making, especially in cases where the objectives are defined. In addition to this, SWOT analysis can be used in preventing organisational crisis through proper planning of both the internal and external environment.
For instance, when an organisation is under financial distress, it could use SWOT analysis to identify the affected opportunities and have a pre-crisis plan to prevent the organisation from losing its opportunities. Finally, yet importantly, SWOT analysis is crucial in providing recommendation for project studies and surveys. It is an indicator of the viability of the study or survey.
From the above discussion, it can be concluded that SWOT analysis is an important management tool in any organisation. The strategic plans and decisions arrived at after a SWOT analysis help in the achievement of organisational goals and objectives. Despite its significance, SWOT analysis just like any other tool of management, has faced a lot of criticism regarding its performance and application.
For instance, SWOT analysis has the drawback of prioritisation and compilation of the factors in the various categories. With this weakness, it becomes difficult to analyse wrongly categorised factors and come up with solutions.