Wednesday, 13 June 2012

What is a SWOT Analysis?

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

The SWOT Analysis is almost certainly the most basic of all the strategy analysis tools and techniques. Many would argue that it is too basic to be of much use. I would disagree. The SWOT Analysis can be incredibly useful as a lite or quick and dirty strategy analysis, a precursor to assist in planning a more comprehensive strategy analysis and selecting the most appropriate more complex tools to use, or as a means of collating and summarising the outputs from more sophisticated techniques.

A SWOT Analysis is conventionally represented as a 2X2 matrix with the Strengths listed in the top left quadrant, Weaknesses in the top right, Opportunities in the bottom left, and Threats in the bottom right quadrant. There is a logic to that presentation (which we'll come to next) but at the end of the day it boils down to 4 simple lists, and presentation is probably a matter of taste.

The Strengths and Weaknesses represent the internal dimension of the business unit under consideration. These cover factors which are or should be under management's control. A McKinsey 7-S analysis is a good way of making sure you've covered all your bases.

The Opportunities and Threats represent the business unit's external environment. These cover factors which are typically not under management's control. A PEST analysis (or one of its many variants), or Porters 5 Forces model, is a good way of going after these.

To understand the matrix presentation described above, consider that Strengths and Opportunities represent the positive strategic forces, whilst Weaknesses and Threats represent the negative strategic forces. In this way, the vertical axis represents internal and external, and the horizontal axis represents positive and negative.

It is sometimes tempting to blur the boundaries between positive and negative factors, particular in the external dimension. After all, is every Threat not really just an Opportunity not yet grasped? While this may make us feel more optimistic and proactive, and don't think it really adds anything to the analytical process. Consequently, I advise considering simply whether the factor under consideration, if left unaddressed, would be likely to take the organisation closer to or further from its goals.

A SWOT Analysis can be an incredibly quick and insightful way to understand and communicate an organisation's current strategic positioning. It should not be overlooked simply because of its simplicity. In fact, that may be its greatest strength.

You can build a SWOT analysis, alone or with a team, using our completely new and free collaborative StratNavApp.com.

See also: