Strategic Planning: What is a SWOT Analysis?
by Armin Laidre
<< Back to Collection of How-to Guides
The market conditions that businesses face are in a constant state of flux which
forces business managers to come up with new projects to compete and keep
businesses relevant to modern consumers. Strategic planning describes the
process a business uses to determine how it can best meet its objectives and
carry out its mission. A SWOT-analysis is a common strategic planning tool that
can help managers evaluate the chances that a certain project will succeed.
It is defined as "An analysis of the internal and external environmental factors performed as part of developing the organizational strategy"
The term "SWOT" is an acronym for the words "strengths", "weaknesses", "threats"
and "opportunities". A S.W.O.T framework involves composing lists of the internal
strengths and weaknesses a business that are relevant to a certain project and
then creating lists of opportunities and threats that exist outside of the
company that could impact the project. For example, consider a tech company
wants to increase its sales by expanding its product offerings. If the company
owns a patent on a new type of computer processor technology, the patent could
be listed as a strength, but if it the company does not have the resources to
engineer and produce a prototype of the new processor, managers might list lack
of capital as a weakness. Venture capitalists often invest in businesses with
new ideas that have the potential for large growth, so the potential to attract
venture capital could be listed as on opportunity. If competitors are in the
process of developing similar technologies it could constitute a threat. Once
all four lists are composed, managers can brainstorm ways to maximize
strengths, limit weaknesses, take advantage of opportunities and avoid or
How to Organize It
SWOT Analyses are often arranged as a 2 by 2 matrices with the lists of strength
and weaknesses in the first two boxes in the first row and the lists of
opportunities and threats in the second row. By arranging the analysis this
fashion, the lists are separated into internal factors that can affect a
project on the first row and external factors on the second row. In addition,
the first column consists of the positive factors (strengths and opportunities)
and the second column consists of negative actors (weaknesses and threats.).
This method provides a simple framework to keep lists organized and
conceptualize how the lists are related.
Purpose of a SWOT Analysis
The purpose of a Strengths, Weaknesses, Opportunities, and Threats framework is to get managers thinking about everything that
could potentially impact the success of a new project. Failure to consider a
key strength, weakness, threat or opportunity could to lead to a poor business
decisions. For example, if the tech company with the patent for a new processor
did not recognize the threat that its competitors were developing similar
products, it might overestimate the sales potential of the new processor and
take on debt to fund the development of the processor only to discover that the
new product does not bring in enough revenue to pay off the debt. In other
words, a strenghts, weaknesses, opportunities, and threats brainwork can help managers avoid making costly mistakes and determine
which projects are most likely to succeed.
Read more from Wikipedia
© iPlanner.NET - Business Plan Software for Startups