“SWOT analysis” involves a systematic analysis of the internal strengths and weaknesses of a business firm (financial, technological, and managerial) and of the external opportunities and threats in the firm’s environment like changes in the markets, laws, technology and the actions of the competitors.
The SWOT Matrix
|
|
Internal Strength (S) |
Internal Weakness (W) |
|
External Opportunity (O) |
SO Strategies |
WO Strategies |
|
External Threats (T) |
ST Strategies |
WT Strategies |
SO Strategies:
The SO strategies try to improve the company’s
strengths relative to its environmental opportunities. These strategies use
firm’s internal strengths to take advantage of external opportunities. It is
the aim of enterprises to move from other positions of the matrix to this one.
The WO strategies will enable the firm to
overcome weaknesses and focus to tap its opportunities. WO strategies are
evolved to improve internal weaknesses by taking advantage of external opportunities.
The ST strategies try to gear up the internal
strengths to reduce the external environmental threats. The basic objective of
these strategies is to maximize the advantage of internal strengths while
minimizing the external environmental threats.
The WT strategies are the defensive strategies
used to counter the internal weaknesses as well as external threats. In this
situation retrenchment (reduction of expenditure), joint ventures and
liquidation strategies need to be evolved to up or out.
SWOT matrix is widely used as a strategic
planning tool and used to generate several strategic alternatives. The aim of a
business organization is to move from one position to another desirable
position in the SWOT matrix. SWOT matrix can be prepared for the whole
organization or for particular strategic business unit.
The basic objectives of conducting SWOT
analysis are:
(1) To identify the shortcomings in the
company’s present skills and resources.
(2) To exploit the strengths of the company to
achieve its objectives.
(3) To focus on profit-making opportunities in
the business environment and for identifying threats.
(4) To highlight areas within the company,
which are strong and which might be exploited more fully and weaknesses, where
some defensive planning might be required to prevent the company from downfall.
(5) Eliminating the weaknesses that expose a
company to external threats.
(6) Highlights the strengths, which the firm
should seek to exploit.
(7) Converts the threat or weakness into an
advantage.
(8) Expose the shortcomings in the company’s
present skills and resources.
(9) Match the company’s
strengths to take advantage of the opportunities in the market place.
The SWOT matrix is criticized for the
following reasons:
(a) It does not show how to achieve a
competitive position.
(b) It is a static assessment of the
organization on a particular time.
(c) It lead the firm to overemphasize a single
internal or external factor in formulating strategies.
To analyse the business situation, a
strategist needs to prepare several SWOT matrix for different points of time.
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