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QuickMBA / Strategy / SWOT Analysis SWOT Analysis A scan of the internal and external environment is an im portant part of the strategic planning process. Environmental factors internal to the f irm usually can be classified as strengths ( S) or weaknesses ( W), and those external to the firm can be classified as opportunities ( O) or threats ( T). Such an analysis of the strategic environment is referred to as a SWOT analysis .
The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment i n which it operates. As such, it is instrumental in strategy formulation and select ion. The following diagram shows how a SWOT analysis fits into an environmental scan:
SWOT Analysis Framework Environmental Scan / \ Internal Analysis External Analysis / \ / \ Strengths Weaknesses Opportunities Threats | SWOT Matrix Strengths A firm's strengths are its resources and capabilities that ca n be used as a basis for developing a competitive advantage . Examples of such strengths include: • patents • strong brand names • good reputation among customers • cost advantages from proprietary know-how • exclusive access to high grade natural resources Page 1 of 4 SWOT Analysis 8/4/2017 http://www.quickmba.com/strategy/swot/ • favorable access to distribution networks Weaknesses The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:
• lack of patent protection • a weak brand name • poor reputation among customers • high cost structure • lack of access to the best natural resources • lack of access to key distribution channels In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacit y. While this capacity may be considered a strength that competitors do not share, i t also may be a considered a weakness if the large investment in manufacturing capacit y prevents the firm from reacting quickly to changes in the strategic environment.
Opportunities The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:
• an unfulfilled customer need • arrival of new technologies • loosening of regulations • removal of international trade barriers Threats Changes in the external environmental also may present th reats to the firm. Some examples of such threats include:
• shifts in consumer tastes away from the firm's products • emergence of substitute products • new regulations • increased trade barriers The SWOT Matrix Page 2 of 4 SWOT Analysis 8/4/2017 http://www.quickmba.com/strategy/swot/ A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pur sue a compelling opportunity.
To develop strategies that take into account the SWOT pro file, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:
SWOT / TOWS Matrix Strengths Weaknesses Opportunities S-O strategies W-O strategies Threats S-T strategies W-T strategies • S-O strategies pursue opportunities that are a good fit to the compa ny's strengths.
• W-O strategies overcome weaknesses to pursue opportunities.
• S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.
• W-T strategies establish a defensive plan to prevent the firm's weaknesse s from making it highly susceptible to external threats.
Recommended Reading Bradford, Robert W., Duncan, Peter J., Tarcy, Brian , Simplified Strategic Planning: A No-Nonsense Guide for Busy People Who Want Results Fast!
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