SWOT analysis is a framework for identifying and analyzing an organization's strengths, weaknesses, opportunities and threats -- which is what makes up the SWOT acronym. The primary goal of SWOT analysis is to aid organizations in increasing awareness of the factors in making a business decision. SWOT accomplishes this by analyzing the internal and external factors that can impact the viability of a decision.
SWOT analysis is most commonly used by business entities, but it is also used by nonprofit organizations and, to a lesser degree, individuals for personal assessment. Additionally, it can be used to assess initiatives, products or projects. As an example, CIO’s could use SWOT to help create a strategic planning template.
The framework is credited to Albert Humphrey, who tested the approach in the 1960s and 1970s at the Stanford Research Institute. Developed for business and based on data from Fortune 500 companies, the SWOT analysis has been adopted by organizations of all types as an aid to making decisions.
When and why you should do a SWOT analysis
SWOT analysis is often used either at the start of, or as part of, a strategic planning exercise. The framework is considered a powerful support for decision-making because it enables an organization to uncover opportunities for success that were previously unarticulated and highlights threats before they become overly burdensome.
As an example, this exercise can identify a market niche in which a business has a competitive advantage. It can also help individuals plot career success by pinpointing a path that maximizes their strengths while alerting them to threats that can thwart achievement.
Elements of a SWOT analysis
As its name states, a SWOT analysis examines four elements:
- Strengths: Internal attributes and resources that support a successful outcome.
- Weaknesses: Internal attributes and resources that work against a successful outcome.
- Opportunities: External factors that the entity can capitalize on or use to its advantage.
- Threats: External factors that could jeopardize the entity's success.
A SWOT matrix is often used to organize the items identified under each of these four elements. A SWOT matrix is usually a square divided into four quadrants, with each quadrant representing one of the specific elements. Decision-makers identify and list specific strengths in the first quadrant, weaknesses in the next, then opportunities and, lastly, threats.
Entities undertaking a SWOT analysis can opt to use various SWOT analysis templates; however, these templates are generally variations of the standard four-quadrant SWOT matrix.
How to do a SWOT analysis
A SWOT analysis generally requires decision-makers to first specify the objective they hope to achieve for the business, organization, initiative or individual.
From there, the decision-makers list the strengths and weaknesses as well as opportunities and threats.
Various tools exist to guide decision-makers through the process, often using a series of questions under each of the four elements. For example, decision-makers may be guided through questions such as "What do you do better than anyone else?" and "What advantages do you have?" to identify strengths; they may be asked "Where do you need improvement?" to identify weaknesses. Similarly, they'd run through questions such as "What market trends could increase sales?" and "Where do your competitors have market advantages?" to identify opportunities and threats.
Example of a SWOT analysis
The end result of a SWOT analysis should be a chart or list of a subject's characteristics. The following is an example of the analysis of an imaginary retail employee:
Strengths: good communication skills, on time for shifts, handles customers well, gets along well with all departments, physical strength, good availability.
Weaknesses: takes lengthy smoke breaks, low technical skill, very prone to spending time chatting.
Opportunities: storefront worker, greeting customers and assisting them to find products, helping keep customers satisfied, assisting customers post-purchase with items and ensuring buying confidence, stocking shelves.
Threats: occasionally missing time during peak business due to breaks, sometimes too much time spent per customer post-sale, too much time in interdepartmental chat.
Using a SWOT analysis
A SWOT analysis should be used to help an entity, whether it is an organization or an individual, to gain insight into its current and future position in the marketplace or against a stated goal.
The idea is that because entities can see competitive advantages, positive prospects as well as existing and potential problems, they can develop plans to capitalize on positives and address deficiencies.
In other words, once the SWOT factors are identified, decision-makers should be better able to ascertain if an initiative, project or product is worth pursuing and what is needed to make it successful. As such, the analysis aims to help an organization match its resources to the competitive operational environment.
SWOT analysis pros and cons
SWOT analysis can help the decision-making process by creating a visual representation of the various factors that are most likely to impact whether the business, project, initiative or individual can successfully achieve an objective.
Although that snapshot is important for understanding the multiple dynamics that impact success, a SWOT analysis does have limits. The analysis may not include all relevant factors for all four elements, thereby giving a skewed perspective. In addition, because it only captures factors at a particular point in time and doesn't allow for how those factors could change over time, the insight SWOT offers can have a limited shelf life.