SWOT analysis (strengths, weaknesses, opportunities and threats analysis) is a framework for identifying and analyzing the internal and external factors that can have an impact on the viability of a project, product, place or person.
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.
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
A SWOT analysis is often used 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 entity to uncover opportunities for success that were previously unarticulated or to highlight threats before they become overly burdensome. For example, this exercise can identify a market niche in which a business has a competitive advantage or 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 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 any one of the various SWOT analysis templates in existence; 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.
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 and positive prospects, as well as existing and potential problems, they can develop plans to capitalize on positives, address deficits or do both.
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 required to make it successful. As such, the analysis aims to help an organization match its resources to the competitive environment in which it operates.
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 its limits. The analysis may not include all relevant factors for all four elements, thereby giving a skewed perspective. Moreover, 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 it offers could have a limited shelf life.