What is a SWOT Analysis?
A SWOT Analysis is one of most commonly used tools to assess the internal and external environments of a company and is part of a company’s strategic planning process. In addition, a SWOT analysis can be done for a product, place, industry, or person. A SWOT analysis helps with both strategic planning and decision-making, as it introduces opportunities to the company as a forward-looking bridge to generating strategic alternatives.
SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats.
SWOT Analysis – Internal and External Factors
A SWOT analysis is divided into two main categories: internal factors and external factors.
It’s important to point out that strengths and weaknesses are current or backward-looking, and opportunities and threats are forward-looking. By performing a SWOT analysis, we will be able to build a bridge between what the company has accomplished to date and the strategic alternatives that are going to be generated.
Internal factors are the strengths and weaknesses of the company. Strengths are the characteristics that give the business its competitive advantage; while weaknesses are characteristics that a company needs to overcome in order to improve its performance.
Examples of internal factors include:
- Company culture
- Company image
- Operational efficiency
- Operational capacity
- Brand awareness
- Market share
- Financial resources
- Key staff
- Organizational structure
External factors are the opportunities and threats to the company. Opportunities are elements that the company sees in the external environment and that it could pursue in the future to generate value. Threats are elements in the external environment that could prevent the company from achieving its goal or its mission or creating value.
Changes in the external environment may be due to:
- Societal changes
- Economic environment
- Government regulations
- Market trends
Conducting a SWOT Analysis
To conduct a SWOT analysis, identify the strengths, weaknesses, opportunities, and threats to your company.
Consider strengths from an internal and consumer perspective.
- What advantages does your company have?
- What unique resources that you have that others do not?
- What is your company’s Unique Selling Proposition?
- What positive consumer perception does your company have?
- What low-cost resources do you have access to that others do not?
Consider weaknesses from an internal and consumer perspective.
- What does your company not do well?
- What weaknesses do consumers see in your company?
- What factors contribute to a weaker brand image?
Consider opportunities from an external perspective.
- What good opportunities are available in the marketplace?
- What are some trends that your company can capitalize on?
- Are there any changes in technology and markets that your company can take advantage of?
- Are there any changes in lifestyle, social patterns, etc., that your company can take advantage of?
Consider threats from an external perspective.
- What obstacles do your company face?
- What are your competitors doing better than you?
- Is the change in technology threatening the position of your company?
- What threats do your weaknesses put you at risk of?
- Do changes in lifestyle, social patterns, etc., pose a threat to your company?
Example of a SWOT Analysis
For example, a SWOT Analysis for McDonald’s stock can be constructed as follows:
- McDonald’s serves customers in more countries than any other competitor in the fast-food industry
- Significant economies of scale
- Wide audience reach
- McDonald’s exercises market power over suppliers and competitors
- The most recognized brand in the fast-food industry
- Competitive price
- High employee turnover
- Negative publicity (The perception of McDonald’s as an unhealthy food choice)
- Not much variation in seasonal products
- Quality inconsistency due to franchised operations
- Focus on fast food and not healthier options for consumers
- Being responsive to social changes to healthier options
- Business expansion to new parts of the world
- Allergen-free options and gluten-free food
- Corporate social responsibility
- More health-conscious customers
- Threat from competitors in different countries
- Threat of an economic downturn
- Social change to a more balanced meal
Key Takeaways from a SWOT Analysis
A SWOT analysis is a simple and effective framework for identifying strengths, weaknesses, opportunities, and threats that a company faces. It is important to leverage on strengths, minimize threats, and to take advantage of available opportunities. Conducting a SWOT analysis is useful for strategic planning and for determining the objectives of a company.
Want to Learn More?
Enroll today in our Corporate & Business Strategy course to learn about the three levels of strategy, external and internal analysis, and the strategic planning process.
Here are some additional Resources that you might also find interesting: