SWOT Analysis is a strategic planning technique that is used to evaluate the strengths, weaknesses, opportunities, and threats of a project or in a business entity. It involves finding out the objectives of the business venture or project, and also pinpointing the internal and external factors that are favorable and unfavorable to attain that objective.
SWOT analysis must begin with the definition of a desired result or objective. It is also sometimes incorporated into the strategic planning model.
Strengths − Characteristics that give an advantage over others in the industry.
Weaknesses − Characteristics that are a disadvantage.
Opportunities − External chances to improve in the environment.
Threats − External elements that could cause trouble for the business.
Strengths must consider what the organization can do with the internal resources. Any asset of the firm could be classified as strength, but the extent of contribution to the competitive situation of the firm can fluctuate greatly. A reputed brand-name, popular customer service, and/or exclusive access to systematic supply chain network are strengths.
Any area in which the organization lacks strength is weakness. Poor product positioning, outdated production equipment, and poor customer service are weaknesses. High employee turnover that leads to loss of talent is a major weakness of the firm.
In general, changes in the external environment that may uplift the company can be an opportunity to the firm. Weakening of competitors by a poor cash-flow position is an opportunity to capture market share. Similarly, changes in tax structure, progress in economic trends, or the passage of favorable laws are all opportunities.
Threats stem from a deficiency of opportunities or from the strengths of competitors. Changes in consumer preferences, new competitor innovations, restrictive regulations, and unfavorable trade barriers are all examples of threats.
After completing the SWOT analysis, the company should be able to configure its overall position in the marketplace. This is an important step in strategic management. However, every opportunity cannot be pursued and every strength is not necessarily an advantage. The organization should choose the factors to exploit to take complete advantage of its position. Similarly, the organization should seek to minimize weaknesses and threats.
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