What is the Purpose of SWOT Analysis and How to Use It

Home/Quality Articles/What is the Purpose of SWOT Analysis and How to Use It

What is the Purpose of SWOT Analysis and How to Use It

Strategic planning defines the procedure a business uses to decide how it can best come across its purposes and carry out its mission. A SWOT-analysis is a common section found in strategic plan documents of private and public enterprises. It is also a common strategic planning that can help managers evaluate the chances that a certain project will thrive. So many businesses face market conditions which are in a constant state of flux which forces business directors to come up with new projects to compete and preserve businesses significant to modern customers.

The Basics of SWOT Analysis

“SWOT” is an acronym for the words “strength”, “weaknesses”, “threats”, and “opportunities”. A S.W.O.T structure comprises combining lists of the weakness and internal strengths of a business that is related to a certain project and then making lists of threats and opportunities that exist outside of the company that could influence the project. For instance, consider a tech company wants to increase its sales by expanding its product offerings. If the company does not have the resources to engineer and produce a prototype of the new processor, managers might list lack of capital as a weakness. But the patent could be listed as a strength if the company owns a patent on a new type of computer processor technology. The potential to attract venture capital could be listed as an opportunity because venture capitalists often invest in businesses with new ideas that have the potential for large growth. If competitors are in the course of developing like technologies it could constitute a threat. Managers can brainstorm ways to limit weakness, maximize strengths, reduce or avoid threats and take advantage of opportunities once all four lists are composed.

How to Organize It

SWOT analyses are often arranged as a 2 by 2 matrices with the lists of weakness and strength in the first two boxes in the first row and in the second row, the list of threats and opportunities. By arranging the analysis in this way, the lists are divided into internal factors that can affect a project on the first row and on the second row we have external factors. In addition, the positive factors (opportunities and strengths) are what comprise the first column and the second column consists of negative actors (threats and weakness). This process provides a simple structure to keep lists organized and conceptualize how the lists are correlated.

What is The Purpose of SWOT Analysis?

The purpose of SWOT analysis is to study the external and internal environments of a company, through the analysis and identification of the weakness and strength of the organization, and the threats and opportunities to which it is exposed. SWOT analysis is to also vigorously identify actors that affect the functioning of the organization offering very valuable information in the strategic planning process.

SWOT analysis is divided into two parts:

  • The internal environment where weakness and strength are identified.
  • The analysis of the external environment where opportunities and threats are determined.

Some of the objectives of SWOT analysis:

  • To create a summary analysis of internal and external factors.
  • To pinpoint main items for the management of the organization, this includes creating priorities for action.
  • To make strategic choices: risks and problems to solve
  • We can determine the diagnosis of the company through analysis: indicating which points should be improved, strengthening the positive points, increasing opportunities, chances of growth, etc.
  • To study the capabilities of the company in general and to conduct a sales forecast in agreement with market conditions.
  • External environment (threats and opportunities) to have trustworthy and reliable data, to reduce errors and to receive information quickly to support management in strategic decision making.
  • Internal environment (weaknesses and strength) the elimination of inefficiencies, the integration and standardization of processes. Focus on the essential of the business.

The Purpose of SWOT Analysis in External and Internal Environments

The purpose of SWOT analysis in a company’s internal environment is the grouping together of human, physical, financial etc. elements in which you can work out greater control such as the results of plans set by management.

But the external environment comprises of factors that occur outside the organizational boundaries, and that can affect it in a way. It is an environment with which there is no control but should be checked continuously as it is the basis for strategic planning.

By |December 24th, 2018|Quality Articles|Comments Off on What is the Purpose of SWOT Analysis and How to Use It