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From Wikipedia, the free encyclopedia, retrieved from http://en.wikipedia.org/wiki/SWOT_analysis

SWOT Analysis, is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The technique is credited to Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s {using data from Fortune 500 companies}.

Strategic and Creative Use of SWOT Analysis

Strategic Use: Orienting SWOTs to An Objective

If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless. A SWOT analysis may be incorporated into the strategic planning model. An example of a strategic planning technique that incorporates an objective-driven SWOT analysis is SCAN analysis. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.

·   Strengths: attributes of the organization that are helpful to achieving the objective.

·   Weaknesses: attributes of the organization that are harmful to achieving the objective.

·   Opportunities: external conditions that are helpful to achieving the objective.

·   Threats: external conditions that are harmful to achieving the objective.

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.

Creative Use of SWOTs: Generating Strategies

If, on the other hand, the objective seems attainable, the SWOTs are used as inputs to the creative generation of possible strategies, by asking and answering each of the following four questions, many times:

·         How can we Use each Strength?

·         How can we Stop each Weakness?

·         How can we Exploit each Opportunity?

·         How can we Defend against each Threat?

Ideally a cross-functional team or a task force that represents a broad range of perspectives should carry out the SWOT analysis. For example, a SWOT team may include an accountant, a salesperson, an executive manager, an engineer, and an ombudsman.

Evidence on the Use of SWOT

SWOT analysis may limit the strategies considered in the evaluation. "In addition, people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate strategies." ^[1] Findings from Menon et al. (1999) ^[2] and Hill and Westbrook (1997) ^[3] have shown that SWOT may harm performance. As an alternative to SWOT, J. Scott Armstrong describes a 5-step approach alternative that leads to better corporate performance.^[4]

These criticisms are addressed to an old version of SWOT analysis that precedes the SWOT analysis described above under the heading "Strategic and Creative Use of SWOT Analysis." This old version did not require that SWOT's be derived from an agreed upon objective. Examples of SWOT analyses that do not state an objective are provided below under "Human Resources" and "Marketing."

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. SWOT analysis groups key pieces of information into two main categories:

·         Internal factors – The strengths and weaknesses internal to the organization.

·         External factors – The opportunities and threats presented by the external environment.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.

Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has been defined. Examples include: non-profit organizations, governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis management.

Corporate planning

As part of the development of strategies and plans to enable the organization to achieve its objectives, then that organization will use a systematic/rigorous process known as corporate planning. SWOT alongside PEST/PESTLE can be used as a basis for the analysis of business and environmental factors.^[6]

·      Set objectives – defining what the organization is going to do

·      Environmental scanning

o  Internal appraisals of the organizations SWOT, this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle

·      Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors

·      Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organization

·      Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change

·      Establish critical success factors – the achievement of objectives and strategy implementation

·      Preparation of operational, resource, projects plans for strategy implementation

·      Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.^[7]

1.      ManyWorlds.com: Don’t do SWOT: A Note on Marketing Planning

2.      Menon, A. et al. (1999). "Antecedents and Consequences of Marketing Strategy Making". Journal of Marketing 63: 18-40. doi:10.2307/1251943. 

3.      Hill, T. & R. Westbrook (1997). "SWOT Analysis: It’s Time for a Product Recall". Long Range Planning 30 (1): 46-52. doi:10.1016/S0024-6301(96)00095-7. 

4.      J. Scott Armstrong (1982). "The Value of Formal Planning for Strategic Decisions". Strategic Management Journal 3: 197-211. 

5.      Brendan Kitts, Leif Edvinsson and Tord Beding (2000) Crystallizing knowledge of historical company performance into interactive, query-able 3D Landscapes http://de.scientificcommons.org/534302

6.      Armstrong. M. A handbook of Human Resource Management Practice (10th edition) 2006, Kogan Page , London ISBN 0-7494-4631-5

7.      Armstrong.M Management Processes and Functions, 1996, London CIPD ISBN 0-85292-438-0

8.      Armstrong.M Management Processes and Functions, 1996, London CIPD ISBN 0-85292-438-0