SWOT (Strategic Planning Tool)

SWOT analysis is a strategic planning tool that can be used by managers to do a situational analysis of the organisation. It is a useful technique to understand the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) an organisation is facing in its current business environment.

Organisations maintain their dominant position in market by critically analysing and reviewing the SWOT analysis. SWOT analysis is a highly interactive process and requires effective coordination among various departments within the company such as – marketing, finance, operations, management information systems and strategic planning.

SWOT Analysis / Matrix

The SWOT Analysis framework facilitates an organisation to identify the internal strategic factors such as -strengths and weaknesses, and external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as  SWOT Matrix. 

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps managers to develop four types of strategies:
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• SO (strengths-opportunities) Strategies 
• WO (weaknesses-opportunities) Strategies
• ST (strengths-threats) Strategies
•  WT (weaknesses-threats) Strategies

The central purpose of SWOT matrix is to identify the strategies that an organisation can use to exploit external opportunities, counter threats, and build on, protect its strengths, and eradicate its weaknesses.

Step by Step Guide to 'Company-X' SWOT Analysis

Strengths of Company-X: Internal Strategic Factors

As one of the leading companies in its industry, Company-X has numerous strengths that enable it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Some of the strengths of Company-X are:

• Automation of activities brought consistency of quality products and has enabled Company-X to scale up and scale down based on the demand conditions in the market. 
• Good Returns on Capital Expenditure – Company-X is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams. 
• Highly skilled workforce through successful training and learning programs. Company-X is investing huge resources in training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more. 
• Successful track record of developing new products – product innovation. 
• Successful track record of integrating complimentary companies through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain.
• High level of customer satisfaction – Company-X with its dedicated customer relationship management department has been able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers. 
• Strong Free Cash Flow – Company-X has strong free cash flows that provide resources in the hand of the company to expand into new projects. 
• Strong dealer community – It has built a culture among distributors and dealers where the dealers not only promote Company-X’s products but also invest in training the sales team to explain to the customer how he/she can extract the maximum benefits out of the products.

Weakness of Company-X: Internal Strategic Factors

Weakness are the areas where Company-X can improve upon. Strategy is about making choices and weakness are the areas where a company can improve using SWOT analysis and build on its competitive advantage and strategic positioning.

• The profitability ratio and Net Contribution % of Company-X are below the industry average. 
• Investment in Research and Development is below the fastest growing players in the industry. Even though Company-X is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market. 
• Organisation structure is only compatible with present business model thus limiting expansion in adjacent product segments. 
• Limited success outside core business – Even though Company-X is one of the leading organisations in its industry it has faced challenges in moving to other product segments with its present culture. 
• Not highly successful at integrating companies with different work culture. As mentioned earlier even though Company-X is successful at integrating small companies it has its share of failure to merge companies that have different work culture. 
• Company-X has not been able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories. Company-X has to build internal feedback mechanism directly from sales team on ground to counter these challenges. 
• There are gaps in the product range sold by Company-X. This lack of choice can give a new competitor a foothold in the market.

Opportunities for Company-X: External Strategic Factors

• Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank Company-X can invest in new technologies as well as in new products segments. This should open a window of opportunity for Company-X in other product categories.
• New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represent a great opportunity for Company-X to drive home its advantage in new technology and gain market share in the new product category. 
• The market development will lead to dilution of competitor’s advantage and enable Company-X to increase its competitiveness compare to the other competitors.
• Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for Company-X to capture new customers and increase its market share. 
• Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of Company-X. 
• Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Company-X’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share. 
• The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as Company-X to increase its profitability. 
• New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for Company-X. In the next few years Company-X can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.

Threats Facing Company-X: External Strategic Factors

• Intense competition – Stable profitability has increased the number of players in the industry over last two years which has put downward pressure on not only profitability but also on overall sales. 
• Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors. 
• Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Company-X in those markets. 
• The demand of the highly profitable products is seasonal in nature and any unlikely event during the peak season may impact the profitability of the company in short to medium term. 
• Liability laws in different countries are different and Company-X may be exposed to various liability claims given change in policies in those markets. 
• As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world. 
• The company can face lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets. 
• Rising raw material can pose a threat to the Company-X profitability.

Limitations of SWOT Analysis for Company-X

Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations. 

• Certain capabilities or factors of an organisation can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it's able to develop the products faster than the competitors.
• SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself. 
• The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of Company-X
• SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
• SWOT analysis may lead the company to over-emphasise a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.

Weighted SWOT Analysis of Company-X

In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the company. Organisations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance. 

This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis Company-X managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organisations ends up making a long list but none of the factors deemed too critical. 

This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically. ​

Looking for more?

All of our SWOT analysis examples are based on real businesses. The SWOT analyses are broken into three parts: First, what the company’s about; second, the SWOT analysis; and lastly, some discussion of potential growth strategies for the business based on what’s revealed by the SWOT analysis.

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