SWOT analysis is an analytical method which is used to identify and categorise significant internal (Strengths and Weaknesses) and external (Opportunities and Threats) factors faced either in a particular arena, such as an organisation, or a territory, such as a region, nation, or city.
It provides information that is helpful in matching the firms’ resources and capabilities to the competitive environment in which it operates and is therefore an important contribution to the strategic planning process.
It should not be viewed as a static method with emphasis solely on its output, but should be used as a dynamic part of the management and business development process.
SWOT analysis involves the collection and portrayal of information about internal and external factors that have, or may have, an impact on the evolution of an organisation or business. It generally provides a list of an organisation’s Strengths and Weaknesses as indicated by an analysis of its resources and capabilities, plus a list of the Threats and Opportunities identified by an analysis of its environment. Strategic logic requires that the future pattern of actions to be taken should match strengths with opportunities ward off threats and seek to overcome weaknesses.
SWOT analysis is not necessarily a Foresight approach but can be a good starting point for the discussions in Foresight. Another possibility is matching your own strengths and weaknesses against different Foresight results. The different viewpoints can be a starting point for a discussion of the real threats and opportunities.
People directly involved in various hierarchical levels of decision making in an organisation or business, or a wider sample of actors if the SWOT analysis concerns a whole region or nation. Representatives from a variety of stakeholders groups should be involved, as they would bring in the analysis their own particular perspectives. At least one expert in SWOT analysis should take part or moderate the process.
Approach
Drawing up Opportunity and Threat matrices encourages an assessment of the likely probability and impact any factor may have on the organisation. A scoring system can be used to assign importance to factors. A factor with a high score on both ‘probability of occurrence’ and ‘likely impact on the organisation or business’, would have to be one worthy of close attention and play a significant part in the development of a strategic plan. Similarly, Strengths and Weaknesses can be assessed against a scoring system that allows the factors to be identified according to their significance (i.e. major, minor and neutral) and level of importance (high, medium, low).
It is possible to represent this analysis in a Performance-Importance matrix that highlights those factors which are both important and in which performance of the organisation/ business is low. It is towards these factors that strategy should be addressed.
To be more specific, the set of questions that needs to be answered should be similar to the following:
Strengths
• What are your advantages?
• What do you do well?
• What relevant resources do you have access to?
• What do other people see as your strengths?
Consider this from your own point of view and from the point of view of the people you deal with. Don’t be modest. Be realistic. If you are having any difficulty with this, try writing down a list of your organisation’s characteristics. Some of these will hopefully be strengths!
In looking at your strengths, think about them in relation to your competitors – for example, if all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity.
Weaknesses
• What could you improve?
• What do you do badly?
• What should you avoid?
Again, consider this from an internal and external viewpoint: Do other people seem to perceive weaknesses that you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any unpleasant truths as soon as possible.
Opportunities
• Where are the good opportunities in front of you?
• What are the interesting trends you are aware of?
Useful opportunities can come from such things as:
• Changes in technology and markets on both a broad and narrow scale
• Changes in government policy related to your field
• Changes in social patterns, population profiles, lifestyles, etc.
• Local Events
A useful approach to looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them.
Threats
• What obstacles do you face?
• What is your competition doing?
• Are the required specifications for your job, products or services changing?
• Is changing technology threatening your position?
• Do you have bad debt or cash-flow problems?
• Could any of your weaknesses seriously threaten your business?
Carrying out this analysis will often be illuminating – both in terms of pointing out what needs to be done, and in putting problems into perspective.
Resources
A SWOT analysis is based on hard facts. These can be time-consuming and costly to gather.
People are needed who have a good knowledge of the sector, region, area or country, etc. under analysis in the specific exercise.
Outputs
The main tangible output is a matrix presenting the most important strengths, weaknesses, opportunities and threats for the area, sector, region, country examined and aiming at giving a reasonable overview of major issues that can be taken into account when subsequently drawing up strategic plans for an organisation.
Pros and cons
The success of this method is mainly owed to its simplicity and its flexibility. Its implementation does not require technical knowledge and skills. SWOT analysis allows the synthesis and integration of various types of information which are generally known but still makes it possible to organise and synthesise recent information as well.
It is worth pointing out that whereas SWOT analysis is often not seen strictly speaking as a Foresight method, it is fruitful to consider it from this perspective. Indeed, Foresight is particularly useful for addressing the OT dimensions, whereas SWOT analyses often fail because of poor examination of OT (opportunities and threats).
A correlation is made between the internal factors, strengths and weaknesses of the organisation, and the external factors, opportunities and threats. An effort can be made to exploit opportunities and overcome weaknesses and at the same time for the organisation to protect itself from the threats of the external environment through the development of contingency plans.
The most common drawbacks of SWOT analysis are:
• The length of the lists of factors that have to be taken into account in the analysis
• Lack of prioritisation of factors, there being no requirement for their classification and evaluation
• No suggestions for solving disagreements
• No obligation to verify statements or aspects based on the data or the analysis
• Analysis only at a single level (not multi-level analysis)
• No rational correlation with the implementation phases of the exercise
Moreover, there are risks of:
• Inadequate definition of factors
• Over-subjectivity in the generation of factors (compiler bias)
• The use of ambiguous and vague words and phrases
One has to be aware that this method is very commonly used by consulting firms and that for this reason some people in the public/quasi-public sector have an aversion to it.
Variations
A SWOT analysis could be performed in other contexts than those of an organisation, for instance in the case of an individual facing major decisions such as professional orientation.
Complementary methods
The brainstorming technique can be used within this method.
SWOT analysis can be used prior to scenario building to highlight some important factors, prior to a Delphi survey to help focus the questionnaire.
Conclusion
You should use SWOT analysis if:
• You need to identify the strengths and weaknesses of your organisation, sector, area, region, country, etc.
• You need to identify what are the main threats and opportunities faced by your organisation, sector, area, region, country, etc.
• You need to decide what are the most appropriate methods and tools to be used for the implementation of a foresight exercise
SWOT analysis is a framework for analysing your strengths and weaknesses, and the opportunities and threats you face.
This will help you to focus on your strengths, minimise weaknesses, and take the greatest possible advantage of opportunities available.