The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. It is a useful technique for understanding your Strengths and Weaknesses, and for identifying both the Opportunities open to you and the Threats you face.
SWOT analysis is necessary before selecting a particular strategy for a business organization for the following reasons:
- Determining strengths: Through die help of SWOT analysis, the strengths of an organization can be determined.
- Discovering opportunities: Through the help of SWOT analysis, the potential opportunities of an organization can be discovered.
- Help in taking proper action: Through the help of SWOT analysis strengths, weaknesses, opportunities, and threats of an organization can be easily identified. And, on the basis of that identification, a company can take actions accordingly.
- Dealing with Risks: A threat in SWOT analysis is another term for risk, an occurrence outside the company’s control that could have a negative impact on performance. Companies face many threats beyond those caused by direct competitors. Changes in the regulatory environment can have an adverse impact on performance. Consumer tastes can abruptly change such as when a recession causes consumers to cut back on purchasing luxury goods and services. Risks are less threatening to an organization when it takes the time to develop contingency plans to quickly implement should the threats become a reality. SWOT analysis helps a company be better prepared for whatever it will encounter in the external environment.
- Competitive Positioning: Many companies do a form of SWOT analysis on their key competitors. Combined with the information from the company’s SWOT analysis of itself, the management team begins to get a picture of how the company should position itself against competitors. The company wants to attack competitors’ weaknesses with its own strengths. It is much like game planning in football trying to locate where the opposing team is vulnerable.
Conversely, it does not want to meet a competitor’s strengths head-on if the competitor has an overwhelming advantage. SWOT analysis shows a company that even its most powerful competitors have weaknesses that can be exploited.