The Process of SWOT Analysis - Coursework Example

The process of SWOT Analysis. Introduction A SWOT analysis is a tool used in business to analyze the strength, weaknesses as well as opportunities and threats that are prevalent in a business environment. Strengths and weaknesses consist of factors which are internal while opportunities and threats comprises of factors external to a business (Snelling, 2012). A SWOT analysis is at the heart of any business and a key ingredient in the current and future success of any business venture. Snelling (2012) notes that at the heart of a SWOT analysis is the process of identifying the objectives of a given business. This is followed by analyzing the internal and external factors that complement achieving of these objectives as well those which hinder achievement of the same objectives. It therefore gives business leaders a sense of direction and changes which need to be made to achieve the set business objectives. Why do a SWOT Analysis? A business stands to gain immensely by conducting a SWOT analysis. It is a typical case of being forearmed in a business sense. Better market positioning A business stands a better chance of success if they do understand the opportunities which exist in a particular market segment. A company can also exploit the weakness of a competitor n meeting market demand. At the same time a SWOT analysis can help a company avoid a saturated market or taking on an established competitor (Snelling, 2012). Risk analysis and threat identification A detailed SWOT analysis helps a company identify potential hazards before entering a market. This is crucial in laying strategies to overcome these risks. These risks include those that a business entity has no direct control over such as the economy, forex rates or government policy. Improving efficiency It is always the goal of any business to increase profitability while reducing costs. Identifying the strengths of a business helps in optimal allocation of resources (Snelling, 2012). For example the company can know how much it should spend on advertising, public relations activities as well as social responsibility depending on its position in the market it operates. Addressing weak points. Conducting a SWOT analysis helps a company identify vulnerable areas in its operations which can be used by competitors to their advantage. Identifying these weak points helps a company lay contingency plans to improve and deter external threats by competitors. The process of SWOT analysis According to Ferrell and Hartline (2012) a SWOT analysis is not an event but a process which is a critical stage in corporate planning. 1. Setting of objectives. The first step involves assembling the SWOT team and setting the SMART objectives which need to be achieved by conducting the SWOT. The objectives of course should be specific, measurable, achievable, realistic and time bound (Ferrell & Hartline, 2012). For example a SWOT analysis can be about expanding to a new market or starting a new product line. 2. Market research The second step is understanding the business environment in which a business operates. A sound market research is not limited to a company internal operations but extends to understanding the entire industry, competition as well as government regulation (Ferrell & Hartline, 2012). Understanding these factors helps in conducting a more detailed and specific market research. 3. Identify internal business strengths After understanding the market in which a business operates, the next step involves identification of internal factors which give a company an advantage of its competitors. Such factors include adequate capital, patents or business location. This is mainly a brainstorming session where all real and assumed strengths are listed. 4. List weaknesses According to Ferrell and Hartline (2012), it is important to consider weaknesses inherent in a business so as to address them and minimize their potential to ruin the future success of a business. In a business case several factors such as a thin product line, inadequate qualified staff, shrinking customer base and loss making products. It is imperative that the SWOT team analyze how a business unit has tried to mitigate against these weaknesses and with what success over a given duration of time. 5. Identify opportunities Consider opportunities that are external to operations of a business but have the potential to impact positively on the success of a business. Such factors include changing consumer trends, favourable government regulation or even changing technology. For example a manufacturer of energy efficient or electric cars can consider rising oil prices as a potential opportunity and should be taken into consideration while conducting a SWOT analysis. 6. Analyze potential threats At this stage external threats to a business potential success are listed and analyzed. External threats could include entry of a competitor in a market previously dominated by a few players, rising interest rates, forex fluctuations as well as other global factors like increase in global oil prices. Identifying current and potential external threats is crucial in minimizing potential risks by laying strategies to mitigate them. 7. Planning stage At this point the SWOT team does an analysis and lays priorities on how best to implement the results of the SWOT analysis. Consideration is given to the company internal strengths and external opportunities can be merged to counter internal weaknesses and external threats. At this point the direction which a company should take should be clear and the chances of success evaluated (Ferrell & Hartline, 2012). For example if a business identifies potential new markets, then there should be a strategy on how internal strengths such as adequate capital can be used to enter the new market. It should also be clear how for instance potential threats will be acted upon and mitigated and how internal weaknesses will be solved. 8. Implementation The strategy drawn at the planning stage is now put into test and results measured to evaluate its effectiveness. It is important to see if the objectives set at the initial planning stage have been adequately addressed by conducting a SWOT analysis. Limitations of SWOT analysis A SWOT analysis is a crucial business planning tool and cannot be avoided at all cost. Lambert, Marseken, and Timpledone (2010) note that it has limitations, “there is potential for misleading information about a company key strengths and weaknesses which may be overstated or underestimated|” (Lambert et al, 2010, p.38). A company which considers holding several patents as their key strengths may be largely affected by an unfavorable court ruling brought by competitors. This was recently witnessed when Nokia was successfully awarded patents for multi touch technology which Apple thought was their key weapon for success in the smartphone business. A SWOT analysis is also not a stand-alone tool which can be effectively used to map the future success of a company. It required concerted company wide effort to ensure its eventual success. This can be time consuming and expensive to implement. Conclusion Lambert et al. (2010) argue that a detailed SWOT analysis is an essential tool for the success of a person, business or industry. It lays in detail internal strengths, weaknesses compared to external threats and opportunities. It is only through a thorough understanding of internal strengths that a company can take advantages of external opportunities and mitigate threats. Understanding internal weaknesses also helps in laying strategies to address them and prevent them from hindering the future success of a business. While a key factor in the success of a business, SWOT analysis also has its limitations. However the benefits of a detailed SWOT analysis far outweigh the limitations. It therefore presents an opportunity to carry out an audit of a business and the environment it operates in therefore ensuring its future success. Reference Ferrell, O. & Hartline, M. (2012). Marketing strategy (6th ed., pp. 117-129). Boston, MA: Cengage Learning. Lambert, S., Marseken, S., & Timpledon, M. (2010). SWOT Analysis. Saarbruken, Germany: VDM Publishing. Snelling, J. (2012). The Influence of the SWOT analysis in organizational development and strategic planning. Munchen, Germany: GRIN Verlag. Read More