Importance and Limitations of SWOT Analysis - Essay Example

The SWOT Analysis Became A Basis From Which A Company’s Strategy Is Built. However, When Used It in A Wrong Manner It Can Jeopardize The Future of a Company. Using Some Specific Examples of Your Choice, Evaluate the SWOT Model Table of Contents Table of Contents 2 Introduction 3 Evaluation of SWOT Analysis 4 Strengths 5 Weaknesses 6 Opportunities 6 Threats 7 Importance of SWOT Analysis 7 Limitations of SWOT analysis 9 Conclusion 10 References 12 Introduction As per the modern scenario, business sector has been growing in a rapid manner. Following with the imposition of globalisation in business sector, several companies are experiencing vital market competition. In order to have better competitiveness, companies are needed to be more focused on internal as well as external development (Valentin, 2001). It is important for every company to maintain the practice of good performance for making appropriate interaction between business management, external and internal environment. In this context, to maintain an interaction between internal and external environment, the companies are needed to implement effective strategic planning. Implementation of strategic planning will be helpful for the further growth of companies (Houben & et. al., 1999). In this regard, a SWOT analysis is helpful in providing accurate assistance regarding the internal as well as external environment based on which companies are identified to be devising strategies and planning for effective performance in the long run. Besides, the application of SWOT analysis is beneficial for all companies to mitigate several shortcomings that may have an influence on operations to a certain extent. However, misinterpretation of SWOT analysis can be vulnerable for the future of a company (Earl, 2001). The prime aim of the study is to describe the importance of SWOT analysis for the development of various companies. In addition, the study evaluates several limitations of SWOT analysis that can affect the future growth of companies. Evaluation of SWOT Analysis SWOT comprises certain aspects that include strengths, weaknesses, opportunities and threats. SWOT analysis is a framework that has been applied by several companies to evaluate strengths, weaknesses, opportunities as well as threats. Strengths and weaknesses are determined to be the factors based on which internal capabilities of a company can be ascertained. On the other hand, opportunities and threats are identified to be external concerns in accordance with which a company is needed to execute operations for better sustainability. It is recognised as simple and most effective method that has been useful for analysing the strategic marketing and planning process of a company (Gretzky, 2010). At the time of conducting different business operations, it is observed that every company can be confronted with several kinds of external and internal forces, which are recognised as significant concerns in terms of performance and profitability. It will be worth mentioning that both external and internal forces are potentially important for the negative as well as positive growth of a company (Dyson, 2004). It is anticipated that to confront with internal and external factors, a company should develop few strategic planning. The purpose of developing strategic planning system is to assist companies to act with its full potential based on the evaluation of several strategic factors. To confront with the dynamic environmental condition, a company will need to apply the strategic plans. In this regard, to operate the business successfully, a company should concentrate over its future objectives by taking into account of its strengths, weaknesses, opportunities as well as threats (Brooks & et. al., 2014). SWOT Analysis Framework Source: (Trabish, 2014) Strengths In SWOT framework, ‘S’ stands for Strengths. As per the corporate structure, strength is defined as one of the internal factors that can influence the overall all growth of a company. In addition, strength of a company is easy to identify through the evaluation of customers feedback. Apart from this, the internal records of a company will be helpful for having an understanding of the strongholds of companies, which particularly aids in ensuring that operations are conducted in an effective manner (Schall & Franz, n.d.). Moreover, sound financial condition of the companies is recognised as one the strong factors to conduct operation in a market. Positive cash flow statement, growing and profitable turnover and strong balance sheets are identified to be providing important information about the strengths of a company. Apart from the financial statements, effective marketing strategies are recognised as one of the important considerations for the development of the companies. A strong product range, skilled sales force and continuous after sales services are recognised as strong points of companies (Institute of Director, 2015). Weaknesses Identification of weaknesses of a company is recognised to be one of the most important factors that will be helpful for further growth of a business. Apart from this, weaknesses are to be recognised by every company with the aim of having information about the negativity attached. These weaknesses are required to be mitigated appropriately with the aim of ensuring that operations are performed with better effectiveness. It can be identified that poor financial condition may be a vital weakness for a company. An insufficient fund for investment is recognised as one of the vital challenges for the development of a company. In this context, unstable securities and high lending liabilities are recognised to be few of the weaknesses of a company. Apart from this, unskilled sales forces having unresponsive attitudes towards customers and poor product or services quality of products and/or services are recognised as weaknesses of a company (Dash, 2015). Opportunities Opportunities are dependent on the external factors of the companies. The changes are also considered as opportunities that can be helpful for the development of companies. Decreased performance of competitors can be recognised as opportunities for the companies. The scope of accessing new and potential customers is recognised as one of the most important opportunities for the development of companies. Technological implementation within a business can be recognised as an opportunity that helps companies to build up market share. The new invention in supply chain management concept is an important factor for the future development of companies (Yukse & Dagdeviren, 2007). Threats Threats are an external factor or identify harmful for the future development of the companies. Threats can be recognised as minor or else potential factor for companies. It has been identified that potential threats may affect future performance of companies. It has been also recognised that few weaknesses may turn the opportunities in threat in near future. In this regard, it has been stated that companies should take the initiates to eliminate internal weaknesses before such weaknesses are converted into major threats for a company (Brooks & et. al., 2014). Importance of SWOT Analysis It has been observed that companies conduct several market analyses before and during the business operations in a continuous manner. In this respect, SWOT analysis is recognised as an important tool for process of decisions making. It is used in a systematic manner to analyse the internal as well as external environmental factors for a company to perform operations effectively in the different market segments. Through the evaluation of strengths, weaknesses, opportunities as well as threats, companies can create several strategies, which will be helpful for the companies to improve their business operations. More specifically, by implementing several strategic planning, a company can develop its strengths as well as will be also able to reduce its weaknesses. Apart from this, there are several other benefits of SWOT analysis that can promote the development of companies if it can be positively implemented (Jackson & et. al., 2003). SWOT is regarded as a single and an essential framework, which analytically evaluate internal as well as external framework. The framework of SWOT serves as a structure that will provide information about a project and an organisation with appropriate information. SWOT analysis performed as per based on real data of companies will provide important information about the operations and performance of the same. It has been observed that several multinational companies are getting benefited by evaluating the SWOT analysis (Barney, 1995). Thorough the implementation of SWOT analyses, multinational companies are facilitated with the opportunity of having appropriate information in relation to internal capabilities based on which products and/or services can be provided in different market segments in a competitive manner (Valkanos & et. al., 2009). For instance, Samsung is one of the world’s largest electronic sellers, which has been benefited through evaluating the SWOT analysis. SWOT analysis provides Samsung with the proper knowledge regarding the internal strengths and weaknesses as well as external opportunities and threats. Apart from this, by evaluating the different internal as well as external factors, Samsung has been able to identify numerous limitations and make control over its production capacity. Additionally, the analysis has assisted the company in understanding the needs of the market and based on internal capabilities is able to meet the market requirements effectively (Westbrook & Hill, 1997). Apart from this the hotel industry has been growing in a reform manner in all over world. The hotel industry in now a day is recognised as one of the emerging businesses. The hotel industry has been able to have relevant information about the needs of different market segments. In this context, large chain business of restaurant such McDonalds provide an important aspect in relation to SWOT analysis (Yu & Huimin, 2005). It has been observed that McDonalds has been also getting benefited through the actual and proper evaluation of SWOT analysis. In addition, IKEA is recognised as one of the most famous global brands of furniture industry, which has been benefited through the evaluation of SWOT analysis. As per the performance of IKEA, it has been identified that the application of SWOT has been proved to be beneficial for the overall development of the company (The Times, n.d.). Limitations of SWOT analysis It has been observed that several companies are paying attention towards the evaluation of the SWOT report. It will be worth mentioning that misinterpretation of the SWOT analysis can make a virtual impact over the development of a new business. Misinterpretation of SWOT can adversely affect the stability as well as performances of companies to a large extent (Webley, 2001). It has been observed that poor structure of SWOT analysis will not provide accurate information. Sometimes, it will provide vague information about a company’s internal as well as external structure. Most of the time, SWOT analysis has been conducted in an improper manner, which may not facilitate in analysing market and a company’s information due to inappropriate communication with participants. This communication gap can be big disadvantages for a company. Improper evaluation of SWOT analysis can create barrier for growth of companies (Free-Management-eBooks, 2014). Though the SWOT analysis is done for the purpose of healthy operational flow of an organisation, but sometimes it can be vital danger for an organisation. For instance, if a company perform the SWOT analysis in a misinterpreted manner, then it can be harmful for the future development of a company (Schall & Franz, n.d.). Misinterpretation of SWOT analysis is recognised as dark sides of the several modern and useful business models. Apart from this, the SWOT analysis is having internal drawbacks that can be harmful for companies. It has been observed that due to several drawbacks as well as limitations such as list blindness, large heterogeneous groups are the internal drawbacks for the development of companies. It has been observed that the sources of gathering information during the evaluation of SWOT analysis can fail to provide accurate information (Westbrook & Hill, 1997). For instance, Nokia failed to perform an accurate SWOT analysis and in this context, it can be anticipated that huge lose in business is recognised to be one of the vital impacts of misinterpretation in SWOT analysis. By evaluating the report, it is also stated that Nokia fails to perform business operations competitively in the market of smart phones. In this regard, the takeover by Microsoft over Nokia is recognised as loss for the sole proprietor company and its fame (Rizzo & Kim, 2005). Conclusion From the above discussion, it can be comprehended that SWOT analysis is recognised as one kind of analytical business models, which provides important information in relation to both internal as well as external factors. The purpose of several companies behind conducting the SWOT analysis is to ensure that operational performances of the companies are managed in a smooth manner. Contextually, it has been anticipated that SWOT analysis is to some extent is successful for facilitating the practice of good and effective performance within a company. By reviewing study, it has been anticipated that the SWOT analysis is one of the important business analytical tools of business models. In this context, a company is recognised to be more attentive in adopting the SWOT analysis for the development of companies. In this regard, an effective evaluation of SWOT analysis is beneficial for several companies such as Samsung, McDonald and IKEA among others. These multinational companies are benefited through actual and proper evaluation of SWOT analysis. However, the SWOT analysis is also having several limitations. Misinterpretation in SWOT can affect a company’s development and jeopardise overall growth. It has been observe that a SWOT analysis is unable to provide reliable strategies to maintain the overall development in a business. In order to develop the business, the companies are needed to be more focused for implementing the SWOT analysis model strategically. In this respect, it can be concluded that SWOT analysis is helpful in developing business growth of the companies. References Barney, J. B., 1995. Looking Inside for Competitive Advantage. The Academy of Management Executive, Vol. 9, No. 4, pp. 49-61. Brooks, G. & et. al., 2014. A SWOT Analysis of Competitive Knowledge from Social Media for a Small Start-Up Business. Review of Business Information Systems, Vol. 18, No.1, pp.23-34. Dash, M., 2015. 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Valkanos, E. & et. al., 2009. The Importance of SWOT Analysis for Educational Units That Belong To the Field of Vocational Education and Training: The Case of the State Institute (IEK) of Epanomi in Thessaloniki, Greece. University of Macedonia, pp. 1-13. Westbrook, R. & Hill, T., 1997. SWOT Analysis: It’s Time for a Product Recall. Long Range Planning, Vol. 30, pp. 1-7. Webley, S., 2001. Business Ethics: A SWOT Exercise. Business Ethics: A European Review, Vol. 10, No. 3, pp.267-271. Yukse, I. & Dagdeviren, M., 2007. Using the Analytic Network Process (ANP) In a SWOT Analysis - A Case Study for a Textile Firm. Information Sciences, Vol. 177, pp.3364-3382. Yu, L. & Huimin, G., 2005. Hotel Reform in China A SWOT Analysis. Cornell University, Vol. 46, No. 2, pp. 153-169. Read More