SWOT Analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and threats involved a business venture
1. SWOT Analysis Explained
ALBERT Humphrey is credited with inventing the SWOT analysis technique.
SWOT analysis is a strategic planning tool used to evaluate the strengths (S), weaknesses (W), opportunities (O), and threats (T) involved a business venture. It involves specifying the objective of the business venture and identifying the internal and external environmental factors that are expected to help or hinder the achievement of that objective.
After a business clearly identifies an objective that it wants to achieve, SWOT analysis involves:
- examining the strengths and weaknesses of the business (internal factors); and
- considering the opportunities presented and threats posed by business conditions, for example, the strength of the competition (external factors).
By identifying its strengths, a company will be better able to think of strategies to take advantage of new opportunities. By identifying current weaknesses and threats, a company will be able to identify changes that need to be made to improve and protect the value of its current operations.
2. Criticisms
SWOT analysis has two clear weaknesses. Firstly, using SWOT may tend to persuade companies to write lists of Pros and Cons, rather than think about what needs to be done to achieve objectives. Secondly, there is the risk that the resulting lists will be used uncritically and without clear prioritisation. For example, weak opportunities may appear to balance strong threats.
3. Case example: drinks manufacturer
Let’s use SWOT analysis to consider the strategy of a hypothetical prominent soft drinks manufacturer called Coca-Cola. Coke is currently the market leader in the manufacture and sale of sugary carbonated drinks and has a strong brand image. Sugary carbonated drinks are currently an extremely profitable line of business. The company’s goal is to develop strategies to achieve sustained profit growth into the future.
3.1 Strengths
A firm’s strengths are its resources and capabilities that provide the firm with a competitive advantage in the market place, and help the firm achieve its strategic objective. Coke’s strengths might include:
- strong product brand names,
- large number of successful drink brands,
- good reputation among customers,
- low cost manufacturing, and
- a large and efficient distribution network.
3.2 Weaknesses
Weaknesses include the attributes of a business that may prevent the business from achieving its strategic objective. Coke’s weaknesses might include:
- lack of a large number of healthy beverage options, and
- large manufacturing capacity makes it difficult to change production lines in order to respond to changes in the market.
3.3 Opportunities
Changing business conditions may reveal certain new opportunities for profit and growth. Coke’s opportunities might include:
- new countries and markets that Coke might expand into, and
- a lack of any strong global fruit juice or other healthy beverage manufacturer leaves a gap in the market.
3.4 Threats
Changing business conditions may present certain threats. Coke’s threats might include:
- shifting consumer preferences away from Coke’s core products, and
- new government competition regulations that prevent the acquisition of large competing soft drink companies.
3.5 Proposed strategy
The main opportunity for Coca-Cola is the rising popularity of healthy beverage alternatives, such as water and fruit juice. The dominance of Coca-Cola and the increasing number of competition regulations that prevent Coke’s acquisition of competing drink manufacturers presents a threat to Coke’s objective to obtain profit and growth. A proposed strategy may therefore be to find small healthy beverage manufacturers with quality products. Purchasing these small companies will not raise competition concerns. Coke might use its strong brand name, manufacturing capacity and distribution networks to obtain strong market penetration for its newly acquired healthy beverages.
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3 replies on “SWOT Analysis”
Hi Tom
I work for TAM Plc which carries on the work of Albert Humphrey, with all the original case studies and documents that evolved from Humph’s researsh at SRI.
I read your criticism re swot and quite correctly swot cannot be run on its own it does leave weaknesses – SWOT was devised as part of TEAM ACTION MANAGEMENT and doesn’t work as a solitary tool.
Brief History on SOFT & SWOT
SWOT analysis came from the research conducted at Stanford Research Institute from 1960-1970. The background to SWOT stemmed from the need to find out why corporate planning failed. The research was funded by the fortune 500 companies to find out what could be done about this failure. The Research Team were Marion Dosher, Dr Otis Benepe, Albert Humphrey, Robert Stewart, Birger Lie.
It all began with the corporate planning trend, which seemed to appear first at Du Pont in 1949. By 1960 every Fortune 500 company had a ‘corporate planning manager’ (or equivalent) and ‘associations of long range corporate planners’ had sprung up in both the USA and the UK.
However a unanimous opinion developed in all of these companies that corporate planning in the shape of long range planning was not working, did not pay off, and was an expensive investment in futility.
It was widely held that managing change and setting realistic objectives which carry the conviction of those responsible was difficult and often resulted in questionable compromises.
The fact remained, despite the corporate and long range planners, that the one and only missing link was how to get the management team agreed and committed to a comprehensive set of action programmes.
To create this link, starting in 1960, Robert F Stewart at SRI in Menlo Park California lead a research team to discover what was going wrong with corporate planning, and then to find some sort of solution, or to create a system for enabling management teams agreed and committed to development work, which today we call ‘managing change’.
The research carried on from 1960 through 1969. 1100 companies and organizations were interviewed and a 250-item questionnaire was designed and completed by over 5,000 executives. Seven key findings lead to the conclusion that in corporations chief executive should be the chief planner and that his immediate functional directors should be the planning team. Dr Otis Benepe defined the ‘Chain of Logic’ which became the core of system designed to fix the link for obtaining agreement and commitment.
1. Values
2. Appraise
3. Motivation
4. Search
5. Select
6. Programme
7. Act
8. Monitor and repeat steps 1 2 and 3
We discovered that we could not change the values of the team nor set the objectives for the team so we started as the first step by asking the appraisal question ie what’s good and bad about the operation. We began the system by asking what is good and bad about the present and the future. What is good in the present is Satisfactory, good in the future is an Opportunity; bad in the present is a Fault and bad in the future is a Threat. This was called the SOFT analysis.
When this was presented to Urick and Orr in 1964 at the Seminar in Long Range Planning at the Dolder Grand in Zurich Switzerland they changed the F to a W and called it SWOT Analysis.
SWOT was then promoted in Britain by Urick and Orr as an exercise in and of itself. As such it has no benefit.
Regards
Janet Taylor – Operations Manager TAM (UK) Plc
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