The business world is characterized by changing market conditions that determine a company’s position in the market. For continued operations and sustainability, companies need to conduct performance evaluations to assess their positions compared to competitors and develop measures for improvement. The two most common tools of company evaluation used in many medium and small enterprises are PEST and SWOT analyses. Although both methods have the same goal, they differ in the business aspect. This paper focuses on SWOT analysis, elaborating on its meaning and highlighting examples of its application for companies’ strategic analyses.
An Understanding of SWOT Analysis
In the operation, a company may derive more benefits than others in the same market conditions. These differences are attributed to a company’s intern and environments, evaluated by its SWOT analysis. By definition, SWOT analysis entails a framework on which a company is analyzed on the basis of what it does well and areas of improvement (Lee, Lee, and Jung, 2020). This planning process aids businesses in developing a strategic plan to achieve goals, streamline operations, and maintain relevance in the marketplace. According to Habimana, Mutambuka, and Habinshuti (2018), SWOT analysis is used by businesses to assess their strengths, weaknesses, opportunities, and threats, the four variables for which SWOT is an acronym. This evaluation is done in relation to organizational growth, products and services, corporate objectives, and market competitiveness, among other things.
For the purpose of conducting a SWOT analysis, a two-by-two matrix is included, with horizontal groupings of internal (weaknesses and strengths) and external variables (opportunities and threats). In addition, vertical pairings of beneficial and detrimental factors in achieving the goal are considered (Lee, Lee, and Jung, 2020). The final results of the analysis will assist the organization in determining whether strategic goals, product lines, services, initiatives, or goals are an excellent strategic fit for the organization’s overall goals. The best strategic fits are achieved when the microenvironment (including strengths and limitations) and the external environment are in sync (Vlados, 2019). For a comprehensive understanding of SWOT analysis, it is crucial to comprehend the elements that constitute its internal and external environment.
It is important to note that strengths and weaknesses are the company’s internal aspects linked to the purpose, project, or initiative under consideration. Due to subjectivity, what is considered a strength for one target or task may be deemed a weakness for another objective or project. According to Vlados (2019), strengths are aspects that the organization can control. This group includes everything that the organization does well while working towards specific goals, projects, program initiatives, or targets. Anything that benefits the organization, facilitates smooth operations of procedures and initiatives, or assists the organization in achieving its business objectives will fall under this category. It is also within the company’s power to overcome its weaknesses, which encompasses everything that prevents the organization from achieving its corporate or project aims and outcomes.
The external environment contains aspects that have an impact on the target or initiative from outside the firm. It includes opportunities and risks as well as other considerations. Economic factors, technological factors, regulatory and legislative factors, sociocultural factors, and adjustments in the competition are all examples of opportunities and threats (Vlados, 2019). Opportunities are variables that exist outside of the corporation that the company can capitalize on to improve performance in regard to objectives and propel the company ahead. Threats include everything in the external world that could hinder the execution of a project or comprise a danger to the organization’s long-term viability in the future. Vlados (2019) argues that with the exponential growth in competition and rapid changes in consumer trends, companies have to pay more attention to these external factors to ensure business survival. In summary, although a company cannot control the external environment, it can develop recovery options that mitigate losses during unforeseen events.
Applications of SWOT Analysis for Strategic Planning
Strategic planning is a crucial part of organizational management, which is made possible by conducting a SWOT analysis. Habimana, Mutambuka, and Habinshuti (2018), in their research on Rwanda-based enterprises, found that SWOT analysis is positively related to an increase in business competitiveness. For example, a company can use SWOT analysis to understand its ability to satisfy consumer needs by evaluating its strengths. The information can then be used to develop innovative products and services, enabling the company to attract more customers and thereby be more competitive in the market.
A good corporate strategy is based on a practical SWOT analysis. According to Musanganya and Sinumvayo (2017), SWOT analysis facilitates corporate decision-making and the formulation of organizational development plans. Decision-making is a crucial role of a company’s managing board and includes decisions regarding production plans, marketing strategies, advertising, and sales. All these functions depend on a company’s position indicated in the SWOT analysis. For example, a company may find that one of its weaknesses is failing to meet customer needs due to small-scale production. This information may influence decision-making, and the management may decide to merge with a larger company.
In conclusion, a SWOT analysis is an undeniably powerful tool for organizational management through performance evaluation. It is a comprehensive technique that analyses a company’s strengths, weaknesses, opportunities, and threats. The results, which are visually presented in a two-by-two matrix, aid in organizations’ strategic planning. Business Managers use SWOT analysis to adjust their operations through strategic decision-making. In addition, the results of SWOT analysis help improve a company’s competitiveness through product adjustment, branding, and innovation. SWOT analysis is becoming increasingly crucial for business sustainability in the rapidly-changing business environment. Essentially, SWOT analysis shows a company’s position in reference to its competitors and helps to shape the corporation’s development strategies.
Habimana, T., Mutambuka, D. and Habinshuti, P. (2018). The contribution of SWOT analysis in the competitiveness of business enterprises in Rwanda. Journal of Economics, Business, and Management, 6(2), pp.56-60. Web.
Lee, J., Lee, S. and Jung, K. (2020). Balanced SWOT: Revisiting SWOT analysis through failure management and success management. SSRN Electronic Journal. Web.
Musanganya, I. and Sinumvayo, J.P. (2017). SWOT analysis as the decision-making support tool to conduct competitive analysis and strategic planning: An update. Scholars Journal of Economics, Business, and Management, 4(8), pp.509-518. Web.
Vlados, C., (2019). On a correlative and evolutionary SWOT analysis. Journal of Strategy and Management, 12(3), pp.347-363. Web.