SWOT Analysis
The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organisations.
SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats. Information about the origins and inventors of SWOT analysis is below. The SWOT analysis headings provide a good framework for reviewing strategy, position and direction of a company or business proposition, or any other idea.
Completing a SWOT analysis is very simple, and is a good subject for workshop sessions. SWOT analysis also works well in brainstorming meetings.
Use SWOT analysis for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports. You can also use SWOT analysis exercises for team building games.
Note that SWOT analysis is often interpreted and used as a SWOT Analysis 2x2 Matrix, especially in business and marketing planning.
In addition to this 2x2 matrix method, SWOT analysis is also a widely recognised method for gathering, structuring, presenting and reviewing extensive planning data within a larger business or project planning process.
See also PEST analysis, which measures a business's market and potential according to external factors; Political, Economic, Social and Technological. It is often helpful to complete a PEST analysis prior to a SWOT analysis. In other situations, it may be more useful to complete a PEST analysis as part of, or after, a SWOT analysis. See also Porter's Five Forces model, which is used to analyse the competitive position.
Please note: If you use SWOT Analysis as a 2x2 matrix method, then technically Strengths and Weaknesses are internal factors (generally the case anyway), whereas Opportunities and Threats are external factors (this can be more difficult since it requires you to ignore internal threats and opportunities). The SWOT 2x2 'internal/external' matrix method thus only considers external threats and opportunities.
As a more general guide, here is a free SWOT analysis template worksheet (doc file) , and the same free SWOT analysis tool (pdf format) .
If you have difficulty opening the above doc file here are two other formats:
A SWOT analysis measures a business unit, a proposition or idea; a PEST analysis measures a market.
A SWOT analysis is a subjective assessment of data that is organised by the SWOT format into a logical order that helps understanding, presentation, discussion, and decision-making. The four dimensions are a useful extension of a basic two heading list of pro's and con's (free pro's and con's template here).
A SWOT analysis can be used for all sorts of decision-making, and the SWOT template enables proactive thinking, rather than relying on habitual or instinctive reactions.
The SWOT analysis template is normally presented as a grid, comprising four sections, one for each of the SWOT headings: Strengths, Weaknesses, Opportunities, and Threats. The free SWOT template below includes sample questions, whose answers are inserted into the relevant section of the SWOT grid. The questions are examples or discussion points, and obviously can be altered depending on the subject of the SWOT analysis. Note that many of the SWOT questions are also talking points for other headings - use them as you find most helpful, and make up your own to suit the issue being analysed. It is important to clearly identify the subject of a SWOT analysis because a SWOT analysis is a perspective of one thing, be it a company, a product, a proposition, an idea, a method, or option, etc.
A SWOT analysis is commonly presented and developed into a 2x2 matrix, which is shown and explained within the SWOT analysis matrix section.
Internal vs External Factors
Modern SWOT analysis in business and marketing situations is normally structured so that a 2x2 matrix grid can be produced, according to two pairs of dimensions.
Strengths and Weaknesses, are 'mapped' or 'graphed' against Opportunities and Threats.
To enable this to happen cleanly and clearly, and from a logical point of view anyway when completing a SWOT analysis in most business and marketing situations, Strengths and Weaknesses are regarded distinctly as internal factors, whereas Opportunities and Threats are regarded distinctly as external factors.
Here is the explanation in more detail:
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Strengths and Weaknesses |
The internal environment - the situation inside the company or organisation |
For example: factors relating to products, pricing, costs, profitability, performance, quality, people, skills, adaptability, brands, services, reputation, processes, infrastructure, etc. |
Factors tend to be in the present |
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Opportunities and Threats |
The external environment - the situation outside the company or organisation |
For example: factors relating to markets, sectors, audience, fashion, seasonality, trends, competition, economics, politics, society, culture, technology, environmental, media, law, etc. |
Factors tend to be in the future |
Swot Matrix (2x2 matrix: internal/external categories)
Here is a typical extension of the basic SWOT analysis grid into a useful 'action-based' 2x2 SWOT matrix.
The SWOT analysis in this format acts as a quick decision-making tool, quite aside from the more detailed data that would typically be fed into business planning process for each of the SWOT factors.
Here the 2x2 matrix model automatically suggests actions for issues arising from the SWOT analysis, according to four different categories:
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Strengths (internal) |
Weaknesses (internal) |
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Opportunities |
Strengths/Opportunities Obvious natural priorities Likely to produce greatest ROI (Return On Investment) Likely to be quickest and easiest to implement. Probably justifying immediate action-planning or feasibility study. Executive question: "If we are not already looking at these areas and prioritising them, then why not?" |
Weaknesses/Opportunities Likely to produce good returns if capability and implementation are viable. Potentially more exciting and stimulating and rewarding than S/O due to change, challenge, surprise tactics, and benefits from addressing and achieving improvements. Executive questions: "What's actually stopping us doing these things, provided they truly fit strategically and are realistic and substantial?" |
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Threats |
Strengths/Threats Easy to defend and counter Only basic awareness, planning, and implementation required to meet these challenges. Investment in these issues is generally safe and necessary. Executive question: "Are we properly informed and organised to deal with these issues, and are we certain there are no hidden surprises?" - and - "Since we are strong here, can any of these threats be turned into opportunities?" |
Weaknesses/Threats Potentially high risk Assessment of risk crucial. Where risk is low then we must ignore these issues and not be distracted by them. Where risk is high we must assess capability gaps and plan to defend/avert in very specific controlled ways. Executive question: "Have we accurately assessed the risks of these issues, and where the risks are high do we have specific controlled reliable plans to avoid/avert/defend?" |
N.B. SWOT analysis is a very flexible tool. Its use is not restricted to business and marketing. Be mindful that when SWOT is used in situations outside of business and marketing, strict categorisation of the SWOT dimensions (according to 'internal' and 'external' factors) can be limiting, and so a more open interpretation of the model can be helpful in such circumstances, especially when assessing Opportunities and Threats.
Also be mindful that if using the SWOT analysis model only as a 2x2 matrix, which assumes the categorisation of internal and external factors (and notably limiting the assessment of threats and opportunities to external factors only), that it is very easy then to miss certain threats and opportunities that can exist (internally) within the company/organisation. Some internal threats and opportunities can be substantial, for example, opportunities such as: energy-saving, process-improvement, training, advertising, or discontinuing loss-making products, or threats such as: desertion or key staff, the loss of major contracts, to name just a couple of typically ever-present threats within large commercial corporations.
Be mindful therefore that the 'simplified' SWOT 2x2 matrix 'internal/external' method is not a reliable tool alone for identifying all threats and opportunities within organisations, or indeed any other situation.
You will note from the origins of SWOT analysis below that the methodology did not begin, and was not operated as the simple 2x2 'internal/external' matrix that we commonly see today.
Particularly, the original application of the model did not restrict threats and opportunities to just external factors. Instead, six key aspects of the business in question (namely: product, process, customer, distribution, finance, admin) were each assessed using the SWOT model. Each aspect was considered according to all four SWOT elements. Thus, today when we apply the SWOT model to an entire business, if we disregard internal threats and opportunities, so the analysis can exclude some potentially serious issues.
Different Applications
SWOT analysis is a powerful model for many different situations. The SWOT tool is not just for business and marketing. Here are some examples of what a SWOT analysis can be used to assess:
- a company (its position in the market, commercial viability, etc)
- a method of sales distribution
- a product or brand
- a business idea
- a strategic option, such as entering a new market or launching a new product
- an opportunity to make an acquisition
- a potential partnership
- changing a supplier
- outsourcing a service, activity or resource
- project planning and project management
- an investment opportunity
- personal financial planning
- personal career development - direction, choice, change, etc.
- education and qualifications planning and decision-making
- life-change - downshifting, relocation,
- relationships, perhaps even family planning?..
Whatever the application, be sure to describe the subject (or purpose or question) for the SWOT analysis clearly so you remain focused on the central issue. This is especially crucial when others are involved in the process. People contributing to the analysis and seeing the finished SWOT analysis must be able to understand properly the purpose of the SWOT assessment and the implications arising.
SWOT Analysis Template
Here is a larger illustration of SWOT analysis.
Subject of SWOT analysis: (define the subject of the analysis here)
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Strengths
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Weaknesses
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Opportunities
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Threats
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Example
This SWOT analysis example is based on an imaginary situation. The scenario is based on a business-to-business manufacturing company, who historically rely on distributors to take their products to the end user market. The opportunity, and therefore the subject for the SWOT analysis, is for the manufacturer to create a new company of its own to distribute its products direct to certain end-user sectors, which are not being covered or developed by its normal distributors.
The subject of SWOT analysis example: the creation of own distributor company to access new end-user sectors not currently being developed.
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Strengths
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Weaknesses
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Opportunities
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Threats
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See also the free PEST analysis template and method, which measures a business according to external factors; Political, Economic, Social and Technological. It is often helpful to complete a PEST analysis prior to competing a SWOT analysis.
See also Porter's Five Forces model.
Difference and Relationship between PEST and SWOT
There is some overlap between PEST and SWOT. Similar factors appear in each. That said, PEST and SWOT are certainly two different perspectives:
PEST tends to assess a market, including competitors, from the standpoint of a particular proposition or a business.
SWOT in business and marketing tends to be an assessment of a business or a proposition, whether it is your own business or (less commonly) a competitor's business or proposition.
Strategic planning is not a precise science - no tool is mandatory - it's a matter of pragmatic choice as to what helps best to identify and explain the issues.
PEST analysis may useful before SWOT analysis where it helps to identify SWOT factors. Alternatively PEST analysis may be incorporated within a SWOT analysis, to achieve the same effect.
PEST becomes more useful and relevant the larger and more complex the business or proposition, but even for a very small local businesses a PEST analysis can still throw up one or two very significant issues that might otherwise be missed.
The four quadrants in PEST vary in significance depending on the type of business, for example, social factors are more obviously relevant to consumer businesses or a B2B (business-to-business) organisation close to the consumer-end of the supply chain, whereas political factors are more obviously relevant to a global munitions supplier or aerosol propellant manufacturer.
All businesses benefit from a SWOT analysis, and all businesses benefit from completing a SWOT analysis of their main competitors, which interestingly can then provide useful points back into the economic aspects of the PEST analysis.
Origins
This remarkable piece of history as to the origins of SWOT analysis was provided by Albert S Humphrey, one of the founding fathers of what we know today as SWOT analysis. I am indebted to him for sharing this fascinating contribution. Albert Humphrey died on 31 October 2005. He was one of the good guys.
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 organisations 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.
- Values
- Appraise
- Motivation
- Search
- Select
- Programme
- Act
- 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, for example, 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. What was necessary was the sorting of the issues into the programme planning categories of:
- Product (what are we selling?)
- Process (how are we selling it?)
- Customer (to whom are we selling it?)
- Distribution (how does it reach them?)
- Finance (what are the prices, costs and investments?)
- Administration (and how do we manage all this?)
[*N.B. Albert Humphrey's reference to 'Urick and Orr' is uncertain. Does this instead really refer to the notable British management theorists/and for a time consultancy partners Lyndall Urwick and John Leslie Orr? I don't know. If you do please tell me.]
The second step then becomes 'what shall the team do' about the issues in each of these categories. The planning process was then designed through trial and error and resulted finally in a 17 step process beginning with SOFT/SWOT with each issue recorded separately on a single page called a planning issue.
The first prototype was tested and published in 1966 based on the work done at 'Erie Technological Corp' in Erie Pa. In 1970 the prototype was brought to the UK, under the sponsorship of W H Smith & Sons plc, and completed by 1973. The operational programme was used to merge the CWS milling and baking operations with those of J W French Ltd.
The process has been used successfully ever since. By 2004, now, this system has been fully developed, and proven to cope with today's problems of setting and agreeing realistic annual objectives without depending on outside consultants or expensive staff resources.
Key Research Findings
The key findings were never published because it was felt they were too controversial. This is what was found:
1) A business was divided into two parts. The base business plus the development business. This was re-discovered by Dr Peter Senge at MIT in 1998 and published in his book the Fifth Discipline (not '5th Dimension' as previously stated here - thanks J Hoffman for this correction, 28 Jan 2011). The amount of development business which become operational is equal to or greater than that business on the books within a period of 5 to 7 years. This was a major surprise and urged the need for discovering a better method for planning and managing change.
2) Dr Hal Eyring published his findings on 'Distributive Justice' and pointed out that all people measure what they get from their work and divide it by what they give to the work and this ratio is compared to others. If it is not equal then the person first re-perceives and secondly slows down if added demands are not met. (See for interest Adams Equity Theory and the Equity Theory Diagram pdf)
3) The introduction of a corporate planner upset the sense of fair play at senior level, making the job of the corporate planner impossible.
4) The gap between what could be done by the organisation and what was actually done was about 35%.
5) The senior man will over-supervise the area he comes from. Finance- Finance, Engineering-Engineering etc.
6) There are 3 factors which separate excellence from mediocrity:
a. Overt attention to purchasing
b. Short-term written down departmental plans for improvement
c. Continued education of the Senior Executive
7) Some form of formal documentation is required to obtain approval for development work. In short we could not solve the problem by stopping planning.
Conclusion
By sorting the SWOT issues into the 6 planning categories one can obtain a system which presents a practical way of assimilating the internal and external information about the business unit, delineating short and long term priorities, and allowing an easy way to build the management team which can achieve the objectives of profit growth.
This approach captures the collective agreement and commitment of those who will ultimately have to do the work of meeting or exceeding the objectives finally set. It permits the team leader to define and develop co-ordinated, goal-directed actions, which underpin the overall agreed objectives between levels of the business hierarchy.
Albert S Humphrey
August 2004
Issues into Actions
Albert Humphrey advocated that the six categories:
- Product (what are we selling?)
- Process (how are we selling it?)
- Customer (to whom are we selling it?)
- Distribution (how does it reach them?)
- Finance (what are the prices, costs and investments?)
- Administration (and how do we manage all this?)
provide a framework by which SWOT issues can be developed into actions and managed using teams.
This can be something of a 'leap', and so the stage warrants further explanation. Translating the SWOT issues into actions, are best sorted into (or if necessary broken down into) the six categories, because in the context of the way that business and organisations work, this makes them more quantifiable and measurable, responsible teams more accountable, and therefore the activities more manageable. The other pivotal part in the process is of course achieving the commitment from the team(s) involved, which is partly explained in the item summarising Humphrey's TAM® model and process.
As far as identifying actions from SWOT issues is concerned, it all very much depends on your reasons and aims for using SWOT, and also your authority/ability to manage others, whom by implication of SWOT's breadth and depth, are likely to be involved in the agreement and delivery of actions.
Depending on pretext and situation, a SWOT analysis can produce issues which very readily translate into (one of the six) category actions, or a SWOT analysis can produce issues which overlay a number of categories. Or a mixture. Whatever, SWOT essentially tells you what is good and bad about a business or a particular proposition. If it's a business, and the aim is to improve it, then work on translating:
strengths (maintain, build and leverage),
opportunities (prioritise and optimise),
weaknesses (remedy or exit),
threats (counter)
into actions (each within one of the six categories) that can be agreed and owned by a team or number of teams.
If the SWOT analysis is being used to assess a proposition, then it could be that the analysis shows that the proposition is too weak (especially if compared with other SWOT's for alternative propositions) to warrant further investment, in which case further action planning, other than exit, is not required.
If the proposition is clearly strong (presumably you will have indicated this using other methods as well), then proceed as for a business, and translate issues into category actions with suitable ownership by team(s).
This is my understanding of Albert Humphrey's theory relating to developing SWOT issues into organisational change actions and accountabilities. (I'm pleased to say that Albert kindly confirmed that this is indeed correct.)
There are other ways of applying SWOT of course, depending on your circumstances and aims, for instance if concentrating on a department rather than a whole business, then it could make sense to revise the six categories to reflect the functional parts of the department, or whatever will enable the issues to be translatable into manageable, accountable and owned aims.
Here is a summary of Albert Humphrey's impressive TAM® (Team Action Management) model, developed and used to speed up the process of initiating and controlling organisational change.