SWOT Analysis Discover New Opportunities. Manage and Eliminate Threats.

Analyze your situation with James Manktelow & Amy Carlson.

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying both the Opportunities open to you and the Threats you face.

Used in a business context, a SWOT Analysis helps you carve a sustainable niche in your market. Used in a personal context, it helps you develop your career in a way that takes best advantage of your talents, abilities and opportunities. (Click here for Business SWOT Analysis, and here for Personal SWOT Analysis.)

Business SWOT AnalysisWhat makes SWOT particularly powerful is that, with a little thought, it can help you uncover opportunities that you are well placed to exploit. And by understanding the weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unawares.

More than this, by looking at yourself and your competitors using the SWOT framework, you can start to craft a strategy that helps you distinguish yourself from your competitors, so that you can compete successfully in your market.

How to Use SWOT AnalysisOriginated by Albert S Humphrey in the 1960s, SWOT Analysis is as useful now as it was then. You can use it in two ways - as a simple icebreaker helping people get together to "kick off" strategy formulation, or in a more sophisticated way as a serious strategy tool.

Tip:Strengths and weaknesses are often internal to your organization, while opportunities and

threats generally relate to external factors. For this reason the SWOT Analysis is sometimes called Internal-External Analysis and the SWOT Matrix is sometimes called an IE Matrix.

To help you to carry out a SWOT Analysis, download and print off our free worksheet, and write down answers to the following questions.

Strengths:

What advantages does your organization have? What do you do better than anyone else? What unique or lowest-cost resources can you draw upon that others can't? What do people in your market see as your strengths? What factors mean that you "get the sale"? What is your organization's Unique Selling Proposition (USP)?

Consider your strengths from both an internal perspective, and from the point of view of your customers and people in your market.

You should also be realistic - it's far too easy to fall prey to "not invented here syndrome." Also, if you're having any difficulty with this, try writing down a list of your organization's characteristics. Some of these will hopefully be strengths!

When looking at your strengths, think about them in relation to your competitors. For example, if all of your competitors provide high quality products, then a high quality production process is not a strength in your organization's market, it's a necessity.

Weaknesses:

What could you improve? What should you avoid? What are people in your market likely to see as weaknesses? What factors lose you sales?

Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you don't see? Are your competitors doing any better than you?

It's best to be realistic now, and face any unpleasant truths as soon as possible.

Opportunities:

What good opportunities can you spot? What interesting trends are you aware of?

Useful opportunities can come from such things as:

Changes in technology and markets on both a broad and narrow scale. Changes in government policy related to your field. Changes in social patterns, population profiles, lifestyle changes, and so on. Local events.

Tip:A useful approach when looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them.

Threats

What obstacles do you face? What are your competitors doing? Are quality standards or specifications for your job, products or services

changing? Is changing technology threatening your position? Do you have bad debt or cash-flow problems? Could any of your weaknesses seriously threaten your business?

Tip:When looking at opportunities and threats, PEST Analysis can help to ensure that you don't overlook external factors, such as new government regulations, or technological changes in your industry.

Further SWOT TipsMind Tools on Strategy:

SWOT Analysis TOWS Analysis PEST Analysis Core Competence Analysis Value Chain Analysis Porter's Five Forces Porter's Generic Strategies Bowman's Strategy Clock

Scenario Analysis

If you're using SWOT Analysis as a serious tool (rather than as a casual "warm up" for strategy formulation), make sure you're rigorous in the way you apply it:

Only accept precise, verifiable statements ("Cost advantage of US$10/ton in sourcing raw material x", rather than "Good value for money").

Ruthlessly prune long lists of factors, and prioritize them, so that you spend your time thinking about the most significant factors.

Make sure that options generated are carried through to later stages in the strategy formation process.

Apply it at the right level - for example, you might need to apply SWOT Analysis at product or product-line level, rather than at the much vaguer whole company level.

Use it in conjunction with other strategy tools (for example, USP Analysis and Core Competence Analysis) so that you get a comprehensive picture of the situation you're dealing with.

Note:You could also consider using the TOWS Matrix. This is quite similar to SWOT in that it also focuses on the same four elements of Strengths, Weaknesses, Opportunities and Threats. But TOWS can be a helpful alternative because it emphasizes the external environment, while SWOT focuses on the internal environment.

Example SWOT AnalysisA start-up small consultancy business might draw up the following SWOT Analysis:

Strengths:

We are able to respond very quickly as we have no red tape, and no need for higher management approval.

We are able to give really good customer care, as the current small amount of work means we have plenty of time to devote to customers.

Our lead consultant has strong reputation in the market. We can change direction quickly if we find that our marketing is not working. We have low overheads, so we can offer good value to customers.

Weaknesses:

Our company has little market presence or reputation. We have a small staff, with a shallow skills base in many areas.

We are vulnerable to vital staff being sick, and leaving. Our cash flow will be unreliable in the early stages.

Opportunities:

Our business sector is expanding, with many future opportunities for success. Local government wants to encourage local businesses. Our competitors may be slow to adopt new technologies.

Threats:

Developments in technology may change this market beyond our ability to adapt. A small change in the focus of a large competitor might wipe out any market

position we achieve.

As a result of their SWOT Analysis, the consultancy may decide to specialize in rapid response, good value services to local businesses and local government.

Marketing would be in selected local publications to get the greatest possible market presence for a set advertising budget, and the consultancy should keep up-to-date with changes in technology where possible.

Key PointsSWOT Analysis is a simple but useful framework for analyzing your organization's strengths and weaknesses, and the opportunities and threats that you face. It helps you focus on your strengths, minimize threats, and take the greatest possible advantage of opportunities available to you.

SWOT Analysis can be used to "kick off" strategy formulation, or in a more sophisticated way as a serious strategy tool. You can also use it to get an understanding of your competitors, which can give you the insights you need to craft a coherent and successful competitive position.

When carrying out your SWOT Analysis, be realistic and rigorous. Apply it at the right level, and supplement it with other option-generation tools where appropriate.

Using the TOWS MatrixDeveloping strategic options from an external-internal analysis

© iStockphoto/travelinglight

TOWS Analysis is a variant of the classic business tool, SWOT Analysis. TOWS and SWOT are acronyms for different arrangements of the words Strengths, Weaknesses, Opportunities and Threats.

By analyzing the external environment (threats and opportunities), and your internal environment (weaknesses and strengths), you can use these techniques to think about the strategy of your whole organization, a department or a team. You can also use them to think about a process, a marketing campaign, or even your own skills and experience.

Our article on SWOT Analysis helps you perform a thorough SWOT/TOWS Analysis. At a practical level, the only difference between TOWS and SWOT is that TOWS emphasizes the external environment whilst SWOT emphasizes the internal environment. In both cases, this analysis results in a SWOT (or TOWS) Matrix like the one shown below:

Strengths Weaknesses

Opportunities Threats

In this article, we look at how you can extend your use of SWOT and TOWS to think in

detail about the strategic options open to you. While this approach can be used just as well with SWOT as TOWS, it's most often associated with TOWS.

Identifying Strategic OptionsMind Tools on Strategy:

SWOT Analysis TOWS Analysis PEST Analysis Core Competence Analysis Value Chain Analysis Porter's Five Forces Porter's Generic Strategies Bowman's Strategy Clock Scenario Analysis

SWOT or TOWS analysis helps you get a better understanding of the strategic choices that you face. (Remember that "strategy" is the art of determining how you'll "win" in business and life.) It helps you ask, and answer, the following questions: How do you:

Make the most of your strengths? Circumvent your weaknesses? Capitalize on your opportunities? Manage your threats?

A next step of analysis, usually associated with the externally-focused TOWS Matrix, helps you think about the options that you could pursue. To do this you match external opportunities and threats with your internal strengths and weaknesses, as illustrated in the matrix below:

TOWS Strategic Alternatives Matrix

 External Opportunities(O)1.2.3.4.

External Threats (T)1.2.3.4.

Internal Strengths(S)1.2.3.4.

SO"Maxi-Maxi" Strategy

Strategies that use strengths to maximize opportunities.

ST"Maxi-Mini" Strategy

Strategies that use strengths to minimize threats.

Internal Weaknesses (W)1.2.3.4.

WO"Mini-Maxi" Strategy

Strategies that minimize weaknesses by taking

advantage of opportunities.

WT "Mini-Mini" Strategy

Strategies that minimize weaknesses and avoid threats.

This helps you identify strategic alternatives that address the following additional questions:

Strengths and Opportunities (SO) – How can you use your strengths to take advantage of the opportunities?

Strengths and Threats (ST) – How can you take advantage of your strengths to avoid real and potential threats?

Weaknesses and Opportunities (WO) – How can you use your opportunities to overcome the weaknesses you are experiencing?

Weaknesses and Threats (WT) – How can you minimize your weaknesses and avoid threats?

Using the ToolStep 1: Print off our free SWOT Worksheet and perform a TOWS/SWOT analysis, recording your findings in the space provided. This helps you understand what your strengths and weaknesses are, as well as identifying the opportunities and threats that you should be looking at.

Step 2: Print off our free TOWS Strategic Options Worksheet, and copy the key conclusions from the SWOT Worksheet into the area provided (shaded in blue).

Step 3: For each combination of internal and external environmental factors, consider how you can use them to create good strategic options:

Strengths and Opportunities (SO) – How can you use your strengths to take advantage of these opportunities?

Strengths and Threats (ST) – How can you take advantage of your strengths to avoid real and potential threats?

Weaknesses and Opportunities (WO) – How can you use your opportunities to overcome the weaknesses you are experiencing?

Weaknesses and Threats (WT) – How can you minimize your weaknesses and avoid threats?

Note:The WT quadrant – weaknesses and threats – is concerned with defensive strategies. Put

these into place to protect yourself from loss, however don't rely on them to create success.

The options you identify are your strategic alternatives, and these can be listed in the appropriate quadrant of the TOWS worksheet.

Tip:When you have many factors to consider, it may be helpful to construct a matrix to match individual strengths and weaknesses to the individual opportunities and threats you've identified. To do this, you can construct a matrix such as the one below for each quadrant (SO, ST, WO, and WT).

SO Matrix S1 S2 S3 S4

O1        

O2        

O3        

O4        

This helps you analyze in more depth options that hold the greatest promise. Note any new alternatives you identify on the TOWS Strategic Alternatives worksheet.

Step 4: Evaluate the options you've generated, and identify the ones that give the greatest benefit, and that best achieve the mission and vision of your organization. Add these to the other strategic options that you're considering.

Tip:See the Mind Tools Strategy and Creativity Sections for other useful techniques for understanding your environment, and analyzing your strategic options. And see our Problem Solving and Decision Making Sections for techniques for understanding these options in more detail, and deciding between them.

Key Points:The TOWS Matrix is a relatively simple tool for generating strategic options. By using it, you can look intelligently at how you can best take advantage of the opportunities open to you, at the same time that you minimize the impact of weaknesses and protect yourself against threats.

Used after detailed analysis of your threats, opportunities, strength and weaknesses, it helps you consider how to use the external environment to your strategic advantage, and so identify some of the strategic options available to you.

PEST Analysis Understanding "Big Picture" Forces of ChangeAlso PESTLE, PESTEL, PESTLIED, STEEPLE & SLEPT.

Understand your environment,with James Manktelow & Amy Carlson.

PEST Analysis is a simple but important and widely-used tool that helps you understand the big picture of the Political, Economic, Socio-Cultural and Technological environment you are operating in. PEST is used by business leaders worldwide to build their vision of the future.

It is important for these reasons:

By making effective use of PEST Analysis, you ensure that what you are doing is aligned positively with the forces of change that are affecting our world. By taking advantage of change, you are much more likely to be successful than if your activities oppose it.

Good use of PEST Analysis helps you avoid taking action that is condemned to failure for reasons beyond your control.

PEST is useful when you start operating in a new country or region. Use of PEST Analysis helps you break free of unconscious assumptions, and helps you quickly adapt to the realities of the new environment.

How to Use the Tool:PEST is a simple mnemonic standing for Political, Economic, Socio-Cultural and Technological. Download our free worksheet to record your analysis.

Using the tool is a three stage process:

Firstly, you brainstorm the relevant factors that apply to you, using the prompts below.

Secondly, you identify the information that applies to these factors. Thirdly, you draw conclusions from this information.

Tip:The important point is to move from the second step to the third step: it is sterile just to describe factors without thinking through what they mean. However, be careful not to assume that your analysis is perfect: use it as a starting point, and test your conclusions against the reality you experience.

The following prompts may help as a starting point for brainstorming (but make sure you include others that may be appropriate to your situation):

Political:

Government type and stability. Freedom of press, rule of law and levels of bureaucracy and corruption. Regulation and de-regulation trends. Social and employment legislation. Tax policy, and trade and tariff controls. Environmental and consumer-protection legislation. Likely changes in the political environment .

Economic:

Mind Tools on Strategy:

SWOT Analysis TOWS Analysis PEST Analysis

Core Competence Analysis Value Chain Analysis Porter's Five Forces Porter's Generic Strategies Bowman's Strategy Clock Scenario Analysis

Stage of business cycle. Current and projected economic growth, inflation and interest rates. Unemployment and labor supply. Labor costs. Levels of disposable income and income distribution. Impact of globalization. Likely impact of technological or other change on the economy. Likely changes in the economic environment.

Socio-Cultural:

Population growth rate and age profile. Population health, education and social mobility, and attitudes to these. Population employment patterns, job market freedom and attitudes to work. Press attitudes, public opinion, social attitudes and social taboos. Lifestyle choices and attitudes to these. Socio-cultural changes.

Technological Environment:

Impact of emerging technologies. Impact of Internet, reduction in communications costs and increased remote

working. Research & Development activity. Impact of technology transfer.

Other forms of PEST – PESTLE, PESTLIED, STEEPLE and SLEPT:Some people prefer to use different flavors of PEST Analysis. These are:

PESTLE/PESTEL: Political, Economic, Sociological, Technological, Legal, Environmental.

PESTLIED: Political, Economic, Social, Technological, Legal, International, Environmental, Demographic.

STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical.

SLEPT: Social, Legal, Economic, Political, Technological.

Choose the flavor that most suits you!

Example:We're going to avoid giving an example here, because of the huge potential for causing offense: few societies seem perfect to outsiders, and there are few things as irritating as having an outsider criticize one's own country.

However, a broad principle is that things that make economic activity more difficult for people or organizations raise the cost of doing business: activity is either blocked altogether, or it costs more as people spend time and money circumventing difficulties. The higher the cost of doing business in a region, the more project profitability is squeezed, meaning that businesses and projects that could otherwise operate are never launched. In turn, this means that less economic activity takes place, and people are poorer.

Another broad principle is wherever there is rapid or major change in an area, there are likely to be new opportunities and threats that arise. Smart people and companies will take advantage of the opportunities and make money helping others manage the threats.

And do remember that few situations are perfect: it is up to us to make the most of the situation in which we find ourselves.

Key Points:PEST Analysis is a useful tool for understanding the ‘big picture’ of the environment in which you are operating, and for thinking about the opportunities and threats that lie within it. By understanding your environment, you can take advantage of the opportunities and minimize the threats.

PEST is a mnemonic standing for Political, Economic, Social and Technological. These headings are used firstly to brainstorm the characteristics of a country or region and, from this, draw conclusions as to the significant forces of change operating within it.

This provides the context within which more detailed planning can take place, so that you can take full advantage of the opportunities that present themselves.

Porter’s Diamond – Determining Factors of National Advantage

Increasingly, corporate strategies have to be seen in a global context. Even if an organization does not plan to import or to export directly, management has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may influence the domestic market. Information technology is reinforcing this trend.

Michael Porter introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitive than others are, in his book The Competitive Advantage of Nations. This model of determining factors of national advantage has become known as Porters Diamond. It suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale. This home base provides basic factors, which support or hinder organizations from building advantages in global competition. Porter distinguishes four determinants: 

 

Factor Conditions

          The situation in a country regarding production factors, like skilled labor, infrastructure, etc., which are relevant for competition in particular industries.  

These factors can be grouped into human resources (qualification level, cost of labor, commitment etc.), material resources (natural resources, vegetation, space etc.), knowledge resources, capital resources, and infrastructure. They also include factors like quality of research on universities, deregulation of labor markets, or liquidity of national stock markets.  

These national factors often provide initial advantages, which are subsequently built upon. Each country has its own particular set of factor conditions; hence, in each country will develop those industries for which the particular set of factor conditions is optimal. This explains the existence of so-called low-cost-countries (low costs of labor), agricultural countries (large countries with fertile soil), or the start-up culture in the United States (well developed venture capital market). 

Porter points out that these factors are not necessarily nature-made or inherited. They may develop and change. Political initiatives, technological progress or socio-cultural changes, for instance, may shape national factor conditions. A good example is the discussion on the ethics of genetic engineering and cloning that will influence knowledge capital in this field in North America and Europe.

Home Demand Conditions

         Describes the state of home demand for products and services produced in a country. 

Home demand conditions influence the shaping of particular factor conditions. They have impact on the pace and direction of innovation and product development. According to Porter, home demand is determined by three major characteristics: their mixture (the mix of customers needs and wants), their scope and growth rate, and the mechanisms that transmit domestic preferences to foreign markets.

Porter states that a country can achieve national advantages in an industry or market segment, if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors. Normally, home markets have a much higher influence on an organization's ability to recognize customers’ needs than foreign markets do. 

Related and Supporting Industries

          The existence or non-existence of internationally competitive supplying industries and supporting industries. 

One internationally successful industry may lead to advantages in other related or supporting industries. Competitive supplying industries will reinforce innovation and internationalization in industries at later stages in the value system. Besides suppliers, related industries are of importance. These are industries that can use and coordinate particular activities in the value chain together, or that are concerned with complementary products (e.g. hardware and software).

A typical example is the shoe and leather industry in Italy. Italy is not only successful with shoes and leather, but with related products and services such as leather working machinery, design, etc.  

Firm Strategy, Structure, and Rivalry

          The conditions in a country that determine how companies are established, are organized and are managed, and that determine the characteristics of domestic competition 

Here, cultural aspects play an important role. In different nations, factors like management structures, working morale, or interactions between companies are shaped differently. This will provide advantages and disadvantages for particular industries.

Typical corporate objectives in relation to patterns of commitment among workforce are of special importance. They are heavily influenced by structures of ownership and control. Family-business based industries that are dominated by owner-managers will behave differently than publicly quoted companies.

Porter argues that domestic rivalry and the search for competitive advantage within a nation can help provide organizations with bases for achieving such advantage on a more global scale.  

Porters Diamond has been used in various ways.

Organizations may use the model to identify the extent to which they can build on home-based advantages to create competitive advantage in relation to others on a global front.

On national level, governments can (and should) consider the policies that they should follow to establish national advantages, which enable industries in their country to develop a strong competitive position globally. According to Porter, governments can foster such advantages by ensuring high expectations of product performance, safety or environmental standards, or encouraging vertical co-operation between suppliers and buyers on a domestic level etc.