1. SWOT analysis definition
The SWOT analysis is a strategic diagnostic tool widely used by organizations in their strategic process. It is also called the SWOT model or SWOT matrix.
The definition of a strategy for an organization must naturally be preceded by a strategic diagnostic phase. The SWOT analysis can be applied to a country, a sector, or even to an individual.
The SWOT analysis aims to identify the internal and external factors that are favorable and unfavorable to the achievement of an organization’s objectives.
At the internal level, we talk about the strengths (favorable internal elements) and weaknesses (unfavorable internal elements). At the external level of the analysis, we find opportunities (positive external factors) and threats (negative external factors).
The SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
2. SWOT analysis presentation
Strengths: characteristics of the company, project, or person that give it an advantage over its competitors.
For example, the ability to innovate, the quality of products and services, cost control, etc.
Weaknesses: Weaknesses that put the company at a disadvantage compared to others. For example, incompetence of employees of an organization, communication problems for a person… Etc..
Opportunities: These are the elements of the environment that the organization or the person could exploit to its advantage.
This is the case of an excellent reputation of a person or the increase in demand for a company.
Threats: are all the factors in the environment that could cause problems for the organization or the person.
For example, the arrival of a new competitor for a local company or the technological development that could lead to the disappearance of a job for an employee.
3. Presentation of the SWOT matrix
For companies, this method consists in carrying out two diagnoses: internal and external
Internal strategic diagnosis: This allows you to identify all the strengths and weaknesses of the company.
To perform this type of diagnosis, managers use a number of strategic analysis tools such as the value chain, benchmarking, etc.
External strategic diagnosis: aims to identify all the favorable (opportunities) and unfavorable (threats) elements of the external environment of the company.
There is a wide range of external strategic analysis tools: PESTEL analysis, Michael Porter’s six competitive forces model, etc.
4. How to do a SWOT analysis?
The confrontation of the results of the external diagnosis with those of the internal diagnosis will allow your company to conceive several possible combinations of threats, opportunities, strengths, and weaknesses.
As a result, strategic proposals will emerge from all these confrontations.
At the level of quadrant A, we will find the orientations that combine the opportunities and strengths of a business unit.
For example, a strong demand (opportunity) combined with a company’s capacity to innovate (strength) will guide the managers of a company to a strategy of internal growth or development of a new strategic segment.
The strategic directions that will result from this quadrant will have a high probability of success.
Quadrant B combines the opportunities of the environment with the weaknesses of the organization.
In this case, decision-makers will opt for alliance or partnership strategies. The reason is to allow the company to take advantage of market opportunities and at the same time to compensate for the company’s weaknesses.
The typical example is that of large multinational companies (mcdonalds, Danone… etc.). These companies opt for strategic alliances in the form of franchises or joint ventures with local companies. The objective of these partnerships is to ensure the marketing of their products and services in foreign markets.
These partnership strategies allow these multinationals to take advantage of potential market opportunities in developing countries through the use of distribution networks already established by local companies.
For quadrant C, it is the confrontation of the strengths of the company and the threats of the environment. In this case, managers often opt for maintenance or protection strategies by setting up barriers to entry against potential competitors.
Quadrant D combines the weaknesses of the company and the threats of the environment. Decision-makers must try to reduce the impact of threats and weaknesses on the strategic segment concerned.
5. The possible uses of the SWOT method:
Decision-making: This method will help the decision-makers involved to identify and consider all internal and external factors. The goal is to take maximum advantage of the opportunities and strengths identified.
At the same time, decision-makers will try to minimize the possible impacts of environmental threats and weaknesses.
Strategic planning of companies: as we pointed out at the beginning of this article. Companies widely use SWOT analysis in the strategic diagnosis phase. The aim is to define the strategic directions.
6. Limits of the SWOT model:
Today’s business environment is becoming increasingly complex, turbulent, and rapidly changing. For this reason, companies need to regularly update the results of their SWOT analyses.
For big companies, performing a SWOT analysis at the level of the entire company is a fatal mistake. Indeed, the SWOT model is relevant at the level of a strategic business area (SBA), also called strategic segment or Business Unit (BU).
Therefore, the results of the SWOT analysis will not be the same for two or more business units of the same company.
Thus, the results of the SWOT analyses of a company’s business units will not provide the overall SWOT diagnosis of the organization.
7. Example of SWOT analysis