SWOT analysis is known worldwide and widely applied in many companies. SWOT Analysis stands for: Strengths, Weaknesses, Opportunities and Threats. So, what is the purpose of SWOT analysis?
SWOT analysis – or the SWOT matrix – was developed in the 60s by Albert Humphrey. He led a research project at Stanford University to analyze data of the 500 largest corporations reported by Fortune magazine. As a result, they created a method that quickly turned into an exercise used by all of the world’s leading companies in formulating strategies.
SWOT analysis is a simple analysis system designed to check the strategic position of a particular company in its field of operation, and because of its methodological simplicity can be used to analyze any scenario or environment, from the creation of a website to the management of a multinational corporation.
What is the purpose of SWOT analysis?
We can say that the purpose of SWOT analysis is to study the internal and external environments of a company, through the identification and analysis of the strengths and weaknesses of the organization, and the opportunities and threats to which it is exposed.
Part of the purpose of SWOT analysis is to also assertively identify factors that influence the functioning of the organization providing very useful information in the strategic planning process.
You can divide SWOT analysis into two parts: the internal environment where strengths and weaknesses are identified, and the analysis of the external environment, where threats and opportunities are determined.
Some of the objectives of SWOT analysis:
- To make a summary analysis of external and internal factors.
- To identify key items for the management of the organization, which involves establishing priorities for action.
- To prepare strategic options: risks and problems to solve.
- It is through analysis that we can determine the diagnosis of the company: strengthening the positive points, indicating which points should be improved, chances of growth, increasing opportunities, etc.
- To conduct a sales forecast in agreement with market conditions and study the capabilities of the company in general.
- Internal environment (Strengths and Weaknesses) – the integration and standardization of processes, the elimination of inefficiencies. Focus on the core of the business.
- External environment (Opportunities and Threats) – to have reliable and trustworthy data, to receive information quickly to support management in strategic decision making and to reduce errors.
The purpose of SWOT analysis in external and internal environments
The company’s internal environment is the grouping together of human, financial, and physical, etc. elements, in which you can exercise greater control, such as the results of strategies set by management.
In this environment it is possible to identify the strengths, corresponding to the features and capabilities that together become a competitive advantage for a company, and the weaknesses are the weaknesses that a company has in comparison to its current or potential competitors.
But the external environment consists of factors that exist outside the organizational boundaries, and that can somehow influence it. It is an environment with which there is no control but should be monitored continuously as it is the basis for strategic planning.
The analysis of the external environment is commonly divided into macro environmental factors (political, demographic, technological, economic, etc.) and microenvironmental factors (suppliers, partners, customers, etc.). These must constantly be monitored before and after the definition of company strategies.
Thus, through this monitoring, it will be possible to identify promptly the opportunities and threats that arise.
Finally, one last thought. If we consider that external factors influence all companies operating in the same market homogeneously, we can say that only those who can best identify the changes and have the agility to adapt are the ones that can take better advantage of the opportunities and suffer only slightly from realized threats.
To see more on Swot Analysis: Check out Swot analysis examples and tips: Learn how to do Swot analysis