SWOT Analysis

Loading the player...

What is a 'SWOT Analysis'

SWOT analysis is a process that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, analytical framework that assesses what an organization can and cannot do, as well as its potential opportunities and threats. A SWOT analysis takes information from an environmental analysis and separates it into internal strengths and weaknesses, as well as its external opportunities and threats.

SWOT Analysis

BREAKING DOWN 'SWOT Analysis'

A SWOT analysis determines what assists the firm in accomplishing its objectives, and what obstacles must be overcome or minimized to achieve desired results. When using SWOT analysis, an organization needs to be realistic about assessing its strengths and weaknesses. Analysis needs to examine where the organization is today, and where it may be positioned in the future.

SWOT analysis needs to be kept specific by avoiding gray areas and analyzing in relation to the competition. For example, how do the organization’s products and services compare to the competitions? SWOT analysis should be short and simple, and should avoid complexity and over-analysis, as much of the information is subjective. Thus, use it as a guide and not a prescription. For more details, see"Executing A Swot Analysis".

Strengths and Weaknesses

Strengths describe what an organization excels at, allowing decisions on how to gain a competitive advantage. For example, a hedge fund may have developed a proprietary trading strategy that returns superior results in comparison to its competitors. It must then decide how to use those superior results to attract new investor capital.

Weaknesses stop an organization from performing at its optimum level. They have the potential to reduce progress or to give a competitive edge to the competition. An organization needs to minimize weaknesses and analyze how they can be improved. An inadequate supply network or lack of capital are example of weaknesses.

Opportunities and Threats

Opportunities refer to favorable external factors that an organization can use it its advantage. If utilized effectively, opportunities have the potential to create a competitive advantage. For example, a car manufacturer may be able to export its cars into a new market if tariffs in a country are substantially reduced. This is likely to increase sales and market share, which may create a competitive advantage in terms of scale.

Threats refers to factors that have the potential to negatively impact an organization. For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the yield of a wheat crop. Market share is likely to be lost if a competitor has not diversified operations in terms of location. It is prudent for an organization to have a comprehensive contingency plan that addresses possible risks and specifies how to deal with them.

RELATED TERMS
  1. Strategic Management

    The management of an organization’s resources in order to achieve ...
  2. Not For Profit

    A not for profit organization is a type of organization that ...
  3. Crisis Management

    The identification of threats to an organization and its stakeholders, ...
  4. Organic Sales

    The term "organic sales" refers to revenue generated from within ...
  5. Industrial Organization

    A field of economics dealing with the strategic behavior of firms, ...
  6. Nonprofit Organization

    A business entity that is granted tax-exempt status by the Internal ...
Related Articles
  1. Investing

    Executing A Swot Analysis

    On its own, a SWOT is just a snapshot. It is what an organization does with the information that gives SWOT analysis meaning.
  2. Markets

    Evaluate Your Investments With SWOT Analysis

    Using this method, investors should be able to focus on a company's advantages and vulnerabilities.
  3. Investing

    What is a SWOT Analysis?

    SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is a management tool used to identify strategies for success. It may be used to guide individual thinking, group ...
  4. Investing

    Examples Of Using SWOT Analysis To Get Out Of A Thinking Rut

    Sometimes, all a person needs is a little nudge to get out of the thinking rut he or she is stuck in. SWOT analysis can be that nudge.
  5. Investing

    What Are The Costs And Benefits Of Organic Food?

    Organic food is becoming more commonplace in supermarkets, and there are several hidden costs and financial benefits associated with the certification.
  6. Markets

    Whole Foods 365: The Economics of Discount Organic

    Whole Foods Market is expanding its brand to create a chain of discount natural food stores called 365 by Whole Foods Market. With the high cost of producing, shipping and selling organic food, ...
  7. Managing Wealth

    Using Porter's 5 Forces To Analyze Stocks

    These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet.
  8. Personal Finance

    What IRS Form 1023 Is Used For

    To be treated as a tax-exempt organization, start by filling out this form.
  9. Personal Finance

    What IRS Form 990 Tells About a Nonprofit

    Want a picture of an organization's activities? This annual form, open to the public, sums up everything from salaries paid to missions accomplished.
  10. Markets

    Why Organic Food Is So Expensive

    Discover how organic farmers face many obstacles. Learn why your organics cost so much more than conventional foods and if there is any hope for falling prices.
RELATED FAQS
  1. What's the difference between Porter's 5 forces and SWOT analysis?

    Learn about when and how to use SWOT analysis versus Porter's five forces. Learn what sets the analysis tools apart and how ... Read Answer >>
  2. What tools do companies use in human resources planning?

    Find out what kinds of tools are used in human resources planning and how companies are attempting to maximize their labor ... Read Answer >>
  3. What are some common methods of gathering CI (competitive intelligence)?

    Read about some common methods of acquiring competitive business intelligence, and discover what a good intelligence analysis ... Read Answer >>
  4. What is the difference between CI (competitive intelligence) and competitive analysis?

    Understand the difference between competitive intelligence and competitive analysis. Learn why a company conducts both types ... Read Answer >>
  5. Do nonprofit organizations have working capital?

    Discover why financial reserves in the nonprofit world are equivalent to working capital used by for-profit businesses, and ... Read Answer >>
  6. How do I determine my company's competitive advantage?

    Find out how to determine if your company has a competitive advantage and, if so, learn how to figure out how to make it ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center