Using Swot Analysis to Formulate Strategy

Using SWOT Analysis to Formulate Strategy

SWOT Analysis is a powerful technique for understanding your Strengths and Weaknesses, and for looking at the Opportunities and Threats you face. SWOT analysis is one of the most important steps in formulating strategy. In SWOT analysis, the best strategies accomplish an organization’s mission by exploiting an organization’s opportunities and strengths while neutralizing its threats and avoiding its weakness. (Griffin, 2003) By looking at yourself and your competitors using the SWOT structure, you can start to craft a strategy that helps you differentiate yourself from your competitors, so that you can compete successfully in your market. This helps you to focus on your strengths, minimize threats, and take the greatest possible advantage of opportunities available to you. SWOT is a frequently used management tool, useful for reflection, decision making and appraising options. It is particularly useful because of its simplicity, the way in which it takes seconds to set up, and can be easily explained to others. The simplicity of the idea contradicts how straightforwardly it can be extended and built on. A firm should be able to identify the strengths, weaknesses, opportunities, and threats to run properly and create strategic plans that will help the company more than it will hurt it.

What makes SWOT particularly powerful is that with a little thought, it can help you uncover opportunities that you are well placed to take advantage of. And by understanding your weaknesses, you can manage and eliminate threats that would otherwise catch you unawares. SWOT analysis is a huge part of management; mangers sometimes use it as a foundation when starting new programs. Strengths and weaknesses are internal factors. Firm’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Strength could be your specialist marketing expertise, a new, innovative product or service, location of your business or quality processes and procedures. The absence of certain strengths may be viewed as weakness. A weakness could be lack of marketing expertise, undifferentiated products or services, location of your business, poor quality goods or services or a damaged reputation.

Opportunities and threats are external factors. The external environmental analysis may reveal certain new opportunities for profit and growth. An opportunity could be a developing market such as the Internet, mergers, joint ventures or strategic alliances, moving into new market segments that offer improved profits or a new international market. Changes in the external environment also may present threats to the firm. A threat could be a new competitor in your home market, price wars with competitors, a competitor has a new, innovative product or service, competitors have superior access to channels of distribution or taxation is introduced on your product or service. SWOT analysis is one of the most important steps in formulating strategy. Using the organization’s mission as a context, managers assess internal weakness as well as eternal opportunities and threats. The goal is to then develop good strategies that exploit opportunities and strengths, neutralize threats, and avoid weakness. (Griffin, 2003)

A firm should not necessarily purse the more lucrative opportunities. Relatively, it may have a better chance at developing a competitive advantage by identifying a fit between the firm’s strengths and upcoming opportunities. In some cases the firms can overcome a weakness in order to prepare it to pursue a compelling opportunity. Strategic planning determines where an organization is going over the next year or more, how it's going to get there and how it'll know if it got there or not. The focus of a strategic plan is usually on the entire organization, while the focus of a business plan is usually on a particular product, service or program. The way that a strategic plan is developed depends on the nature of the organization's leadership, culture of the organization, complexity of the organization's environment, size of the organization, expertise of planners, etc. Strategic planning determines where an organization is going over the next year or more, how it's going to get there and how it'll know if it got there or not. (McNamara, 1999) The focus of a strategic plan is usually on the entire organization, while the focus of a business plan is usually on a particular product, service or program. (McNamara, 1999)

Group techniques are particularly effective in providing structure, objectivity, clarity and focus to discussions about strategy which might otherwise tend to wander or else be strongly influenced by politics and personalities (Glass, 1991). Performing a SWOT Analysis can be a time consuming and data intensive process,