Organizations take on a SWOT analysis in order to gauge their strategies and make decisions. The term SWOT refers to the organisation's strengths and weaknesses, as well as the opportunities and threats it faces. The company's strengths and weaknesses make up the internal factors of the SWOT analysis.
The organisation engaging in the SWOT analysis has to take stock of its strengths. For instance, it could have an advantage that its competitors don't possess, such as a secret sauce for a recipe in the case of a food processing company. In taking into account the organisation's strengths, the focus should be on strengths vis-à-vis its competitors. Even if an organisation has a distribution set-up that it sees as a strength, it may not be such an advantage if competitors have equally strong distribution strategies.
Organizations have their weaknesses, too. The purpose of the SWOT analysis is to get a realistic understanding of an organisation's weaknesses as well. There are areas in which an organisation may not perform as well as it should. For instance, an organisation that undertakes this analysis might decide that it is not as strong as its competitors in terms of the technology it uses. This poses a weakness for the firm.
External Factors of SWOT
There are also external factors that go into a SWOT analysis. The organisation gauges what opportunities are available to it in the environment it operates in. For instance, changes in government policy could create an opportunity for some. The environment also holds certain threats to business. These form the threat input to the analysis. For instance, changes in technology might be changing the demand for a product. As e-mail usage gained more acceptance, there has been a decline in volume of mail sent through the postal system.
Limitations of SWOT Analysis
SWOT is a simple exercise to engage in and does not call for much technical input. Therein lie some of its limitations too. It is a subjective listing of factors and there is no prioritisation of which factors have the most impact for the organisation. Some of the factors that make up the organisation's SWOT input may not be backed by hard data. Thus, the results of this exercise are only as good as the input that goes in.
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