Background on SWOT analysis
• Knowing how to write a SWOT analysis is an important activity in strategic analysis. An acronym referring to strengths, weaknesses, opportunities, and threats, SWOT is a summary of key issues that emanate from an organisation’s environment and its strategic capabilities which have the highest impact on the development of strategy. SWOT is also a useful guide for generating strategic options and in the assessment of an organisation’s future course of action.
• SWOT analysis is one of the tools employed to analyse an organisation’s strategic capabilities.
• Strategic capability refers to the resources and competencies that an organisation requires in order to continue surviving at the marketplace and to prosper.
• Other tools used to analyse an organisation’s strategic capabilities include value chain and value network analysis, activity mapping, and benchmarking. This article concentrates on SWOT analysis.
Figure 1: Tools for analysing an organisation’s strategic capabilities
• An organisation’s environment produces both threats and opportunities. However, different companies operating under the same environment have different capabilities. For example, Apple and Techno produce smartphones in the same market but Apple is a superior performer than Techno.
Why this difference? There are three concepts that bring about this kind of differentiation:
- Organisations are not identical but possess different strategic capabilities.
- One firm cannot copy another firm’s capabilities, for instance Techno cannot acquire Apple’s management or experience.
- An organisation might possess a competitive advantage relative to competitors by possessing rare, hard-to-copy capabilities.
• Essentially, SWOT aims at investigating the degree to which strengths and weaknesses are capable of dealing with changes occurring in the business environment.
In writing a SWOT analysis during strategic analysis, managers usually consider internal strengths and weaknesses at the top row of a 2 x 2 matrix. External threats and opportunities occupy the bottom row of the matrix. Figure 1 shows the 2 x 2 matrix and the general factors that are considered.
Johnson, G, Scholes, K & Whittington, R 2008, Exploring Corporate Strategy: Text and Cases, 8th edn, Pearson Education, Essex.
Helms, M & Nixon, J 2010, ‘Exploring SWOT analysis – where are we now? : A review of academic research from the last decade’, Journal of Strategy and Management, vol. 3, no. 3, pp. 215 – 251.
Table 1: SWOT analysis matrix and sample factors
Specific tips on how to write a SWOT analysis during strategic analysis
1. Using an organisation’s latest annual report
From the annual report, the CEO’s opening remarks can give a hint of SWOT factors relevant to the organisation. Taking specific examples;
• Research initiatives can be judged from the financial section. From here, it is possible to see how much the company has invested in R&D. To be useful, this has to be compared to the industry or to the company’s competitors.
• Organisation resources can also be obtained from the company’s balance sheet (for financial stability) or to ascertain whether the company has allocated enough financial resources for the acquisition of new resources.
• Brand identity can be established from online magazines or newspapers. A company’s brand value can be obtained from rankings of the world’s most valuable brands. For instance, http://www.forbes.com/powerful-brands/list/ (see discussion on online sources of SWOT factors).
Weaknesses are the converse of strengths. For example;
• Lack of good brand image and/or identity, poor R&D initiatives, lack of skilled workers etc as identified in the strengths.
Note: These are useful if they can be compared to the industry standard or to competitors
• Cheap and readily available materials might give a firm a cost advantage. For instance, a steel company such as AcelorMittal might stumble upon several mines rich
in iron ore. This can enable the company to produce large quantities of steel at low energy cost, thus giving the company a cost leadership advantage.
• Demand for goods and/or services represent an opportunity. For instance, there is great demand for Samsung’s new Smartphones, the Samsung Galaxy S4 and now the Samsung Galaxy S5.
Threats can be deduced from the company’s annual report. A company’s Form 10-K usually lists some threats (in the form of risks) which the company faces. This includes:
• Reduced demand for goods due perhaps to changing consumer preferences, technology etc. For example consumer preference of digital cameras is a threat to traditional film-processed camera manufacturers.
• Unfavourable Governmental regulations, legislations, regulators can affect business.
For instance, the market for Personal Navigation Devices (PNDs) manufactured by companies such as TomTom may be adversely affected if governments of countries such as Australia and Canada ban such devices due to the accidents which they are thought to cause. Such issues may be mentioned in a company’s annual report.
2. Use of other sources
Some of the sources mentioned here are also mentioned in this post that I have written discussing on how to write PESTEL analysis.
• To write a SWOT analysis, industry publications and surveys are useful for obtaining additional information. For example, for the airline industry, we have publications such as CAPA, ATW, IATA annual review etc which can be found online. There also exist publications made by national authorities for instance, Indian Aviation Authority (IAA), British Aviation Authority etc. These authorities usually release comprehensive annual surveys or reports.
3. Use of online sources
This post that I have written discusses some aspects mentioned here. Points to note are:
• In writing SWOT analysis, only reputable news sources should be used for example TheGuardian, BusinessReview, and CNN etc.
• When searching, typing a phrase like “Toyota, BusinessReview, research and development” may yield news articles related to the company’s research and development. More articles may obtained by searching within the newspaper/magazine’s search box.
Examples of SWOT analysis – SWOT analysis for EasyJet