SWOT Analysis - Definition & Importance

What is SWOT Analysis?

SWOT analysis stands for strengths, weaknesses, opportunities and threats. SWOT analysis is defined as a method in which one can study, evaluate and understand the various aspects of a company in the field of marketing & business. The factors which determine the market position of a company or brand are highlighted by reviewing the intrinsic factors & extrinsic factors in the SWOT. The definition of SWOT analysis can be elaborated more as discussed below.

Importance of SWOT Analysis

SWOT analysis is essentially used by companies, business ventures etc to evaluate new opportunities or existing businesses in a structured way & help them significantly in marketing. It helps the company to identify their strong points which can be made stronger, understanding vulnerabilities which can be eliminated, tapping unexplored opportunities and be prepared for possible threats in the future. Hence, SWOT analysis for any brand or company gives a holistic understanding of the business and its current market position. SWOT analysis, along with Porter five forces & PEST analysis are some of the important market analysis framework tools.

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Understanding SWOT Analysis in details

SWOT Analysis can be explained as follows. Strengths and weaknesses aspects of a business, company or brand are basically intrinsic factors defining the business. It covers the strong and weak points of an already running business. On the other hand, opportunities & threats are extrinsic factors. These external factors basically are dependent on the industry scenario, competitor activity etc. Hence covering both the internal and external factors in the SWOT analysis helps identify the current market situation for a company in terms of its strengths, weaknesses, opportunities & threats respectively.

The above image shows the various elements which define SWOT analysis.

Elements of SWOT Analysis:

Strengths, weaknesses, opportunities & threats in a SWOT as a marketing analytical tool can be evaluated & defined by considering the following factors:

STRENGTHS:

The below mentioned points highlight the strength parameters in SWOT:

1. Strengths cover the strong points of a business

2. Advantages that the company has over some of its competitors

3. What are the product differentiation & other marketing strategies used which stand out

4. Extent to which the brand, company or service is appreciated by the customers

5. Value proposition and USP offered by the company

6. Cost reduction strategies, optimum supply chain strategies etc can all be strengths for a company

Thus, strengths in the SWOT for any brand or company are aspects of a business which yield positive results for the company/ brand.

WEAKNESSES:

Weaknesses in SWOT can be explained based on the following:

1. Processes or policies reducing profits & increasing losses

2. Ideas or concepts in business which are a hindrance in growth

3. Reasons for a negative perception among customers

4. Strategies which can be avoided or improved

Weaknesses in SWOT basically highlight all those factors which are an obstacle in business growth, hurting profits, increasing costs & giving advantage to competitors in the industry.

OPPORTUNTIES:

Opportunities in SWOT are explained as below:

1. Some things which competitors are doing better

2. Understanding future trends & being prepared well in advance

3. Improving further on existing strengths & reducing some of the weaknesses

4. Tapping newer markets by geographic expansion, new product development etc

5. Thoroughly studying government policies & regulations which can benefit the business

Hence, opportunities in the SWOT analysis of a company are the areas of improvement & prospects for business growth.

THREATS:

Threats in SWOT are covered by the following:

1. Better things being done by competitors

2. Quick changing technology which would be difficult to adapt to

3. Increasing prices of raw materials, commodities etc or fluctuating global markets which can reduce margins

4. Debts, loans etc which are to be repaid

Therefore, threats in SWOT are basically external market factors like government policies, competitor activity, industry trends etc which can directly have an adverse effect on the business of the company.

Advantages of SWOT Analysis for a business:

The benefits of SWOT analysis can help prove beneficial for a business. Some advantages of SWOT are:

1. Gives an overview of a business’ current market scenario and position vis a vis its competition

2. SWOT gives areas of improvement, processes which can be increased and things which can be avoided to increased business profitability

3. It can help companies identify business opportunities and be prepared for the future

4. Helps understand one’s own business better

5. Create and revise business goals

Disadvantages of SWOT Analysis for a business:

SWOT analysis has certain limitations beyond which it cannot give a complete analysis of a company. Some disadvantages of SWOT are mentioned below:

1. It highlights the problems but doesn’t offer solutions

2. Identifying high priority areas & strategies cannot be done using SWOT analysis

3. One can only comprehend and guess future trends, which directly impact the opportunities & threats

Hence, this concludes the definition of SWOT Analysis along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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