SWOT analysis is approach for auditing a business organization and its environment where it operates. Generally SWOT analysis is the initial stage of planning that helps policy makers and marketers to identify and focus on key issues. The acronym for SWOT is strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal SWOT factors (MarketingTeacher.Com, 2013). Opportunities and threats are external SWOT factors. A strength is considered as positive internal factor. A weakness is considered as a negative internal factor. Similarly, an opportunity is considered as a positive external factor and finally a threat is known as a negative external factor (Ireland, Hoskisson, & Hitt, 2008). Apart from understanding the business environment, another function of SWOT analysis is to turn company’s weaknesses into strengths and threats into opportunities. Moreover it allows management to integrate internal strengths with external opportunities. Theoretically SWOT analysis is that simple. It is expected from SWOT analysis that the outcome should create value for customers and help to get competitive advantage (MarketingTeacher.Com, 2013).
Figure: SWOT analysis framework, Data Source: (MarketingTeacher.Com, 2013)
Strengths refer to those characteristics of a particular business which are unique and give the company advantage over competitors (Ireland, Hoskisson, & Hitt, 2008). For example, a company might have specialist marketing expertise or the company produces new and innovation product and services e.g. Apple I phone, the company might be strategically located, the company may produce best quality and top value for money products or services e.g. Rolls Royce cars, or any other aspect of business which is unique and hard to imitate for competitors would be considered as an strength of the company. If the company has special capabilities, powerful human resource e.g. Google employees, Unique Selling Point e.g. Google Nexus 7- best hardware releases on a tablet PC, powerful financial position e.g. Wal-Mart financial capabilities, economy of scale and global reach e.g. McDonalds and KFC etc. above mentioned qualities can be termed as strengths of a company. Each of these strengths creates price inelasticity and generate loyal customer base (MarketingTeacher.Com, 2013) (Ireland, Hoskisson, & Hitt, 2008).
Weaknesses refer to those characteristics that creates completive disadvantage situation for the business (Ireland, Hoskisson, & Hitt, 2008). For example a company may produce good quality products but due to lack of marketing expertise the company may suffer e.g. in February 2011, HOME DEPOT had to close operation in China (Bhasin, 2012), the company may offer undifferentiated products or services e.g. PC hardware market, the company may be located in inappropriate location, the company may produce poor quality goods or services e.g. Chinese brand-less electronics companies which produces inferior goods, damaged reputation e.g. Domino’s you tube scandal 2009 (Clifford, 2009). These negative internal factors can be termed as weaknesses of a company. These factors often play a negative role in company’s performance and achievements. A company should continuously try to convert its weaknesses to strengths. Sometimes big successful businesses suffer due to inappropriate market strategies and damaged reputations (MarketingTeacher.Com, 2013) (Ireland, Hoskisson, & Hitt, 2008).
Opportunities are positive external factors which a company can capitalize to gain competitive advantages (Ireland, Hoskisson, & Hitt, 2008). For example a company can explore a developing market such as internet e.g. UK retailer predicted that online shopping would be a popular choice in near future so they respond to this change of need (CIPS 2010). Mergers, joint ventures or strategic alliances help a company to generate bigger financial resources and allow the companies to explore more markets e.g. the merger of GlaxoSmithKline plc (GSK), the company can find out new market segments that offer greater profits e.g. McDonald’s targeted children to market its product which was unique marketing strategy at that time. The company can explore a new international market for further expansion. These external factors are known as opportunities which allow a company to integrate its internal strengths with external opportunities for greater profitability (MarketingTeacher.Com, 2013) (Ireland, Hoskisson, & Hitt, 2008).
Threats are considered those external elements which may generate trouble for the business. A company should apply its strengths or try to build new strengths to minimize the risks of external threats. For example a new competitor in the existing market e.g. entrant of Google in electronics gadget manufacturing market possesses threats for existing market leaders like Samsung, Apple or HTC. Price war is a common practice in extreme competitive businesses where switching cost is very low e.g. fast food industry. When a competitor launches new and innovative products that possesses threats for others e.g. innovation of Windows by Microsoft. Additionally competitor’s access to superior supply channels, financial distress situation new tax and legislative changes are considered as threats (MarketingTeacher.Com, 2013) (Ireland, Hoskisson, & Hitt, 2008).
Bhasin, K. (2012). Home Depot Gives Up And Closes The Last Of Its Big Box Stores In China. Retrieved 3 14, 2013, from Business Insider: http://www.businessinsider.com/home-depot-gives-up-and-closes-the-last-of-its-big-box-stores-in-china-2012-9
CIPS. (2010). Case Study Analysis Marks & Spencer (M&S). Retrieved 3 14, 2013, from CIPS: http://profex.co.uk/secureassets/files/M&S Analysis.pdf
Clifford, S. (2009). Video Prank at Domino’s Taints Brand. Retrieved 3 14, 2013, from The New York Times: http://www.nytimes.com/2009/04/16/business/media/16dominos.html?_r=0
Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2008). The Management of Strategy Concepts and Cases. Canada: Cengage- Learning.
MarketingTeacher.Com. (2013). SWOT Analysis. Retrieved 3 14, 2013, from MarketingTeacher.Com: http://www.marketingteacher.com/wordpress/swot-analysis/