SWOT analysis – definition

The SWOT analysis belongs to the most often applied methods of strategic analysis of an enterprise (other popular methods embrace: SPACE analysis, ASTRA method). It can be applied universally, as it simultaneously serves analysis of macro-surrounding, competitive environment and evaluation of strategic potential of an enterprise.

This approach arose on the basis of a concept of a force field analysis, developed by K. Levin in 1950s. However, it was too complex and complicated to become widely applied, hence simpler methods begun to appear, which encompass among other the SWOT method.

This is a method that combines examination of the enterprise’s surroundings with its interior. Thanks to the SWOT method, there are such assets of applying strong sides of a company looked for that make it possible to use opportunities appearing in the surroundings, with simultaneous elimination of weaknesses and avoidance of threats.

SWOT is an acronym of the following words:
S – Strengths
W – Weaknesses
O – Opportunities
T – Threats

SWOT is one of the basic methods of strategic management. It regards two main stages of management, i.e. strategic analysis and formulation of a strategy. A strategy accepted on the basis of the SWOT method is determined through matching strong and weak sides of an enterprise with opportunities and threats present in the environment. The highest significance for success of the performed analysis is born by adequate specification of strong and weak sides of a company, as well as existing threats together with prognoses.

Identification of strong and weak sides of an enterprise is conducted in relation to a pattern of a perfect business or to a model competitor. In the latter case, one’s own company may be compared to the most dangerous competitor or a group of competitors. The company that is compared with those entities does not necessarily need to be from the same branch. It permissible that when a selected leader operates outside a given sector, but it is desired to apply his solutions into one’s own business.

Examination of strong and weak sides is conducted in relation to all fields of company’s operation, or by limiting to chosen spheres (e.g. market, finances, etc.). Aim of the diagnosis is decisive here. After choosing strong and weak sides, we need to confront them with the surroundings. Hence, this approach is called “from the inside towards the outside”.

Numerous individuals, while performing the SWOT analysis, forget that it is not limited just to recognition of a strategic position of a given organization, but it also helps to form a strategy for a company or propose changes in the already realized strategy of development. However, choice of a strategy should not be based just on results of SWOT analysis. Mission of the company and its main aims also need to be taken into account. The process of determination of a strategy is especially complicated here, although some modifications can be encountered, e.g. SWOT/TOWS analysis.

The SWOT analysis can be widely applied, and the manner of its application regards our needs and creativity. It is a part of each business plan, but it can be used for example for a political party with success. There are SWOT analyses written for the needs of local self governments and great corporations. It may be also prepared for a particular person, e.g. it is recommended to perform the SWOT analysis in case of individuals, who seek a career path proper for them.

Especially, this method is applied for diagnosis of a general situation of a company. It should be drawn up with strict cooperation of the company’s management, because this is the management staff that knows the company’s condition to the highest extent. It is worth using support of experts and advisors. Their participation will allow to take a wider look on the problem.

Apart from implicit advantages of the SWOT analysis (among others, simplicity, complexity, an opportunity to perform evaluation), there are also some disadvantages highlighted. One of them that often is put forward is subjectivity of persons, who perform the analysis. Another refers to decisions that satisfy the majority or introduce average values. It does not mean that we should resign from it, nevertheless we should be aware of this fact while interpreting results.

It is beneficial to apply the SWOT analysis because knowledge poses a powerful weapon. What is more, it is much better – in financial terms – to make mistakes on a paper, not in reality. Moreover, time can be saved, as otherwise it would be spent on implementation of incorrect decisions. Last but not least, this analysis is useful, when you feel that you are at a dead point, you do not know what to do. Perform it at least in an inaccurate manner, to make a try, to move on.