SWOT analysis is a commonly used business analysis technique that corporations employ when they want to better understand where their company stands in regard to the social environment. The first professional modern use of the SWOT analysis is credited to Albert Humphrey during his use of the concept in his research project concerning corporate planning in the 1960s and 1970s (Morrison, 2016). The SWOT matrix considers several key factors when examining a company’s situation in the industry climate; these factors are internal, such as Strengths and Weaknesses (revealed by audits within the organisation), as well as external, such as Opportunities and Threats (based on input from stakeholders) (Valentin, 2015). This essay will review the effectiveness, accuracy and limitations of the SWOT analysis as opposed to other analysis techniques.
The SWOT matrix consists of two sections, internal and external which are then divided up further into Strengths and Weaknesses (internal) and Opportunities and Threats (External). The internal factors are taken into consideration so that the company has a thorough understanding of its inner workings and can realize which parts of the organization are working towards goals effectively (strengths) and which aren’t (weaknesses). The external factors are those which the organization has less control over, such as opportunities and threats, however this does not mean that they have no control (Strategy Formulation and Implementation, 2015).
Using the SWOT analysis concept offers several advantages. Firstly, the SWOT matrix takes into account both external and internal influences on an organisation, this is something some other analytical techniques don’t do. For example: the PEST/PESTLE analysis only examine external contributors to the business environment such as political, technological and social factors. Breaking down the SWOT concept shows us how each part of the concept can help improve the organisation. Once the organisation knows its weaknesses, it can work towards limiting the damage those weaknesses may cause or get rid of them entirely. Similarly, once their strengths are clear, steps may be taken to reinforce these positive traits. For example: A SWOT analysis for American Express showed that one of their key weaknesses was and overdependence of revenue from one source, which it has since been diversifying by adding new products as forms of revenue. The same analysis showed that one of American Express’ strengths was operational performance so this is an area where they could improve or stay consistent (American Express Company SWOT Analysis, 2019).
Secondly, having broad categories for external factors allows a larger range of factors to be listed into the external contributions in the analysis. Where in PEST and VRIO each external factor has specific categories based on the type of externality (which can lead to some points being left out), most external factors in the SWOT matrix can be placed into one of the subcategories. This means that most information that would available to us in PEST would also be available to us in a SWOT analysis. The same applies to VRIO, the value, imitability, rarity and organization of the company’s resources can all be categorized into of the four subcategories available in SWOT.
Thirdly, something SWOT analysis has over most other analytic tools is the fact that not only does it show flaws in the organisation but it also shows strengths and more importantly opportunities. Corporations can discover new prospects to take advantage of. For example: Nippon, a Japanese paper manufacturer recently released a SWOT analysis in which their main threat was ‘fluctuation of exchange rates’. However, ‘increasing demand in the Japanese market’ was recognized as an opportune area for Nippon (Marketline, 2019), hence, not only did the analysis reveal a problem which would have hurt the corporation in the future, but it also provided a solution in another part of the same analysis. These inbuilt recovery strategies also known as strength-opportunity strategy, strength-threat strategy, etc. are an integral part of a good SWOT analysis (Reimer, 2017).
However, as useful as a SWOT analysis can be, it is not perfect. As Reimer (2017) said, as general as a SWOT analysis is, it cannot take into account all the processes in an organisation. It may not take into account competencies such as positive organisational culture. For example: employees at google operate in a very comfortable and pleasant work environment. They are encouraged to take breaks every now and then and relax and socialise with their peers and failure is not punished but encouraged as a learning experience (Forbes Technology Council, 2018). This work environment may be criticized in other corporations as lazy and inefficient, but Google has proved that this comfortable work environment works in its favour, something that may be lost in a SWOT analysis.
Another downside to the SWOT matrix is that all points added to the lists are added by humans which means there is a lot of subjectivity involved and since there is no premeditated criteria as to what is a strength, weakness, opportunity or threat, there is a clear lack of objectivity in this form of analysis. This can also lead to confusion and miscounting as some factors may qualify as both weakness and threat. For example: if a company has a poor pricing policy, this may be a weakness however, the same point may be made under the threat column as something like ‘competitors have a competitive advantage in pricing’.
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