Introduction to the SWOT Analysis: The Art of Conducting a Situational Analysis

Introduction to the SWOT Analysis: The Art of Conducting a Situational Analysis

In February of 2011, international book and
music retailer Borders Group Inc. declared bankruptcy. After forty years in business,
and almost 20,000 employees, Borders had finally succumbed to competitive pressures as well
as the disruptive impact of technology. A product of the harsh and changing business
landscape, Borders, along with many companies, failed to accurately assess its business and
the possible disruptions to it. In this week’s video, we’re going to re-explore
the popular evaluative tool: The SWOT Analysis. And discuss how we can use the SWOT Analysis
to gain a better understanding of our businesses, products, industries, and even ourselves. Chances are you’ve at least heard of the term
SWOT Analysis. But what actually is a SWOT Analysis? And how can it be used to gain a
better understanding of our own businesses as well as the environment that they operate
in? Well a SWOT analysis is actually a tool used to help an investor, business-owner,
and really anyone for that matter, gain a better understanding of an entity of some
kind. From an investor perspective, the SWOT analysis is often used to complete an objective
assessment of a business, but the same analysis can actually be conducted on an industry,
product, or even an individual. The acronym SWOT represents four distinct areas: strengths,
weaknesses, opportunities, and threats. Each area of the SWOT analysis is designed to better
familiarize the one conducting it with the internal working of the business as well as
the external forces affecting that business. Strengths represents internal characteristics
of the business that provide it with an advantage over others. Basically these are areas in
which the business excels and is often a source of a competitive advantage. Common strengths
include: brand recognition, brand loyalty, a strong financial position often indicated
by an abundance of cash, a skilled and committed workforce, possible intellectual property
such as patents and trade secrets, and even significant cost advantages. For example,
Amazon made a name for itself by originally selling books online at discount prices. The
strength that put Amazon in a position to be able to offer those discount prices was
its ability to maintain a cost advantage. By avoiding the overhead associated with traditional
retail establishments, Amazon was able to price products for much lower than traditional
brick-and-mortar book sellers such as Barnes and Noble and Borders. Popular membership
wholesaler Costco benefits from a more talented and committed workforce relative to the retail
industry. This benefit, partly the result of paying higher than normal wages and providing
health insurance to part-time workers, serves to reduce voluntary turnover and make a more
seasoned workforce. The important thing to remember about strengths is that they provide
the business with a significant advantage and are often difficult to mimic. The other
thing to remember is that they represent internal characteristics, meaning that the company
has some control over their development and implementation. Weaknesses represent internal characteristics
of the business that put it at a disadvantage in relation to competitors. Essentially these
are areas in which the business does not excel and can serve as liabilities in the future.
Although coming to terms with our weaknesses is never fun, doing so allows us the opportunity
to devote the time and energy necessary to improve in those areas. From a business perspective,
weaknesses make a company vulnerable to competitors, which is why if a weakness is identified it’s
typically a good idea to attempt to lessen the significance of it. Weaknesses often include:
negative brand reputation, poor product quality, an uncommitted workforce, inexperienced or
otherwise poor quality management, aging equipment and technology, poor distribution networks,
and even and uncomplimentary organizational structure. Notice that like strengths, weaknesses
represent internal characteristics. Meaning they can be controlled by the business to
some extent. Consider the impact of a poor distribution network. Even if the business
produced goods and services that were in demand, it would have little significance if those
goods and service couldn’t be offered in such a way that consumers could readily purchase
them. The next element of the SWOT analysis are
opportunities, which represent possible changes in the business’s external environment that
can benefit the company if taken advantage of. These opportunities are what we refer
to as external factors, meaning that the business does not have the ability to control them.
The best that the business can do is anticipate them, and adapt to them. Opportunities, if
leveraged properly, can turn into strengths in the future. Common opportunities include:
changes in consumer preferences, new developments in technology, relaxing government regulations,
the removal of trade barriers, and even the altering demographics of a society. Take for
instance the societal shift towards a healthier lifestyle, which represents a change in consumer
preferences. This change brought about a great deal of opportunity for many different types
of businesses. Many grocery stores and restaurants began to diversify their product offerings,
incorporating organic, gluten-free, and low-fat food alternatives for consumers. Technology
also represents a significant opportunity–as well as possible threat–to many businesses.
Companies such as Dell, Ebay, Amazon, Netflix, and even more recently Uber, have all found
a way to leverage advances in technology in order to provide value for their consumers.
From a business perspective it’s always important to be scanning the environment for possible
opportunities, as they can serve as a unique advantage for companies if leveraged. The last element of the SWOT analysis are
threats. Like opportunities, threats are based on changes in the business’s external environment.
However threats can harm the company in some way if they are not addressed. Truthfully,
many threats were once likely opportunities that the business failed to either identify,
or maybe they identified the threat but downplayed its significant. Either way, the business
failed to make a concerted effort to insulate itself from the threat. Common threats can
include: changing consumer preferences, new developments in technology, impending government
regulation, expiring patents, and even the emergence of new competitors. Expiring patents
can be a significant threat to pharmaceutical companies. Now the possession of valuable
patents is certainly a strength, but a patent that is expiring is like the equivalent of
blood in the water. And that blood in the water tends to attract competitors who can
now sell generic versions of the medication. New government regulation and taxes, another
thing that business’s can’t directly control, can be a substantial threat as well. Consider
the highly debated tax on medical devices that is part of the 2010 Affordable Care Act.
Many argue that this tax on medical devices will make it far to expensive for medical
device manufacturers to create products such as hip joint replacements and heart stints,
and force them to offshore production in an effort to keep costs down. One survey predicted
a loss of 43,000 jobs in direct response to the tax. Although there is a possibility this
tax will be delayed as congress continues to attempt to craft a working budget and raise
the debt ceiling, it still represents a credible threat to relevant businesses who should be
attempting to minimize the affects caused by its implementation. This has been Introduction to the SWOT Analysis.
For questions please leave them in the comment box below and I’ll do my best to get back
to those in a timely fashion. And remember to subscribe to Alanis Business Academy to
have our latest videos sent to you while you sleep. Thanks for watching.

26 thoughts on “Introduction to the SWOT Analysis: The Art of Conducting a Situational Analysis

  1. Very clear and in such a concise time – bravo
    I have a question though – As a student I have a SWOT analyses to conduct based on an extact of Armani's group diversification and its opening of a hotel in Dubai (already done) I still find it not that easy to conduct the swot – Is it necessary to make researches or should it be conducted only with the information provided by the article – hope my question is clear enough – thanks for your answer

  2. Superior Knowledge, Thanks

    I was moving in life very clueless and achieving no goals and my family was unhappy with me.

    One of my friend introduced me to the concept of SWOT and after then , life has changed for me a lot.

    I am using iPhone app called "mySWOT" to utilize my Strengths, overcome Weakness, seize Opportunities and avoid Threats.

  3. Core managerial competencies and learning organization concept… Mr Matt can we please have lectures on these two management topics? Thank you for your effortless work. I personal adore your effort sir

  4. Thanks…This video has been a great help. Even my college lecturer recommended ur links in class. The best ever πŸ™‚

  5. Could you possibly do Ansoffs Matrix? that would fit in nice with all the strategic analysis ur lecturing on πŸ™‚ btw love ur videos

  6. amazon although has cost advantages the organisation has never make substantial profits in fact in a financial loss situation despite its cost advantage. I am the disadvantages of online is despatching of goods globally is the costs involved in despatching and time consuming compared to brick and mortar shop.
    I worked in university bookshop chain and we may have 6 operators working the tills but we can turnover alot more money in a short time then despatching books online which is very labour intensive and the use of packing materials instead of a bag for the customer. Also, customer come to shop and tend to buy more goods on display then online shop

  7. Thanks for your help! through you i passed my introduction management course. God bless you! alanis business academy! πŸ˜‰

  8. I have been assigned for the assignment in Tesco company to define about the SWOT Analysis. When I written about the weakness for that company, is it going to be a bad thing or just the one they need to improve.

  9. Hi, is it true that SWOT analysis is more usfull in the operational planning more than in the strategic planning?

  10. Have to admit…very insightful. Liked, how I was focused on the screen instead seeing a person talking (sometimes distracting).

  11. Very well explained, I have more clarity now. Your presentation skills are so good that it helped me stay focused. Thanks a lot!

Leave a Reply

Your email address will not be published. Required fields are marked *