Definition of concept
One of the most popular and most used methods of assessing the complex internal and external factors which affect the company's development is SWOT analysis. It is an overview of the organisation's strengths and weaknesses, as well as external climate opportunities and risks. "S" and "W" refer to the status of the company, and "O" and "T" apply to the external environment of the organization.
SWOT analysis is a preliminary research phase in the preparation of strategic plans, the development of strategic goals and objectives of the company.
Kenneth Andrews first employed the word SWOT at Harvard at a business policy conference in 1963. English term: SWOT analysis.
Key parameters of SWOT analysis
SWOT stands for:
Strengths - Strengths
Weakness - weaknesses
Opportunities - opportunities
Threats - threats.
Based on the results of a situational analysis, it is possible to assess whether the company has internal forces and resources in order to realize the existing opportunities and counter external threats. Accordingly, an analysis of the internal and external situations is necessary.
When assessing the external situation, it is worth considering:
- legislation and political climate,
- expected or possible changes that may affect the company's operation. (Ex: changes in customs legislation);
- the economic situation of a country or region (changes in GNP indicators, possible major changes in the economy, potentially affecting the company, expected inflation);
- socio-demographic factors;
- technology change (waiting for technical innovations);
- ecological environment.
In the process of analyzing the internal situation of the company, the resources of the company, its business processes are evaluated, competitiveness is analyzed.
During the analysis, the wording of the company's sustainable competitive advantages is confirmed or changed. Key analysis factors:
- management (assesses the potential of employees of the company of higher and middle level, their qualifications, motivation, loyalty)
- marketing (including analysis of the communication program (advertising, personal sales, PR), comparison of advertising activity with competitors, the effectiveness of their own marketing efforts);
- staff (especially the work of sales personnel, the level of qualifications and interest, the compliance of motivation programs with the goals and objectives of the organization, as well as the analysis of contacts, new consumers, the cost of maintaining sales personnel);
- analysis of the company's sales system, the needs and requests of trading partners (distribution of sales by members of the distribution network, types of intermediaries, audit of distributors, identification of priority dealers);
- product portfolio analysis (current and expected sales volumes, market share, profitability for each product or product group, quality, brand image) are evaluated;
- priority competitors are analyzed, their market share, possible advantages in costs, price, the image of their goods, their competitive behavior current and possible, their main weaknesses;
- the presence of a sustainable competitive advantage (for example, a resource base inaccessible to the closest competitors or proprietary technologies);
- analysis of pricing policy, the most affordable prices for company products, comparison with competitors' prices, discount policies, and other sales promotion programs and company goals.
Method decoding
The main idea of the SWOT analysis technique consists of an attempt to calculate how each of the possible development paths can affect the success of the enterprise's current, tactical, and strategic business processes. When ranking threats by the degree of impact in the SWOT analysis matrix, the estimated time at which the enterprise will reach a certain degree of destruction is to be determined, and the sooner the economic performance deteriorates, the more considerable attention should be paid to eliminating this threat. After the complete completion of work, based on a SWOT analysis and associated with identifying the greatest threats to the enterprise and identifying priority areas for development that promises the greatest economic effect with the available financial and human resources, the next stage begins to optimize staff work.
The results of the SWOT analysis are recorded in tables.
Crucial to success is always specific actions (activities) related to specific goals and consistently implemented.
The following errors are most often found in SWOT analysis tables:
- Conducting a SWOT analysis without a pre-established common goal. SWOT is not an abstract analysis; its use implies the achievement of a specific goal
- External chances are often confused with the internal strengths of the company, while they should be strictly delineated
- SWOT analysis is often confused with all sorts of strategies. We must not forget the main difference between one and the other (SWOT analysis describes states, and strategy describes actions)
- In the process of SWOT analysis, priorities are not allocated, specific events are not called.