A SWOT analysis is a process carried out by business leaders or project managers to help determine where they currently stand in the market, what avenues are open to them, and what potential dangers they could imminently face. The reason why this technique is so popular, and is still being used by businesses some 50 years after its initial inception, is that despite its apparent simplicity; carrying out a SWOT analysis often uncovers something of note – be it positive or negative – that would have likely gone unnoticed otherwise.
The 'SWOT' part of the SWOT analysis is an acronym of the four key aspects that this particular business analysis process looks at: Strengths, Weaknesses, Opportunities, Threats. On face value it may seem like the same thing mentioned twice, but there is actually a very useful and clear distinction. When looking at Strengths and Weaknesses you are focusing on your business' qualities. Where do you excel? And where do you falter? Trying to identify your Opportunities and Threats on the other hand encourages you to look outside your business. What new technology is available that you can make use of? And is there any new technology that could possibly make any of your products or services obsolete?
These are only examples of the kind of things you would need to take a look at when conducting a SWOT analysis. When you're actually carrying out this kind of analysis you will be delving into a wide range of internal and external factors, and you will find the more thorough you are the more reliable the findings will be. This does not mean that you have to be overly critical of your business, but it is imperative that you approach the task with objectivity and impartiality.
Thinking that your business is stronger than it is, for whatever reason, will cause you to overlook weaknesses, miss opportunities and fall prey to undiscovered threats. However on the flip side of that, if you choose to be overly conservative and view your business as being in a weaker position than it really is, you will deem some achievable opportunities as being out of reach and overreact to threats that would otherwise have had little impact.
Remember, running a business is rarely smooth sailing. You will always experience fluctuation, and a small dip one month does not mean you have overlooked a threat, and likewise a month that exceeds forecasts is not indicative of a taken opportunity come to fruition. A SWOT analysis does not work like that. You will not see direct improvements as a result of carrying one out, but you will have a better idea of which direction would be best to steer the business toward next.
A SWOT analysis is supposed to make you take a good look at the long-term history and future of your business. Your current strengths and weaknesses are the results of the opportunities you took, the opportunities you missed, and the threats you were unaware of and ill-prepared for. How you react to the threats and opportunities that your SWOT analysis makes you aware of will determine the strengths and weaknesses listed in your next analysis, and in many ways it is not until your second time around that you will see the real benefits of carrying out a SWOT analysis.
The practical applications of a SWOT analysis are numerous, and they are often carried out around the start of a calendar or financial year to help with the formulation of business plans and marketing strategies, and the establishment of long-term aims and short-term goals. They are also carried out as part of an internal audit, prior to the 'new product development process', and are essential when planning business expansion.