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5.2: SWOT Framework

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    53975
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    Chess master Bruce Pandolfini has noted the similarities between business and chess. In both arenas, you must understand your own abilities as well as your flaws. You must also know your opponents, try to anticipate their moves, and deal with considerable uncertainty. A very popular management tool that incorporates the idea of understanding the elements internal and external to the firm is SWOT (strengths, weaknesses, opportunities, and threats) analysis. Strengths and weaknesses are assessed by examining the firm, while opportunities and threats refer to external events and trends. These ideas can be applied to individuals too. Below are examples of each element of SWOT analysis for organizations and for individuals who are seeking employment.

    Table 5.1 SWOT
    SWOT point Organizational Examples Individual Examples
    Strengths Having high levels of cash flow gives firms discretion to purchase new equipment if they wish to. Strong technical and language skills, as well as previous work experience, can help individuals rise above the competition.
    Weaknesses Dubious leadership and CEO scandals have plagued some corporations in recent years. Poor communication skills keep many job seekers from being hired into sales and supervisory positions.
    Opportunities The high cost of gasoline creates opportunities for substitute products based on alternative energy sources. The US economy is increasingly services based, suggesting that individuals can enjoy more opportunities in service firms.
    Threats Concerns about worldwide pollution are a threat to petroleum-based products. A tight job market poses challenges to new graduates.

    Porter’s Five Forces analysis examines the situation faced by the competitors in an industry. Strategic groups analysis narrows the focus by centering on subsets of these competitors whose strategies are similar. SWOT analysis takes an even narrower focus by centering on an individual firm. Specifically, SWOT analysis is a tool that considers a firm’s strengths and weaknesses along with the opportunities and threats that exist in the firm’s environment (Table 4.12).

    Executives using SWOT analysis compare these internal and external factors to generate ideas about how their firm might become more successful. In general, it is wise to focus on ideas that allow a firm to leverage its strengths, steer clear of or resolve its weaknesses, capitalize on opportunities, and protect itself against threats. For example, untapped overseas markets have presented potentially lucrative opportunities to Subway and other restaurant chains such as McDonald’s and KFC. Meanwhile, Subway’s strengths include a well-established brand name and a simple business format that can easily be adapted to other cultures. In considering the opportunities offered by overseas markets and Subway’s strengths, it is not surprising that entering and expanding in different countries has been a key element of Subway’s strategy in recent years. Indeed, Subway in 2020 had operations in 111 nations.

    The SWOT framework is developed by synthesizing the information developed from the external, competitive, and internal assessments. The most important information from these assessments is pulled into the SWOT framework. Once complete, the SWOT is helpful in determining the strategic issue facing the organization. SWOT is also beneficial is developing the strategies for the firm.

    A busy street in Shanghai. Businesses, movie theaters, and restaurants line the sides of the street.
    Figure 5.1: China’s huge population and growing wealth makes it an attractive opportunity for Subway and other American restaurant chains.

    SWOT analysis is helpful to executives, and it is used within most organizations. Important cautions need to be offered about SWOT analysis, however. First, in laying out each of the four elements of SWOT, internal and external factors should not be confused with each other. It is important not to list strengths as opportunities, for example, if executives are to succeed at matching internal and external concerns during the idea generation process. Internal environment assessment tools such as VRIO and Value Chain Analysis can lead to organizational strengths and weaknesses. Using external environment analysis tools like PESTEL and Porter’s Five Forces help to determine opportunities and threats. Second, opportunities should not be confused with strategic moves designed to capitalize on these opportunities. In the case of Subway, it would be a mistake to list “entering new countries” as an opportunity. Instead, untapped markets are the opportunity presented to Subway, and entering those markets is a way for Subway to exploit the opportunity. Finally, and perhaps most important, the results of SWOT analysis should not be overemphasized. SWOT analysis is a relatively simple tool for understanding a firm’s situation. As a result, SWOT is best viewed as a brainstorming technique for generating creative ideas, not as a rigorous method for selecting strategies. Thus the ideas produced by SWOT analysis offer a starting point for executives’ efforts to craft strategies for their organization, not an ending point. The SWOT framework is also very helpful in determining the strategic issue facing the firm that will need to be addressed and resolved through the strategies that are developed.

    Table 5.2 SWOT Analysis for Subway in 2020
    Strengths
    • Healthy menu options
    • Economical pricing
    • Simple business format
    Weaknesses
    • Limited menu items
    • High employee turnover
    • No hamburgers or french fries
    Opportunities
    • Untapped international markets
    • Movement to more healthy eating
    Threats
    • Competitors offering more options
    • Long-term economic slow-down due to pandemic

    In addition to organizations, individuals can benefit from applying SWOT analysis to their personal situation. A college student who is approaching graduation, for example, could lay out her main strengths and weaknesses and the opportunities and threats presented by the environment. Suppose, for instance, that this person enjoys and is good at helping others (a strength) but also has a rather short attention span (a weakness). Meanwhile, opportunities to work at a rehabilitation center or to pursue an advanced degree are available. Our hypothetical student might be wise to pursue a job at the rehabilitation center, where her strength at helping others would be a powerful asset, rather than entering graduate school, where a lot of reading is required and her short attention span could undermine her studies.

    Section Video

    Business strategy-SWOT analysis [03:08]

    The video for this lesson discusses SWOT analysis.

    You can view this video here: https://youtu.be/9-NWhwskTO4.

    Key Takeaway

    • Executives using SWOT analysis compare internal strengths and weaknesses with external opportunities and threats to generate ideas about how their firm might become more successful. Ideas that allow a firm to leverage its strengths, mitigate or resolve its weaknesses, capitalize on opportunities, and protect itself against threats are particularly helpful.

    Exercises

      1. What do each of the letters in SWOT represent?
      2. What are your key strengths, and how might you build your own personal strategies for success around them?

    Image Credits

    Figure 5.1: Jonathan. “Nanjing Lu.” CC BY-NC-ND 2.0. Retrieved from https://flic.kr/p/7vi4uK.

    Video Credits

    365Careers. (2017, July 4). Business strategy-SWOT analysis [Video]. YouTube. https://youtu.be/9-NWhwskTO4.


    5.2: SWOT Framework is shared under a CC BY-NC-SA license and was authored, remixed, and/or curated by Kennedy et al..

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