SWOT ANALYSIS IN BUSINESS MANAGEMENT
SWOT is an abbreviation of four letters which are:
A SWOT analysis is a simple but effective tool in business management as it leads to portray of an overall strategic position of an entity in a simple one-page look. It is useful for both small and large organizations in most of the circumstances. However, SMEs are more likely to benefit from SWOT analysis because their business environment is not as much complex as MNCs or large corporates. A SWOT analysis can be used by individuals as well, but mainly it is studied/performed from an organization’s perspective. In this article, we’ll talk about SWOT analysis primarily for entities/corporates/businesses.
The primary purpose of SWOT analysis is to:
- Analyze how to utilize your strengths to avail opportunities
- Evaluate and tackle the threats which are being faced due to weaknesses
A SWOT analysis is an excellent planning tool as it persuades to study the elements in both the external and internal environment of the organization and then summarizes and presents them in a simple format for brainstorming and problem-solving.
An organization’s strengths can be referred to as critical resources which it owns/ has. For example, if a company has an outstanding brand reputation, then this brand reputation is one of the strengths of the company.
A strength is something which is positive about the company, and the company already owns that positive feature. This strength is mainly an internal factor to the organization.
Other Examples of strengths: An organization may have the following strengths
- The excellent reputation of the brand
- Skills and strength of the workforce
- Availability of reserves/profits
- Secure network with suppliers, customers, and other stakeholders
- Secret recipes of the products
- Patented rights of different products, processes or formulas
- Installed property, plant and equipment/manufacturing facilities or other assets
From an individual’s perspective examples of strengths are: having good physical health, possession of useful skills and knowledge, ability to communicate effectively, access to key contacts and having some political influence.
No strength of an organization is forever. Strengths may fade over time or may deplete into weakness. Any competitive advantage may diffuse once your competitor achieves the same level of strength.
An organization’s weakness is a lack of necessary resources in tools in its basket. For example, if a company doesn’t have a serious and smart management team, it is one of the weaknesses of the organization.
A weakness is more of an internal feature than external. It is something terrible within the organization itself. It doesn’t come from outside the company.
A weakness can be mitigated either through internal management or external help.
Other examples of weaknesses are:
- Strategy not well defined or no strategy at all
- Lack of sufficient contacts/network with customers, suppliers and other stakeholders
- Unhealthy policies and unprogressive attitude of the management
- Policies, procedures, and systems not well defined
- Lack of wise and visionary leadership
- Lack of availability of funding from the company’s owner
- Geographical boundaries and limitations
An opportunity is something which you have not owned/accessed, but you want to have it because of its potential benefits.
For example, if a person is hungry and a hotel is providing free (or even paid) food, then the food being offered is an opportunity for that person to kill his hunger.
From an organization’s perspective, if a new customer walk-in and inquires about the company’s products or services, this customer (or the potential sale) is an opportunity for the company.
Features of opportunity:
- It is something which is NOT owned/possessed by the company/entity right now
- It is something which is likely to be of benefit for the business
- It is something which will be obtained by exercising company’s strength in the right manner
Other examples of opportunities are:
- Special occasions (like a new year, religious festivals, national holidays) are opportunities for many businesses to boost their sales.
- Opportunity to acquire a competitor or merger. If your competitor is facing difficulty in running the business and wants to sell it, you can acquire your competitor if you have sufficient financing.
- Detailed exercise to redesign the products or introduce new model is an opportunity for the business to introduce a better item and increase its profits
- Government’s announcement to commence a particular project (it may be a construction of a new road, a new bridge or a new building). Once the government starts to spend in a particular industry, it is an opportunity for that industry’s players to obtain the contracts and work for the government and make money.
- A new development in science and technology is an opportunity for the commercial organizations to utilize that new technology in their products/services on an industrial scale. For example, if a new medicine is invented which stops the aging process, it would be an excellent opportunity for pharmaceutical companies to develop that product and sell it on a commercial level.
It is important to realize that one has to wait for some of the opportunities and they arise from external sources like government’s announcement to start a new bridge/road/dam/building. is an opportunity which is not always available. However, certain opportunities are the ones which can be created by the entity. For example, the exercise to redesign s products OR evaluate its internal processes OR restructuring of the business units. These internal opportunities and have to be identified and exploited by the management.
A threat is something which is approaching and will impact the organization in an adverse manner, if realized (or not taken care of).
Simply, you are crossing a road, and a reckless driver is speeding towards you. This is a threat and if you don’t take appropriate action (i.e., step out of the way quickly) timely, this threat may actually become a reality and will impact you adversely.
The example from an organization’s perspective is: An entity has incurred significant losses, and it is short of funding now. If additional capital is not injected or a loan is not secured, there is a threat that the company may fail and go into liquidation.
Threats need to be managed by utilizing your resources (read strengths) effectively. For example, the risk of a regulatory fine for non-compliance of regulations should be avoided by spending money on complying with the statute.
Alternatively, calculated level of threats can also be accepted, if they are not manageable. For example, the threat of entry of new competitors may not be manageable always and have to be disregarded.
Other Examples of threats from a SWOT analysis perspective of an organization are:
- Risk of business failure, i.e., going into liquidation or incurring losses
- A possibility of theft of assets of the company
- A danger of cancellation of license or imposing of fines by the government or other regulators
- Endangerment of the losing agency status/sole distribution rights of the manufacturer
- Likelihood of a strike call from the labor union
- Risk of the cancelation of the company’s trade license or ban on any of the products
SWOT Analysis of British Airlines Incorporation
Now, to understand the concepts of SWOT analysis, we’ll perform a simple SWOT analysis of any one organization. Let’s take the example of British Airlines. If we present a simple SWOT analysis of British Airlines, in its simplest form, it will look like as below:
- Licenses to operate and fly in different regions, parking license at different airports of the world
- Governmental backing concerning financial and logistics support
- Huge Fleet of modern aircrafts
- Experienced management, loyal workforce
- Existing agreements with other airlines as partnerships
- Internal politics among management and staff
- More bureaucratic processes and organizational structure
- Expensive transformation in systems and I.T due to the complexity of operations
- Less scope for cost reduction due to extensive size
- Opportunity to expand in other markets and regions (subject to regulations)
- Opportunity to join hands with other airlines to extend its area of coverage
- Opportunity to diversify in similar activities (like operating airport hotels and car rentals)
- Acquisition of failing competitors to capture market share
- A threat of competitors’ increasing market share
- A threat of accidents and mishaps
- Risk of any Regulatory and compliance regulated regulatory
- Severe weather conditions and the possible loss of revenue due to such conditions
This article was of an introductory level on the topic of SWOT analysis (Strengths, Weaknesses, Opportunities & Threats) including a comprehensive example of the airline industry. There were many smaller examples provided for other industries/sectors.