We know that Business strategy analysis has two main branches. Analysis of a firm’s external environment and analysis of a firm’s internal environment.
SWOT is a famous framework that allows us to combine the two types of analysis. SWOT is sometimes referred to as an internal-external analysis. SWOT stands for Strengths Weaknesses Opportunities and Threats.
The first two, strengths and weaknesses are related to a firm’s internal environment while the last two opportunities and threats consider its external environment.
SWOT analysis can be used when analyzing industries companies’ products, new initiatives, policies or even people. It is a simple and useful framework that allows us to group and visualize strengths and weaknesses and to identify potential threats and opportunities that exist in the external environment. In addition, the SWOT framework could be useful when you want to understand the areas in which your firm performs well and the ones that need improvement.
So if we perform a company analysis under strengths we would expect to see its core competencies the areas where the business itself and has a competitive advantage over competitors an example of a firm strength could be its strong brand recognition.
Weaknesses are areas that need improvement, such vulnerabilities place a company at a disadvantage when competing against other firms. Usually, the disadvantage results from other companies having a competitive advantage an example of a weakness are higher cost structure.
Opportunities can be seen as favorable factors existing in a company’s external environment in the industry where it operates and has the potential to improve its current results and competitive position taking advantage of opportunities depends on how skilled accompanies top management teammates to take advantage of an opportunity. The management must be able to recognize opportunities when they arise and then act accordingly when the time is right an example of an opportunity is the advent of a new technology the company can exploit to expand its product offering.
The last of the four elements of SWOT analysis is threats. Threats arise in a company’s external environment and might harm its current business but if you can identify a threat you can lessen its impact by taking precautions, an example of a threat is the entry of a strong competitor with access to advanced technology.