FAQ: What is a SWOT analysis?

SWOT Definition

SWOT stands for:

• Strengths
• Weaknesses
• Opportunities
• Threats

A SWOT analysis is used to evaluate the relationship between a company’s internal resources (strengths and weaknesses) and external possibilities (opportunities and threats). The SWOT analysis can be used in many areas of a company, including products, divisions, and services.

Purpose of a SWOT

The purpose of a SWOT analysis is to provide an overview and understanding of the forces, trends and characteristics of a particular market. SWOT analyses aid in making informed choices about what actions to take to maintain a company’s competitive advantage and increase its ability to achieve its goals and objectives.

What information is included?

• Strengths: factors that make a company more competitive than its rivals, and the capabilities and resources that the company can use effectively to achieve is performance objectives.
• Weaknesses: limitations, faults or defects within the company that can prevent it from achieving its objectives.
• Opportunities: favorable current or prospective situation in the external environment (trends, changes, etc) that permit the company to enhance its competitive position.
• Threats: unfavorable situation, trend or impending change in the external environment that currently or potentially threatens the company’s ability to compete.

After listing strategic factors in these four categories, the SWOT analysis then analyzes the factors and identifies strategic possibilities. This is done by evaluating strengths in light of opportunities, weaknesses in light of opportunities, strengths in light of threats, and weaknesses in light of threats. The result of this analysis indicates the degree of strategic change the company must make.

More information

SWOT analyses, as well as examples:

• SWOT Analysis (includes templates) (BusinessBalls)
• Section 14. SWOT Analysis (University of Kansas)

References

Bensoussan, B. E., & Fleisher, C. S. (2008). SWOT Analysis. In, Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions. Upper Saddle River, NJ: Pearson Education.