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SWOT analysis: introduction and use of the method in the business environment If you are even remotely familiar with a business world, you have certainly heard about the competitive environment, strategic planning and business analysis. There are several different methods currently used in the business world and one of the most popular st strategic evaluation tools is the SWOT analysis. SWOT stands for:
SWOT can be further classified in to internal and external factors.
Strength and weaknesses belong to the internal factors, and the opportunities and strength are classified as external factors. Why use SWOT analysis you might ask? Well, it is a very useful and highly effective tool when useful planning for the strategic goals, when trying to analyze the environment the company operates in, and it is a good visual illustration of the challenges company faces.
What is unique about SWOT is that it enables managers and executives to lists the key advantages and disadvantages of the company and matches them with the external factors that will influence the company’s performance in the short and the long run.
To give you a better understanding of the method, let’s look at some of the examples of strength, look weaknesses, opportunities and strength.
Rights to intellectual property; patents. Strong brand. High customer satisfaction. Cost effective methods in operations. Availability of cheap resources. Advantage of a highly efficient and effective distribution networks.
No patents. Weak or no brand developed.
Low customers satisfaction. High cost structure. Expensive natural resources. Poor distribution networks.
As you have probably noticed, strength and weaknesses are exactly the opposites of each other. It is true in a lot of real cases when the strength for one company is a weakness for another. If one has an access to cheap energy and other company doesn’t, the former has the strength over the latter.
Underutilized customer market; there is a room to grow and generate revenue. Modern technologies. Relaxed regulations. Globalization. Since there are fewer barriers, companies may expand.
Changing consumer needs and wants. Substitute products and new entrants. Regulations. Trade barriers.
As you can see, the method can be universally used for almost any condition and environment. It is a tool that can be used in a broader sense and can be as specific as the problem requires it to be. A simple SWOT analysis graphic is shown below for illustrative purposes. Stakeholders of the SWOT analysis are several. They are: management, employees, suppliers and distributors, and customers. Let’s not forget that the ultimate goal is to deli deliver the highest customer satisfaction possible in order to generate revenue and maximize profits. SWOT provides adequate procedures and guidelines for the management to practice. It states clearly the tactics and communication patterns management has to implement in order to achieve the strategic implement goals. Employees are directed and trained to increase productivity and reduce errors. Suppliers and distributors are considered in order to design highly effective and efficient supply chains and distribution networks; and finally the customer satisfaction and loyalty is one of the most riks; important aspects that SWOT helps to evaluate and plan for. Who uses the method? SWOT is used by the managers and top executives in the evaluation, planning, and implementation process.
In the evaluation process, top executives review the available resources, measure the revenues and the target cost structures, and once ready, set out a strategic plan that stipulates the direction that company is going to take. In this process, they evaluate all four characteristics and plan for an appropriate course of action. For the planning process, upper and mid level management reviews the graph, and gets familiar with the key objectives as well as the resources available to them in order to ac achieve the strategic goals. In the implementation process, thanks to the clear definitions of what is going to affect the company’s performance, employees have the advantage of knowing what to expect and what is going to challenge them.
SWOT helps them anticipate the future hurdles and plan appropriately in anticipate order to overcome the barriers. As you can see, SWOT is an illustrative method of business planning and evaluation. It enables the management to clearly identify the advantages and disadvantages they are faced with, and design the realistic goals in order to achieve overall organizational success. Advantage of the method is that it is versatile, it creates clear visual picture of the situation and can be modified and adjusted fairly easily. One of the biggest advantages of the method is that it is very inexpensive and biggest provides highest results per dollar invested in to the analysis. Cost efficiency and performance effectiveness is one of the reasons why the method has been popular among the business executi executives sine the 1960s.
Before we go in to the details of the balanced Scorecard method and compare it to the SWOT analysis, let’s take a look at the BSC (Balanced Scorecard) and define what it is, what it does and ) how it differs from the SWOT analysis. s BSC is a strategic planning and implementation tool that assists management in the process of achieving organizational goals. It is a method that enables cooperation and synchronization in the business procedures. Typically, balan balanced Scorecard consists of several fields (usually 4), which lists the subject of interest and the steps that would allow the company to reach highest results in the listed fields. A simple version of a basic BSC is illustrated below.
As you can see, there are four fields: financial, internal business procedures, learning and growth and customers. We will discuss each one of them in little more detail in order to give you a better understating of how the method works. Financial; in this section managers list some of the key steps and goals they need to achieve in s order to succeed in their ultimate goal. Steps might be lowering fixed costs, low leverage, possible IPO etc. As for the internal business process, it might involve training, b better communication, changing organizational structure, etc. For the learning and growth, it might outline the process of training, growth strategies (acquisition, franchising), and target market share. As far as the customers are concerned, management might define the strategy for increasing customer might satisfaction, brand development, and advertising. What is important to understand is that, there is a difference between the SWOT and BSC. While the SWOT analysis is mostly used in the broader planning procedures, such as strategic goals for procedures, the organization, BSC is a tool that has often been used in the process of achieving a specific goal. To make it clear, SWOT is used to define the goal, and the BSC is used to design a plan to achieve that goal. BSC is not strictly limited to this particular purpose and can be successfully used in a broader planning; but we have found that the method is most appropriate and useful when planning for a particular strategy and steps for implementing it. While the design presented above is not a standard one, most frequently we encounter 4 field ted designs. An alternative design is presented below.
SWOT and BSC have been in use for several decades and have proved to be effective and efficient methods in business planning. The two methods have frequently been viewed as competitors, but the consensus has been emerging in the academic as well as the professional community that the two are more complementary to each other than they are rivals. Both methods are relatively cheap to design and implement, and provide a valuable insight in to design the key aspect that will determine the organization’s success. In conclusion it has to be mentioned that, BSC and SWOT are two methods that help define goals, steps, and an overall organizational strategy; they both have been used successfully for several strategy; decades. Even in the modern age of technology and alternative methods, these two simple graphic charts have been very popular among the top executives.
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