SWOT Analysis - an Essential Tool to Strategic Planning

SWOT Analysis

SWOT analysis may be performed in many different ways. It is not my intention in this article to compare what are the different ways but to share how I interpret it and used it in my own Strategic Planning workshops with my own organization and clients. Briefly, I like to illustrate the basic understanding of SWOT Analysis as follows:-
 

What is SWOT Analysis?

I offer you to view my graphical illustration on this SWOT Analysis.  You can click this SWOT Analysis Template to understand better!

Strengths:  the first Character of SWOT

As mentioned earlier, this is an internal factor which deals with the strengths within its owned business, operation, production floor or department. It is internal because it takes into considerations the level of capabilities in handling an identified issue.  All if not most of the time, these issues are well within their circle of influence. However, it is not good enough for you to identify and recognize factors as strengths unless it is compared with some benchmark. In most case, you would compare your “strengths” with competitors especially those who are better than your own organization.

Why bother to compare with your competitors? You may be wondering!  Is it not good enough because if your team members recognize their own strengths without comparing with a reference point, then the strengths has not competitive advantages, make sense?

Assuming making a comparison with a benchmark has its own merit, what should be used a reference point?  Well, I normally pick two references, namely:

1)      The competitors

Not any competitor but I would pick one that is a ahead of my organization.  The reason is that I have to either maintain my competitive position or to catch up with the competitor.

2)      The world class organization

I would as the same time, pick a world class company as a benchmark for future business or operation excellence.  I do that because I aimed to stay ahead of competition with world class practices (selectively) in the long run.

They are many factors in an operation that can be considered as strength. It is normally highlighted during brainstorming among management members. When the list of factors for Strength is too many, it should be prioritized using TQM tools. I normally use a simple ranking system compare my own with that of the competitor. I found that this method is more reflective to indicate its implication to the business if it is not taken care.

I have power slides to show how to prioritize SWOT factors in this link.

Weaknesses:  the second character of SWOT

Similar to the above, it is an internal factor that deals with the weaknesses of owned business, operation, production floor or department. It is internal because it takes into considerations the level of capabilities in handling an identified issue.  In many occasions, these weaknesses are well within your circle of influence. You may argue that the weaknesses have no impact to the business bottom line. Well, I can agree with you in this aspect not that I accept that weaknesses but I recognize the fact that there maybe other more critical issues to tackle. 

As such, after a list of weaknesses is generated, I would make a comparison with competitor better than me as well as competitor who are catching up on me. Then again, the list may be too many to deal with. So, when it is too many, you should prioritize them  with an appropriate TQM tools. I normally use a simple ranking system compare my own with that of the competitor. I found that this method is more reflective to indicate its implication to the business if it is not taken care.

I have power slides to show how to prioritize SWOT factors in this link.

Opportunities:  the third character of S.W.O.T.

This is an important factor to identify opportunity as a result of external influence. It is often leads to more business or investment as well as opportunity for innovation of products and services. Due to the fact it is external, many assumptions is used. However, given the constraints, you should try to quantify the assumptions so that the conclusion of this factor is real. In real life application, there are cases where opportunities derived from operation are classified in into this Opportunity factor. But rightfully, it should be classified under the Strength factor.

Let me illustrate what I meant...

A production floor has excess capacity by about 20 percent. It is quite frequent that team will translate this as an opportunity by stating " we have the opportunity to take on more sales due to our excess capacity"

Let's think about it for a moment: Excess capacity is a fact! Whereas there is no information stating a potential for sales growth. This statement is merely a statement of opportunity NOT a fact (or news). Therefore, this should not be taken as an opportunity in this context. However, in general terms, the excess capacity would provide an opportunity to increase sales. But bear in mind, there is no indication of growing sales.

On the other hand, the excess capacity of 20 percent is real. Hence,should be taken as something factual for the capacity of the production. Then it can beclassified as the STRENGH 

Threats; the forth character of S.W.O.T.

This is another important and critical factor to deal with. It has great influence to the success or failure of an organization if not dealt with appropriately. This section looks for factors that can put an organization in a loss-loss situation where example may either reduce the market share or its profitability. Once again, since it is an external factor, its reality is assumed. However, in many cases, they can be verified by announcement, publications etc. On the other hand, if organizations act on these factors, it may not always mitigate the threat because the threat is not real. One example is the Y2K issue.

Threats is something that most of us do not like to see in business however, it cannot be avoided. When this is happened, you need to realize it make an evaluation of its impact to the business. However, there are cases when leaders of an organization do not interpret certain factor as threats. Let's see the following scenarios:-

Take the case of Asean Free Trade Agreement (AFTA). This is an trade agreement within the ASEAN countries by year 2003. During my strategic planning workshops in year 2002, I posted a question whether the AFTA would be a threat to the Malaysian industries? The reason I asked was that when AFTA take effect, there will be no or reduction in import duty for most of the goods into Malaysia in particular from China. By then, there will be influx of cheap imported goods which will hit the local manufactures in terms of pricing.

I was giving the understanding that AFTA would help Malaysian industries because importing of raw material from China will be cheaper. Hence it should be taken as opportunities. This is true in this aspect however, the threats of cheaper imported goods from China cannot be ignore.

The way S.W.O.T. can be evaluated is alomost unlimted. In order to maximize the benefit of SWOT Analysis, yuo should broader the scope of SWOT

Do you want to know how SWOT Analysis is used as in Strategic Planning Process? More TQM Case Studies is available at  TQM Case Studies & Article Directory

About the author :  Dr. L M Foong-PhD,  is a TQM practitioner. He publishes TQM articles, ebooks, case studies, trainer manual, facilitator guides and presentation slides available at Resource Center in Total Quality Management