A SWOT analysis is a tool used to identify the strengths and weaknesses of an organization, as well as possible opportunities and threats it has in the market. You can perform a SWOT analysis on an individual, group, organization or project. As reported by Mind Tools, entrepreneurs can use SWOT analyses to "assess the organization's current position before deciding on any new strategy."
Tip
SWOT stands for strengths, weaknesses, opportunities and threats. Strengths and weaknesses are internal to the company, while opportunities and threats are external.
Components of a SWOT Analysis
The components of SWOT analysis are strengths, weaknesses, opportunities and threats. According to Community Tool Box, strengths and weaknesses evaluate the internal environment of an organization. Opportunities and threats evaluate if the external business environment is favorable to the organization or not.
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Strengths are the characteristics that give an edge to the organization over its competitors. For example, a strong brand image in the market, huge market share, loyal employee base, and better technological know-how can act as strengths to an organization.
Weaknesses are the characteristics that put an organization behind its competitors. This can include a lack of commitment from top management, limited production capability, lack of accessibility to innovative technologies, and poor organizational policies.
Opportunities are the circ*mstances that an organization can exploit to its advantage. If there is an opportunity, the organization can acquire a small-scale, financially stable firm within the same industry to strengthen its base in the existing market and expand into new target markets. Similarly, tariff cuts could be an opportunity for an organization to export its products to a new market and increase the market share.
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Threats are the circ*mstances or elements that could cause trouble to an organization. For instance, a situation like an abrupt change in people's lifestyles or new technologies can be a threat to the organization. Nokia and Kodak are examples of how organizations succumb to their inability to recognize threats.
SWOT Analysis Example on Walmart
Strengths
Walmart is a well-known brand name and the largest retailer in the United States. The brand commands a loyal customer base that visits the stores irrespective of the economic conditions. Due to its ability to achieve economies of scale, Walmart offers products at lower prices than its competitors. Walmart also has a robust, technologically advanced information system to track orders, maintain inventory and manage customer relationships.
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Weaknesses
The organizational policies of Walmart are not up to the standards. The organization has faced several lawsuits with regards to improper treatment of employees, workplace discrimination and unfair promotions. Walmart has high employee turnover rates. The organization has consistently failed to facilitate a workplace that motivates employees and cares for their their well-being.
Opportunities
Walmart has not yet made its presence felt in developing countries, where the potential for the retail market is very high. Though the organization has 28 stores in India, there is a lot of opportunity for expansion. Walmart has also started to launch private label brands within its stores, which are offered for a lower price. Expanding this tactic can lead to greater profit margins.
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Threats
The organization has been facing stiff competition from industry biggies such as Amazon, Target, Tesco and Costco. With the ability to provide better shopping experience than Walmart - as well as better reputations and employee relations - these organizations can topple Walmart if they can achieve economies of scale and reduce prices.
