SWOT is an acronym that stands for strengths, weaknesses, opportunities and threats. SWOT provides a framework for analysis of the internal and external business environment. The value chain is another framework for business analysis. The value chain is a company’s process for creating the “value” that’s offered to customers. Ideally, each business activity adds value by creating a link in the chain.
SWOT
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SWOT analysis is a common way to quickly assess a company’s strategic situation. The internal environment is assessed through determining the company’s strengths and weaknesses, while evaluating opportunities and threats helps to understand the external environment. In many cases, management’s goal is to figure out how to make the internal and the external fit together. When discussing SWOT, business managers sometimes note the lack of analysis of internal operations.
The Value Chain
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Value chain analysis looks at a company’s operations as a chain of related activities transforming inputs such as labor and raw materials into outputs such as products and services. A large portion of the value chain is evaluating how the business’ inputs can add value to the finished product. Value chain analysis also looks into what the consumer values. Consumers value assorted product features, including those that are different from competitors, lower-cost products and products that meet customer needs quickly.
The Relationship Between SWOT and Value Chain
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In many cases, the SWOT method is an inadequate analysis of the internal business environment. Simply stating strengths and weakness gives a brief explanation of what the company does best and where there’s room for improvement, but the SWOT leaves out many of the details of the company’s operations. The value chain fills in some of the internal analysis gaps that SWOT leaves. Conversely, value chain analysis virtually ignores the external environment by examining only the needs and desires of customers. In many ways, SWOT analysis and the value chain give a more complete picture of the business environment when used together.
Combined Analysis
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The value chain and SWOT can be combined in different ways. The value chain analyses the business’s internal environment so it can be used in place of the strengths and weakness portion of the SWOT. Most often, the value chain is used in conjunction with SWOT, creating a comprehensive business analysis that incorporates both internal and external evaluation. Business managers can take elements of the value chain and apply the elements of opportunities and trends part of the SWOT analysis.
