SWOT ANALYSIS

Definition, Advantages And Limitations:-

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By

definition, Strengths (S) and Weaknesses (W) are considered to be internal factors over which
you have some measure of control. Also, by definition, Opportunities (O) and Threats (T) are
considered to be external factors over which you have essentially no control.

SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic
position of the business and its environment. Its key purpose is to identify the strategies that
will create a firm specific business model that will best align an organization’s resources and
capabilities to the requirements of the environment in which the firm operates.

In other words, it is the foundation for evaluating the internal potential and limitations and the
probable/likely opportunities and threats from the external environment. It views all positive
and negative factors inside and outside the firm that affect the success. A consistent study of
the environment in which the firm operates helps in forecasting/predicting the changing
trends and also helps in including them in the decision-making process of the organization.

An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given
below-

1. Strengths - Strengths are the qualities that enable us to accomplish the organization’s
mission. These are the basis on which continued success can be made and
continued/sustained.

Strengths can be either tangible or intangible. These are what you are well-versed in
or what you have expertise in, the traits and qualities your employees possess
(individually and as a team) and the distinct features that give your organization its
consistency.

Strengths are the beneficial aspects of the organization or the capabilities of an

organization, which includes human competencies, process capabilities, financial
resources, products and services, customer goodwill and brand loyalty. Examples of
organizational strengths are huge financial resources, broad product line, no debt,
committed employees, etc.

2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our
mission and achieving our full potential. These weaknesses deteriorate influences on
the organizational success and growth. Weaknesses are the factors which do not meet
the standards we feel they should meet.

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 Weaknesses in an organization may be depreciating machinery, insufficient research
and development facilities, narrow product range, poor decision-making, etc.
Weaknesses are controllable. They must be minimized and eliminated. For instance -
to overcome obsolete machinery, new machinery can be purchased. Other examples
of organizational weaknesses are huge debts, high employee turnover, complex
decision making process, narrow product range, large wastage of raw materials, etc.

3. Opportunities - Opportunities are presented by the environment within which our

organization operates. These arise when an organization can take benefit of conditions
in its environment to plan and execute strategies that enable it to become more
profitable. Organizations can gain competitive advantage by making use of
opportunities.

Organization should be careful and recognize the opportunities and grasp them
whenever they arise. Selecting the targets that will best serve the clients while getting
desired results is a difficult task. Opportunities may arise from market, competition,
industry/government and technology. Increasing demand for telecommunications
accompanied by deregulation is a great opportunity for new firms to enter telecom
sector and compete with existing firms for revenue.

4. Threats - Threats arise when conditions in external environment jeopardize the

reliability and profitability of the organization’s business. They compound the
vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a
threat comes, the stability and survival can be at stake. Examples of threats are -
unrest among employees; ever changing technology; increasing competition leading
to excess capacity, price wars and reducing industry profits; etc.

Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it
involves a great subjective element. It is best when used as a guide, and not as a prescription.
Successful businesses build on their strengths, correct their weakness and protect against
internal weaknesses and external threats. They also keep a watch on their overall business
environment and recognize and exploit new opportunities faster than its competitors.

SWOT Analysis helps in strategic planning in following manner-

a. It is a source of information for strategic planning.

b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.

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 h. It helps in knowing past, present and future so that by using past and current data,
future plans can be chalked out.

SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.

SWOTANALYSISFRAMEWORK

Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to view
circumstances as very simple because of which the organizations might overlook certain key
strategic contact which may occur. Moreover, categorizing aspects as strengths, weaknesses,
opportunities and threats might be very subjective as there is great degree of uncertainty in
market. SWOT Analysis does stress upon the significance of these four aspects, but it does
not tell how an organization can identify these aspects for itself.

There are certain limitations of SWOT Analysis which are not in control of management.
These include-

a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to
import restrictions; etc.

Internal limitations may include-

a. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

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Steps in Strategy Formulation Process:
Strategy formulation refers to the process of choosing the most appropriate course of action
for the realization of organizational goals and objectives and thereby achieving the
organizational vision. The process of strategy formulation basically involves six main
steps. Though these steps do not follow a rigid chronological order, however they are very
rational and can be easily followed in this order.

1. Setting Organizations’ objectives - The key component of any strategy statement is

to set the long-term objectives of the organization. It is known that strategy is
generally a medium for realization of organizational objectives. Objectives stress the
state of being there whereas Strategy stresses upon the process of reaching there.
Strategy includes both the fixation of objectives as well the medium to be used to
realize those objectives. Thus, strategy is a wider term which believes in the manner
of deployment of resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which
influence the selection of objectives must be analyzed before the selection of
objectives. Once the objectives and the factors influencing strategic decisions have
been determined, it is easy to take strategic decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the

general economic and industrial environment in which the organization operates. This
includes a review of the organizations competitive position. It is essential to conduct a
qualitative and quantitative review of an organizations existing product line. The
purpose of such a review is to make sure that the factors important for competitive
success in the market can be discovered so that the management can identify their
own strengths and weaknesses as well as their competitors’ strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities of threats to
its market or supply sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind
this is to compare with long term customers, so as to evaluate the contribution that
might be made by various product zones or operating departments.
4. Aiming in context with the divisional plans - In this step, the contributions made by
each department or division or product category within the organization is identified
and accordingly strategic planning is done for each sub-unit. This requires a careful
analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing
the gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future conditions

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 must be done by the organization. This critical evaluation identifies the degree of gap
that persists between the actual reality and the long-term aspirations of the
organization. An attempt is made by the organization to estimate its probable future
condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best
course of action is actually chosen after considering organizational goals,
organizational strengths, potential and limitations as well as the external
opportunities.

Steps in Strategy Formulation Process:

Strategy formulation refers to the process of choosing the most appropriate course of action
for the realization of organizational goals and objectives and thereby achieving the
organizational vision. The process of strategy formulation basically involves six main
steps. Though these steps do not follow a rigid chronological order, however they are very
rational and can be easily followed in this order.

1. Setting Organizations’ objectives - The key component of any strategy statement is

to set the long-term objectives of the organization. It is known that strategy is
generally a medium for realization of organizational objectives. Objectives stress the
state of being there whereas Strategy stresses upon the process of reaching there.
Strategy includes both the fixation of objectives as well the medium to be used to
realize those objectives. Thus, strategy is a wider term which believes in the manner
of deployment of resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which
influence the selection of objectives must be analyzed before the selection of
objectives. Once the objectives and the factors influencing strategic decisions have
been determined, it is easy to take strategic decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the

general economic and industrial environment in which the organization operates. This
includes a review of the organizations competitive position. It is essential to conduct a
qualitative and quantitative review of an organizations existing product line. The
purpose of such a review is to make sure that the factors important for competitive
success in the market can be discovered so that the management can identify their
own strengths and weaknesses as well as their competitors’ strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities of threats to
its market or supply sources.

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 3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind
this is to compare with long term customers, so as to evaluate the contribution that
might be made by various product zones or operating departments.
4. Aiming in context with the divisional plans - In this step, the contributions made by
each department or division or product category within the organization is identified
and accordingly strategic planning is done for each sub-unit. This requires a careful
analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing
the gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future conditions
must be done by the organization. This critical evaluation identifies the degree of gap
that persists between the actual reality and the long-term aspirations of the
organization. An attempt is made by the organization to estimate its probable future
condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best
course of action is actually chosen after considering organizational goals,
organizational strengths, potential and limitations as well as the external
opportunities.

Strategy Implementation - Meaning and

Steps in Implementing a Strategy
Strategy implementation is the translation of chosen strategy into organizational action
so as to achieve strategic goals and objectives. Strategy implementation is also defined as
the manner in which an organization should develop, utilize, and amalgamate organizational
structure, control systems, and culture to follow strategies that lead to competitive advantage
and a better performance. Organizational structure allocates special value developing tasks
and roles to the employees and states how these tasks and roles can be correlated so as
maximize efficiency, quality, and customer satisfaction-the pillars of competitive advantage.
But, organizational structure is not sufficient in itself to motivate the employees.

An organizational control system is also required. This control system equips managers with
motivational incentives for employees as well as feedback on employees and organizational
performance. Organizational culture refers to the specialized collection of values, attitudes,
norms and beliefs shared by organizational members and groups.

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Follwoing are the main steps in implementing a strategy:

 Developing an organization having potential of carrying out strategy successfully.

 Disbursement of abundant resources to strategy-essential activities.

 Creating strategy-encouraging policies.

 Employing best policies and programs for constant improvement.

 Linking reward structure to accomplishment of results.

 Making use of strategic leadership.

Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability between
strategy and each organizational dimension such as organizational structure, reward structure,
resource-allocation process, etc.

Strategy implementation poses a threat to many managers and employees in an organization.

New power relationships are predicted and achieved. New groups (formal as well as
informal) are formed whose values, attitudes, beliefs and concerns may not be known. With
the change in power and status roles, the managers and employees may employ confrontation
behaviour.

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Strategy Formulation vs Strategy Implementation:
Following are the main differences between Strategy Formulation and Strategy
Implementation-

Strategy Formulation Strategy Implementation

Strategy Formulation includes planning and Strategy Implementation involves all those means
decision-making involved in developing related to executing the strategic plans.
organization’s strategic goals and plans.

In short, Strategy Formulation is placing the In short, Strategy Implementation is managing

Forces before the action. forces during the action.

Strategy Formulation is an Entrepreneurial Strategic Implementation is mainly an

Activity based on strategic decision-making. Administrative Task based on strategic and
operational decisions.

Strategy Formulation emphasizes on Strategy Implementation emphasizes on

effectiveness. efficiency.

Strategy Formulation is a rational process. Strategy Implementation is basically an

operational process.

Strategy Formulation requires co-ordination Strategy Implementation requires co-ordination

among few individuals. among many individuals.

Strategy Formulation requires a great deal of Strategy Implementation requires specific

initiative and logical skills. motivational and leadership traits.

Strategic Formulation precedes Strategy STrategy Implementation follows Strategy

Implementation. Formulation.

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