Monday, September 27, 2010

How to Write a SWOT Analysis (Analyse a Company According to Its Internal And External Factors)

A Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis allows business management to formulate strategies to increase profits for a company. The SWOT analysis also helps a company and its employees to adapt to changing factors in the industry.

The SWOT can be classified into internal and external factors affecting a company. The Strengths and Weaknesses of the SWOT analysis represent the internal factors that influence the viability of the company. The Opportunities and Threats, on the other hand, are the external factors that may affect the company's performances.

What Are Examples of Internal Strengths of a Company?

A strength is essentially a factor from within the company that has resulted in the success of the organisation. For example, a management team with strong calibre denotes that the company is forward looking and is flexible to change. Both factors allow the company to presevere amongst competitors, especially when external threats, such as changes in regulation with respects to the industry, occur.

Another example of a company strength is a hefty financial cash flow. Companies that are liquid in cash are more likely to succeed in the long-run than companies that have invested in illiquid assets (such as heavy equipment / renovations in the office.) This is because working capital (cash) is required to sustain the company's ability to pay employees / suppliers / fund marketing campaigns.

What Are Examples of Weaknesses within a Company?

A weakness of an organisation can be detrimental to the survival of the company. A popular example is poor retention rate of employees. This equates to a high turnover with dissatisfied employees leaving for other job opportunities. The fact that this takes place can be due to a number of reasons. One of them may be poor compensation packages (due to lack of funds). Another example may be a weak organisational culture that inhibits employees from expressing their views and concerns.
An opportunity allows a company to increase profits by offering a gap in demand, a wider consumer base, or an opportunity to reduce costs. A company's strategic goal is to move forward to achieving opportunities that arise in the market. For example, a coffee house may find an opportunity when new suppliers of coffee beans enter into the market. This increases competition amongst coffee bean suppliers and thus, reduces costs for the coffee house. Opportunities are almost always found in shifts in consumer preferences. For example, with the increase of women penetrating the workforce, more clothing designers nab the opportunity to produce fashionable career attire for working women.

What Are the Threats Inherent in the Environment?

A threat can affect the company negatively, especially if the company is unable to adapt to the threat and mitigate its harmful effects. For example, a threat for small grocery retailers would be the emergence of a hyper-market in the area - Wal-mart - for instance. A common threat in any economy would be an economic recession, which reduces consumers' consumption. This threat generally reduces revenue in companies, regardless of the sector.

At the end of a SWOT analysis, the company's plans to move forward should be centred around the opportunities quadrant. Opportunities translate into opportunities to increase revenue as well as to reduce costs; this, in turn, is transformed into higher profits. To achieve success in the opportunities quadrant, the company should look at capitalising on its strengths, such as an effective marketing strategy. By using their strengths, companies should also be able to strategise against the threats that are inherent in the market. Threats are extinguishable but steps to mitigate them can be taken to protect the operations on the company. Although companies always capitalise on their strengths, they should not ignore their weaknesses. Weaknesses represent loopholes within their organisational structure / operations. A company should resolve to fill in their weaknesses in the long-run to ward off aggressive competition. 

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