Meanings of SWOT Analysis Part I
The SWOT analysis, by definition and reference to the term itself, is the analysis of the strengths, weaknesses, opportunities and risks of a company, an organization or the like. It thus functions as a practical instrument for the strategic planning of these very institutions.
Detailed definition and development of the SWOT analysis
But what exactly does SWOT analysis mean? SWOT is an acronym for the English terms Strengths, Weaknesses, Opportunities and Threats. The analysis looks at precisely these aspects individually and in connection with one another in further application.
According to WHICHEVERHEALTH.COM, a SWOT analysis is used, for example, when a company wants to establish itself or already exists and intends to expand its influence or its success. The structure of the analysis is, according to the points mentioned, relatively simple. For example, very rational and direct questions arise:
- What are the strengths of the company, the company, etc.?
- What are the weaknesses, however?
- What opportunities does the market offer?
- What are the risks against it?
The first question is used to identify your own strengths. What distinguishes a company, what are its particular strengths, how was the current position achieved and are there even unique selling points?
On the other hand, there are weaknesses. This includes in particular features where competitors obviously do better work, but also general grievances. Likewise, only moderately or not yet fully completed fields of activity are to be taken into account, which actually belong to the general standard of the industry (for example in a library a non-existent internet connection).
Circumstances that open up through external influences and open up opportunities for the institution are to be seen as opportunities. These could be changes in the law, new technological innovations or emerging trends. This also includes the disappearance of a competitor.
In contrast to the opportunities, ultimately, the risks are decisive. This refers to changes that also happen from outside. In this respect, for example, changes in the law and cultural or economic trends are also included here. Furthermore, high competition from other institutions or, in some cases, technological innovations represent a risk. (The library, for example, includes today’s extensive online offer and eBooks.)
Who Invented SWOT Analysis?
Nowadays, the SWOT analysis stands for a systematic situation analysis with which companies, organizations and so on work. Especially in the business plans of a company or a company, the analysis appears nowadays mainly to plan economic success. The SWOT analysis is also a common instrument in marketing.
In fact, however, the origin of the analysis lies in pre-Christian China. A reasoning quote comes from the Chinese general, military strategist and philosopher Sunzi: “If you know the enemy and yourself, you do not need to fear the outcome of a hundred battles.”
The basic idea of the SWOT analysis can already be seen in these sentences. Sunzi therefore recommended knowing yourself, i.e. your own strengths and weaknesses, and also looking at the enemy, i.e. the opportunities and risks facing you. Both aspects in relation to each other ultimately enable a prognosis of success and failure.
The bridge from this metaphorical point of view to actually applicable analysis was built in the 1960s at Harvard Business School. Henry Mintzberg, a Canadian professor of business administration and management, developed the SWOT analysis as a basis for formalizing processes of a company’s strategy development.
What can a SWOT analysis do?
Although the history of the development may seem impressive, the question that certainly arises for entrepreneurs, start-ups and similar institutions is: What is the point of a SWOT analysis? What are the benefits of the sometimes time-consuming process of analysis from an economic point of view?
The analysis can generally already have the effect that resources are used sensibly. It helps ensure that a company does not miss opportunities. It also shows where capital can still be used in order to subsequently increase the company ‘s budget. This in turn can be used to finance new projects and promote certain products.
However, the SWOT analysis can also clarify whether or that a company is at risk from a certain point of view and may even have to file for bankruptcy in the foreseeable future . In this sense, it may also help to prevent an impending bankruptcy by showing which measures achieve ad hoc success or in which area the Achilles heel of a company exists.
On the one hand, figuratively speaking, the analysis functions as a Swiss Army Knife for management and management in threatening economic situations and, on the other hand, as an orientation to maintain a successful course or to optimize it and to achieve certain goals even more safely and quickly.
The goal of the swot analysis
When setting the goal of a SWOT analysis, the main focus is on creating an overview of the current situation. This means that it is a matter of determining the status of an institution, a company or the like in the market and in comparison to the competition. For example, a company can get useful information about itself and use it as orientation for actions.
The analysis can influence strategic management by asking which factors are relevant for success. The analysis is also used to create a general business plan, for example when founding a start-up . In addition, the SWOT factors are helpful guidelines for marketing and customer service .
This means that the actual objective of the SWOT analysis is to show meaningful options for action by considering internal and external aspects, which lead to sustainable success. She offers valuable support in the design of strategies to meet the constant change in the market, the increasing competition and, last but not least, the steadily growing demands of customers.
On the one hand, from an entrepreneurial point of view, the analysis highlights any competitive advantages compared to the competition as well as growth potential that can be directly tapped. In addition to such perspective approaches, it also enables decision-makers to react immediately to existing weaknesses or risks.
In addition, the SWOT analysis and its objectives should not be viewed exclusively with reference to entire companies and organizations. In fact, it is also used for individuals for individual development and reflection. In this sense, by looking at S, W, E and T, very personal talents and abilities can be recognized and various career opportunities can be considered or excluded.
Key figures of the SWOT analysis
The basic goal setting and the subsequent actual analysis are of course only parts of an overall process in order to achieve the set goals. Other sub-processes include the definition of measures and strategies, the associated budget planning and, last but not least, the development of useful key figures in order to be able to control any progress and successes at all.
These key figures, so-called Key Performance Indicators (KPI), can, for example, be mere figures with regard to costs, earnings and sales, which of course only cover superficial points. On the other hand, it makes more sense to go into as much detail as possible with the key figures and to link them as closely as possible with the analysis aspects and the measures taken. It is important to mention that the data collected can be leading indicators on the one hand and lagging indicators for results on the other.
A widespread and quite productive system of indicators would be, for example, one from four perspectives, whereby the first three are to be seen as leading indicators and the last is a late indicator:
- Customers: Acquisition of new customers and satisfaction of existing customers
- Organization: operating processes that are as fluid and flawless as possible (both in business and in production)
- Employees: satisfaction, commitment and constant motivation
- Finance: profit, profitability and liquidity of the company
Key figures therefore ultimately represent the necessary means of monitoring success. Their definition, in conjunction with the initially set objective of the analysis, ultimately indicates whether and how rich the analyzed data are and what benefits the strategies and measures derived from them actually provided. The key figures show which strengths were used sensibly, which weaknesses were encountered, how opportunities were used and how risks could be averted.