CIPD - SWOT analysis

Corporate and HR strategy

March 2008

This factsheet gives introductory guidance. It:

introduces the concept and history of SWOT analysis
examines the model, process and possible applications
considers its pros and cons and offers some dos and don’ts
provides two example case studies.

Introduction

SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats. Occasionally, it may also be found as a ‘WOTS up’ analysis or the TOWS analysis.

A SWOT analysis is a planning tool used to understand the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business. It involves stating the objective of the business or project and identifying the internal and external factors that are either supportive or unfavourable to achieving that objective. SWOT is often used as part of a strategic or business planning process, but can be useful in understanding an organisation or situation and decision-making for all sorts of situations.

The concept

Any organisation undertaking strategic planning will at some point assess its own strengths and weaknesses. When combined with an inventory of opportunities and threats in the organisation’s external environment, the organisation is effectively making a SWOT analysis, that is it is establishing its current position in light of its Strengths, Weaknesses, Opportunities and Threats.

There are several ways of graphically representing the SWOT analysis matrix or grid. Examples are shown later in this factsheet.

While at first glance the SWOT looks like a simple model and easy to apply, experience shows that to do a SWOT analysis that is both effective and meaningful, requires time and a significant resource. It requires a team effort and cannot be done effectively by only one person. The SWOT methodology has the advantage of being used as a 'quick and dirty' tool or a comprehensive management tool, and that one (the quick) can lead to the other (the comprehensive). This flexibility is one of the factors that has contributed to its success.

The term ‘SWOT analysis’ is in itself a curious term, for a SWOT is not an analysis in itself, but a number of elements when used together form a valuable framework for analysis. It is essentially a summary of a set of previous analyses – even if those were just 15 minutes of mini-brainstorming with yourself in front of your computer although this approach is not recommended! The analysis, or more correctly ‘interpretation’, comes after the SWOT summary has been produced.

History

The SWOT analysis technique is credited to Albert Humphrey who led a research project at Stanford University in the 1960s and 1970s using data from leading companies involved in long range planning processes. The original goal was to identify why corporate planning failed. Humphrey created a ‘team method for planning’ originally called SOFT analysis (Satisfactory, Opportunity, Fault, Threat) which was used by organisations like WH Smith who made it part of their long range planning programme for almost 20 years..

The thinking behind the tool was:

What is good in the present is Satisfactory.
What is good in the future is an Opportunity.
What is bad in the present is a Fault.
What is bad in the future is a Threat.

Humphrey’s work has developed the implementation to use the SOFT in the context of six categories which provide a framework by which issues can be developed into actions and managed using teams:

Product: what are we selling?
Process: how are we selling it?
Customer: to whom are we selling it?
Distribution: how does it reach them?
Finance: what are the prices, costs and investments?
Administration: how do we manage all this?

From SOFT to SWOT and PRIMO-F

In 1964, when speaking at the Seminar in Long Range Planning in Zurich, Urick and Orr changed the F to a W, and it has stuck as that. Shortly after this Urick and Orr promoted the SWOT models in the UK as a standalone process.

There are many academics and consultants that now believe this simply does not stand up on its own merits, but works best when part of an overall strategy or in a given context or situation. This strategy may be as simple as:

Goal or objective
SWOT
Evaluation or measures of success
Action.

For organisations which have multiple or complex ranges of products or services an alternative to Humphreys’ six categories framework is PRIMO-F:

People: what do they do, do they have the skills we needs?
Resources: do we have the right and adequate resources?
Innovation: are new ideas important to us in all parts of our organisation?
Marketing: how do they know what we do?
Operations: how do we manage all of this?
Finance: what are the prices, costs and investments?

The SWOT model

A SWOT analysis process generates information that is helpful in matching an organisation or group’s goals, programs, and capacities to the social environment in which it operates. The ‘SWOT’ itself is only a data capture exercise - the analysis follows later.

Strengths: positive tangible and intangible attributes, internal to an organisation and within the organisation’s control.
Weaknesses: internal factors within an organisation’s control that detract from the organisation’s ability to attain the desired goal. Which areas might the organisation improve?
Opportunities: external attractive factors that represent the reason for an organisation to exist and develop. What opportunities exist in the environment, which will propel the organisation? Identify them by their ‘time frames’.
Threats: external factors beyond the organisation’s control which could place the organisation mission or operation at risk. The organisation may benefit by having contingency plans to address them if they should occur. Classify them by their severity and probability of occurrence.

It is important to note the strengths and weaknesses are intrinsic value-creating skills or assets, or the lack of, relative to competitive forces. Opportunities and threats are external factors which are not created by the organisation, but emerge as a result of the competitive dynamics caused by future gaps in the market.

Positive factors	Internal factors		Negative or potential to be negative
	Strengths	Weaknesses
	Opportunities	Threats
	External factors

PRIMO-F provides the data for the strengths and weaknesses (internal factors) and PESTLE for the opportunities and threats (external environment) parts of the model. For more information on PESTLE analysis, see our factsheet on that topic.

Go to our factsheet on PESTLE analysis

The SWOT process

Doing a SWOT analysis can be very straight forward, but its strengths lie in its flexibility and experienced application.

Decide how the information is to be collected and by whom (often a team approach is much more powerful than one person’s view).
Identify appropriate sources of information.
Gather the information - it is useful to use a template as the basis for exploring the factors and recording the information. An example of such a practical and ready-to-use template created to accompany this factsheet can be found on the RapidBI website.
- Go to the template
Plot the findings.
Identify the most important issues.
Identify strategic options.
Write a report.
Disseminate the findings.
Decide which activities are a priority in the context of the organisations goals and values: Look at the factors identified - where they appear in more than one area, use the table below as an action agenda.

	Strengths	Weaknesses
Opportunities	Make the most of these	Watch competition closely
Threats	Restore strengths	Strategic turn around required

Applications and when to use it

A SWOT analysis can be used for:

workshop sessions
brainstorm meetings
problem solving
planning
strategic planning (with PESTLE & PRIMO-F)
product evaluation
competitor evaluation (with Porters five forces – see Useful links and Further reading below)
personal development planning
decision making (with force field analysis – see Useful links below).

Using SWOT in a team meeting

Invite contributors to participate in the SWOT process.
Explain the process and establish ground rules.
Identify strengths – using the PRIMO-F listed above.
Identify weaknesses - using the PRIMO-F listed above.
Identify or list the opportunities and threats – this may well have been identified from a PESTLE analysis previously.
Establish priorities – from your mission, vision and values work.
Question each list.
Plan for action.

Advantages and disadvantages of using SWOT analysis

Advantages

Simple four box framework.
Facilitates an understanding of the strengths and weaknesses of the organisation.
Encourages the development of strategic thinking.
Enables a management team to focus on strengths and build opportunities.
Can enable an organisation to anticipate future business threats and take action to avoid or minimise their impact.
Can enable an organisation to spot business opportunities and exploit them fully.
Flexible.

Disadvantages

Some users over simplify the amount of data used for decisions – it is easy to use scant data.
To be effective this process needs to be undertaken on a regular basis.
The best reviews require different people being involved each having a different perspective.
Access to quality internal data sources, this can be time consuming and politically difficult (especially in more complex organisations – parent company etc).
The pace of change makes it increasingly difficult to anticipate developments that may affect an organisation in the future.
The risk of capturing too much data is that it may make it difficult to see the wood for the trees and lead to ‘paralysis by analysis’.
The data used in the analysis may be based on assumptions that subsequently prove to be unfounded (good and bad).
Lacks detailed structure – so easy to miss key elements.

Examples

A SWOT analysis can be used in many ways. Two case studies are offered below to illustrate what a SWOT analysis might look like in different situations: a more detailed level, using a soft drinks manufacturer as an example, and a simpler level, using a children’s charity by way of example. In any particular situation, the style and detail of the analysis will depend on the goal.

Case study 1: a detailed SWOT analysis

Company A has one major competitor in the marketplace, a soft drinks manufacturer called Soft Drink Co. To understand where Company A stands compared to their competition, they conduct a SWOT analysis on Soft Drink Co using publicly available information.

Strengths

Our competitor has been a complex part of American culture for over a century. The product's image is loaded with over-romanticizing, and this is an image many people have taken deeply to heart. The competitor image is displayed on T-shirts, hats, and collectible memorabilia. This extremely recognizable branding is one of competitor's greatest strengths.

According to independent research, our competitor bottling system is one of their greatest strengths. It allows them to conduct business on a global scale while at the same time maintain a local approach. The bottling companies are locally owned and operated by independent business people who are authorized to sell products of the competitor. Because they do not have outright ownership of its bottling network, its main source of revenue is the sale of concentrate to its bottlers.

Weaknesses

Although domestic business as well as many international markets are thriving, our competitor has recently reported some declines in unit case volumes in the far east due to reduced consumer purchasing power. According to an article in Business magazine, in India, unit case sales fell 4% in the second quarter...scary because while India generates around 5% of worldwide volume, it contributes three times as much to profits. Latin America, Southeast Asia, and India account for about 35% of our competitor’s volume and none of these markets are performing to expectation.

Our competitor’s product also causes long term health concerns due to the concentration of sugar. Being addicted to the product also is a health problem, because drinking of the product daily has an effect on your body after few years.

Opportunities

Brand recognition is the significant factor affecting their competitive position. The brand name is known well throughout the world today. The primary concern over the past few years has been to get this name brand to be even better known. Packaging changes have also affected sales and industry positioning, but in general, the public has tended not to be affected by new products.

Their bottling system also allows the company to take advantage of infinite growth opportunities around the world. This strategy gives them the opportunity to service a large geographic, diverse, area.

Threats

Currently, the threat of new viable competitors in the carbonated soft drink industry is not very substantial. The threat of substitutes, however, is a very real threat. The soft drink industry is very strong, but consumers are not necessarily married to it. Possible substitutes that continuously put pressure on both major competitors include bottles water, tea, coffee, juices, milk, and hot chocolate.

Even though the main players control nearly 40% of the entire drinks market, the changing health-consciousness of the market could have a serious affect. Of course, both the main players have already diversified into these markets, allowing them to have further significant market shares and offset any losses incurred due to fluctuations in the market.

Consumer buying power also represents a key threat in the industry. The rivalry between the two main competitors has produced a very slow moving industry in which management must continuously respond to the changing attitudes and demands of their consumers or face losing market share to the competition. Furthermore, consumers can easily switch to other beverages with little cost or consequence.

Case Study 2: a simpler SWOT analysis

This might result from a simpler analysis of a children’s charity.

Strengths

Creativity and imagination of staff.
Active support of children and parents.
Good track record in engaging children and play-based work.
Experience of community work and working with difficult to reach communities.

Weaknesses

Staff turnover.
Short-term funding.
Few IT resources/skills.
Organisational infrastructure.
Inexperience in financial management.

Opportunities

Potential future funding.
Real funding for play and developmental work.
Improved guidance to meet requirements of regulation.
More external support for play, e.g. opportunities for training.

Threats

Future funding not guaranteed or secured.
Competition from other providers (public and private).
Increasing regulation (impacting play, staff and buildings).

SWOT analysis dos and don’ts

DO get other people involved.
DO exploit any expertise and resources that are already available within the organisation.
DO use SWOT analysis in conjunction with other techniques, such as PESTLE analysis, PRIMO-F analysis, Porter's five forces, competitor analysis or scenario planning etc.
DO incorporate your analysis within an ongoing process for monitoring changes in the business environment.
DON’T try to do this on your own.
DON’T jump to conclusions about the future based on the past or the present.
DON’T get bogged down in collecting vast amounts of detailed information without analysing your findings appropriately.

The final analysis

The value of SWOT lies mainly in the fact that it constitutes a self-assessment for management. The problem, however, is that the elements appear deceptively simple. Actually deciding what the strengths and weaknesses of an organisation are, as well as assessing the impact and probability of opportunities and threats, is far more complex than appears at first sight.

The inherent risk of making incorrect assumptions when assessing the SWOT elements often causes management to procrastinate when it comes to deciding between various strategic alternatives, frequently resulting in unnecessary and undesirable delays.

SWOT is an infinitely flexible framework, which is made easier to apply when PESTLE is used to review and shortlist external factors and PRIMO-F to review and prioritise internal factors.

SWOT analysis

Introduction

The concept

History

From SOFT to SWOT and PRIMO-F

The SWOT model

The SWOT process

Applications and when to use it

Using SWOT in a team meeting

Advantages and disadvantages of using SWOT analysis

Advantages

Disadvantages

Examples

Case study 1: a detailed SWOT analysis

Strengths

Weaknesses

Opportunities

Threats

Case Study 2: a simpler SWOT analysis

Strengths

Weaknesses

Opportunities

Threats

SWOT analysis dos and don’ts

The final analysis

Useful contacts

Further reading

Books and reports

Journal articles