Doing a SWOT Analysis
Last modified August 28, 2010

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Definition

A SWOT analysis looks at the

• strengths
• weaknesses
• opportunities
• threats

for one or more firms in a given industry.

Purpose

The goals of a SWOT analysis are (Hill & Jones, 7th ed., p. 19-20):

1. identify strategies that fit a firm’s resources, capabilities (or competencies) to its external environment;
2. generate alternatives that apply a company’s strengths to exploit opportunities and counter threats; and
3. offer strategies to correct company weaknesses

General Advice

Based on problems students had doing SWOT analysis (and the lack of help from the textbook), here is some advice on how to do a SWOT analysis for this class.

Remembering the Differences

To keep clear how to apply a SWOT, remember this matrix

Hill and Jones	West	+	-
Internal	Current	Strength	Weakness
External	Future	Opportunity	Threat

Guidelines

• A strength could be a capability, a resource or a competence. Not every firm can have the same strength, although more than one firm can share a strength if other firms do not.
• A weakness is often relative to a competitor’s strength — i.e. a strength of one firm is another firm’s weakness.
• Some opportunities and threats will apply to all firms in an industry; others may apply only to some firms.
• List 2-6 items for each of S,W,O,T; not 20. If you think there are 20, pick the most important 6. If this is a PowerPoint presentation, you can use bullet points; if it is a written assignment, you need to write an essay in complete sentences.

Strength vs. Success; Weakness vs. Failure

A strength (or weakness) is something different or unusual: if it is the norm for the industry, then you would only mention the exception. Note that for some attribute (e.g. distribution) there might be many companies similarly situated, and thus this would be neither a strength nor weakness for these companies.

If a strength is an attribute of a firm (e.g. its distinctive competence), this is not the same as success, which is a result or outcome. A strength can help explain a success, and often a success gives you a clue as to a strength. Similarly a failure is not a weakness, but may have been caused by a weakness.

Sometimes success leads to a strength, but you need to explain why. A firm that has high market share may have high brand name recognition, excellent distribution, or enjoy economies of scale when compared to its smaller rivals. Remember something is a resource, capability or a distinctive competency only if it leads to some form of competitive advantage (Hill & Jones, 6th ed., Fig. 4.1, p. 111).

The source of competitive advantage is normally a strength: for example, if the company has a strong brand or better-than-average distribution.

An activity is neither a strength nor weakness. Don’t tell us what they do, tell us what they do better (or worse) than most of their competitors — and why.

Past, Present and Future

• Past. Don’t confuse a strength (or weakness) with an outcome. SWOT analysis is never about the past, but always about the present or future. A battle that’s been fought and lost may have previously been a threat, but if there’s nothing left to lose (e.g. you’ve cancelled the product line) it isn’t a threat anymore. Similar, a past failure might reflect a weakness — a weakness that the firm had — but you need to explain what is today’s weakness (or strength, opportunity or threat) and how it affects the firm going forward.
• Present. Things that are true today, clear, undeniable are likely to be strengths or weaknesses. We know we have good products and reputation (strengths), but we also have a weak balance sheet and poor distribution (weaknesses).
• Future. Some that is likely (or at least high possible) to happen in the future — to us or competitors — are opportunities or threats if they would have a significant impact on performance. So if the union might or might not go on strike next yea, that is a threat, while poor attitude among our workers today is a weakness. Similarly, if we have 80% market share in the U.S., that’s a strength, but if we have the opportunity to increase our market share in China from 0% to 30%, that’s an opportunity; if someone is seriously challenging our 80% share, that could be a threat.