SWOT Analysis

A SWOT analysis is a structured review of an organization's strengths, weaknesses, opportunities and threats. Strengths and weaknesses are internal: the capabilities, resources and limitations the organization controls. Opportunities and threats are external: developments in markets, technology, competition and regulation that it does not control. Putting the four side by side helps leaders see where they are well placed, where they are exposed and what they should do about it.

SWOT is probably the best-known strategy tool of all, used by companies, nonprofits, public bodies, teams and individuals. Its origins are disputed. It is often traced to business policy teaching at Harvard Business School in the 1960s, where Kenneth Andrews and colleagues framed strategy as matching a company's internal capabilities to its external environment, and is sometimes credited to Albert Humphrey and colleagues at the Stanford Research Institute. Whatever its source, its simplicity is both its main strength and the reason it is so often done badly.

The Four Elements of SWOT

• Strengths. Internal attributes that give the organization an advantage, such as a strong brand, proprietary technology, loyal customers, low costs, skilled people or a strong balance sheet.
• Weaknesses. Internal limitations that put it at a disadvantage, such as outdated systems, skill gaps, dependence on a few customers, high costs or slow decision-making.
• Opportunities. External conditions it could use to its benefit, such as a growing segment, a competitor's retreat, new technology, regulatory change or shifting customer needs.
• Threats. External conditions that could harm it, such as new entrants, substitute products, economic downturns, supply risks or tighter regulation.

The internal and external split is the part most often mixed up. A test that helps: if the organization could change it directly, it is a strength or weakness; if it would happen regardless of what the organization does, it is an opportunity or threat. "Our sales team lacks enterprise experience" is a weakness. "Large customers are consolidating their suppliers" is a threat.

How to Do a SWOT Analysis

1. Define the subject and purpose. Be clear whether the analysis covers the whole company, a business unit, a product or a decision, and what question it should help answer.
2. Analyze the outside world first. Opportunities and threats are better grounded when they come from a structured external review, such as a PESTEL analysis of the wider environment and Porter's Five Forces for the industry.
3. Assess strengths and weaknesses relative to competitors. A strength is only a strength if it is better than what rivals offer and matters to customers. Use evidence such as customer research, market share, cost comparisons and win-loss data.
4. Prioritize. Keep the few items in each quadrant that matter most. A SWOT with twenty entries per box is a brainstorm, not an analysis.
5. Connect the quadrants into strategies. Use the TOWS matrix described below to turn the analysis into options.
6. Decide and assign. Choose the strategies to pursue and turn them into objectives and initiatives with owners.