What is SWOT and what is its value as an analytical tool?

In business strategy or in the science that has been formed around the strategic thinking, there are a series of tools necessary to prepare and develop the plan that is needed to see what the present of the company is and what the future will be like. There is talk of Value chains o de Porter’s Five Forces (external analysis), we use the BCG matrix or we try to know our competitive advantages with respect to the environment …

Well, before all that is the SWOT analysis (acronym formed by the initials of the words Weaknesses, Threats, Strengths, Opportunities), or SWOT, its equivalent in English (Strengths or strengths, Weaknesses or weaknesses, Oportunities or opportunities, Threats or threats). And the way the acronyms are formed in both languages ​​is important, because while the term in Spanish unites the bad things and the good things, giving rise to confusion about how to use them, the English term combines the concepts that have to be analyzed. jointly, helping to be clear about their order.

Once the clarification has been made, what we want to achieve with the analysis is that we get to have a photograph of something that shows us where we are. In other words, we are before the analytical tool that initiates strategic thinking, which allows us to make an introductory mental scheme, with which to carry out a correct analysis of the competitive situation of a company. Thus, the SWOT analysis method It consists of analyzing the competitive context of the company from two aspects or environments: external and internal.

What is SWOT?

dapho scheme

The first aspect would be the one in which the company indicates the threats and opportunities in the sector or industry in which it operates (external environment of the company), which must overcome or take advantage of them, but always anticipating them. Here flexibility and how dynamic the company becomes comes into play, for which it must define the borders where it is going to move, and how the competitors will be faced against.

The second aspect would analyze the strengths and weaknesses of the company (internal environment of the company), according to the circumstances in which the competition moves individually, but always based on objective or real facts. Here we carry out the analysis of resources and capacities, considering a great diversity of factors related to production, marketing, financing, general organizational aspects, etc …

Put in situation, we can further summarize the matrix that ends up forming the analysis DAFO. What are the negatives? Threats and weaknesses. What are the good points? Opportunities and strengths. What is achieved? Being able to answer the following questions: how can each strength be exploited ?; How can you take advantage of every opportunity?; How can you stop each weakness?; How can you defend yourself from each threat?

Description of the concepts

On Marketing of the 21st century we have a further clarification to each of the concepts:

  • Weaknesses. Also called weak points. They are aspects that limit or reduce the capacity for effective development of the company’s strategy, constitute a threat to the organization and must, therefore, be controlled and overcome.

  • Strengths. Also called strong points. They are capacities, resources, positions achieved and, consequently, competitive advantages that must and can serve to exploit opportunities.

  • Threats. It is defined as any force in the environment that can impede the implementation of a strategy, or reduce its effectiveness, or increase its risks, or the resources required for its implementation, or reduce expected income or profitability.

  • Opportunities. It is everything that can represent a competitive advantage for the company, or represent a possibility to improve its profitability or increase the number of its business.

There is no set number of opportunities or threats that we should list. What will matter will be the time reference in which the analysis is carried out, even in the case of having to perform several SWOTs throughout the year (due to the changes that occur over time in the environment in which the company works). With another additional note, maintain the criteria on which judgments are established of the analyzes that are made. Therefore in each category it is convenient ask us a series of questions before we dive into the analysis.

  • Opportunities: What good opportunities the company faces?; What market trends do you have information on ?; Is there a situation in the economy?; What technology changes are taking place in the market ?; What changes in the legal and / or political regulations are taking place ?; What changes in social and lifestyle patterns are taking place?

  • Threats: What obstacles does the company face?; What are the competitors doing?; Do you have capital resource problems ?; Can some of the threats totally impede your business?

  • Strengths: What advantages does the company have?; What does the company do better than any other ?; What low-cost or unique resources do you have access to ?; What the market people perceive as a strength?; What elements facilitate getting a sale?

What to do with the analysis?

However, what is really valid in the analysis, to limit the work to be done a bit, will consist in obtaining, once it is finished, a result in which we have the least number of threats and weaknesses (negative things), and the greatest number of opportunities and strengths (positive things). Thus, once the greatest possible number of threats and weaknesses have been identified, they should be classified in the best possible way, to minimize their negative effects, if they occur, or enhance them, turning them into opportunities and strengths, to be cared for, maintained and used. .

To conclude, indicate that one of the advantages of this analysis, and that we commented at the beginning of this post, is that the effort that is dedicated to this analytical discussion, facilitates what strategy to follow, taking into account the evolution of the environment. And as usually happens in any analytical method, its drawbacks also appear, which are fundamentally two: the difficulty in classifying some events under one heading or another, and the lack of a system to search for all the facts that influence one or the other. category. Of course, the reality is clear, without the analysis DAFO, with its advantages and disadvantages, is the starting point, and without which we could not get to know better what to do in an environment related to sectors that at first glance seem not to need a DAFO, as is the one of the advertising o go corporate blogs…, for one to cite two examples.

In SMEs and the self-employed | Deciding the future: SWOT analysis

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