A business model for analysing growth opportunities
The origins of the SWOT tool began with research carried out by Stanford Research Institute (SRI) in 1960. The team at SRI concluded that the first step was to find out what was good and bad about an organisation before deciding what it could do. What was seen to be good in an organisation was labelled Satisfactory (S), what was bad was labelled a Fault (F) and these could then be addressed to the Opportunities (O) and Threats (T) within the market place. The team created the acronym SOFT to describe the satisfactory, opportunity, fault and threat components of the tool. In 1964, at a seminar on long-range planning held in Switzerland, the F in SOFT was changed to a W for weakness and the SWOT was born.
The SWOT analysis tool has proved powerful and popular. It is used in business and marketing to address a company’s position within a market, or the future for a product, brand or business idea. It is also used as a problem solving tool which can be used to guide an acquisition, outsource a service, develop a partnership with a different company, or evaluate an investment opportunity.
The tool can be customised. For example, if there are many components of the SWOT they could be ranked or given a score of importance to provide a degree of focus.
As with many of the tools described in this book the SWOT does not have to stand alone. The PEST tool is a useful adjunct, especially in identifying the threats and opportunities within a market.
Strengths are the things that a company does well. When carrying out a SWOT, people find the strengths and weaknesses the easiest parts to complete. The strengths of a company or a product are usually quite obvious.
Weaknesses, like strengths, are another internal dimension. These are areas where the company lags behind the competition or is failing in the eyes of customers. They are likely to cover the same subjects as the strengths – products, prices, promotion, distribution, profitability etc.
Opportunities for a company are those in the marketplace. They are external to the company. They include opportunities that arise from some aspect of the market – its size, its growth, its composition in terms of demographics, the economic situation, the competition, the environment, or favourable legislation.
Threats are the flip side of opportunities. Threats come from a shrinking marketplace or a highly competitive market. Legislation may pose a threat. Threats could arise from the changing demographic of a company’s customer base.
It is sometimes difficult to figure out the difference between strengths and opportunities. Remember that strengths are internal - that is things that you are good at within the company. Opportunities are external - things that you could take advantage of in the market outside the company.
When the strengths, weaknesses, opportunities and threats are laid out in a grid, the meeting point in the centre of the grid prompts responses. This turns the SWOT into an action orientated tool.