SWOT Analysis



SWOT analysis was developed by the middle of the 1960s for large organizations to determine the strategic fit between an organization's internal, distinctive capabilities and external possibilities and to prioritize actions. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.

The steps in the common three phase SWOT analysis process are:

Phase 1: Detect strategic issues

• Identify external issues relevant to the firm's strategic position in the industry and the general environment at large with the understanding that opportunities and threats are factors that management cannot directly influence.
• Identify internal issues relevant to the firm's strategic position.
• Analyze and rank the external issues according to probability and impact.
• List the key strategic issues factors inside or outside the organization that significantly impact the long-term competitive position in the SWOT matrix.

Phase 2: Determine the strategy

• Identify firm's strategic fit given its internal capabilities and external environment.
• Formulate alternative strategies to address key issues.
• Place the alternative strategies in one of the four quadrants in the SWOT matrix. Strategies that combine:
  1. internal strengths with external opportunities are the most ideal mix, but require understanding how the internal strengths can support weaknesses in other areas;
  2. internal weaknesses with opportunities must be judged on investment effectiveness to determine if the gain is worth the effort to buy or develop the internal capability,
  3. internal strengths with external threats demand knowing the worth of adapting the organization to change the threat into opportunity;
  4. internal weaknesses with threats create an organization's worst-case scenario. Radical changes such as divestment are required.
• Develop additional strategies for any remaining "blind spots" in SWOT matrix. Select an appropriate strategy.

Phase 3: Implement and monitor strategy

• Develop action plan to implement strategy;
• Assign responsibilities and budgets;
• Monitor progress;
• Start review process from beginning.

Porter’s Five Forces

This chart portrays the interaction between three of the five forces from the Industry Attractiveness chart. If the prospect is in a position to dictate the terms under which they purchase your product or service and there is also a high probability of new competition or substitute products then it will be difficult to be profitable. As either or both of these forces is weakened, your potential for profitability increases.