Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

SWOT Analysis

What is a SWOT Analysis?

SWOT stands for strengths, weaknesses, opportunities, and threats. A SWOT analysis uses internal and external data to evaluate a company's competitive status and risk exposures in strategic planning.

Like any strategic analysis, a SWOT analysis' purpose is to clarify the company's direction by identifying the factors that will lead to or inhibit growth. An independent SWOT analysis may be conducted by a company's own team, interested investors, and even competitors. 

SWOT Analysis Template and Examples

A SWOT analysis template may be graphically displayed as a SWOT chart, such as the one shown below:

 

SWOT Analysis Template and Graph

Going into detail, we will talk about some examples of strengths, weaknesses, opportunities and threats as they may relate to businesses.

Strength. A strength is something the company has or does especially well; it is where the company excels and enjoys competitive advantages. A well-loved brand reputation, loyal customers, proprietary patents, and technologies are all great examples of strengths. Competitive advantages are strengths that can be defended and used to create a "wide moat" or barriers to competition. Strengths are factors that are internal to the company that may be developed to create or defend its advantage.

Weakness. A weakness stops a company from operating as the best version of itself. A weak brand identity, low customer commitment, high debt levels, or imperfect processes are all examples of weakness. A weakness  may be seen as a invitation to competition. Weaknesses are factors that are internal to the company and that should be remedied to resolve disadvantages or risks. 

Opportunity. This represents a potential path for growth. For example, if a government creates tax incentives for solar adoption, a solar cell and panel manufacturer can use this opportunity to accelerate growth. Opportunities are usually factors external to the company that may be used to create advantage.

Threat. This represents factors for potential harm to an organization. A threat to the solar power installation industry could be a shortage of cadmium, which is used in the manufacturing process. Threats are usually factors external to the company that may create risks.

 

What is a SWOT Analysis Used For?

A SWOT analysis provides a survey of the company’s growth and risk factors, which together can reveal strategies for growth and for risk management. It is a "big picture" view meant to objectively report on the company’s situation while identifying factors to help it move forward.

As with any analytical model, the quality of the data used to create the analysis ultimately predicts the success of the SWOT itself.