The business environment is dynamic. Changes in the ecosystem affect the functioning as well as the performance of the business. Various internal and external factors influence the business environment. So, these need to be controlled. It is the task of managers to carry out strategic management so that the business can sustain itself amidst all the changes. For this managers rely on SWOT analysis. It is a widespread technique used by managers.
What is a SWOT analysis?
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The strengths and weaknesses of a business can be identified by analyzing its internal environment, while opportunities and threats can be identified from its external environment.
For a business, STRENGTH is its inherent capacity which enables it to gain a strategic advantage over its competitors. For example, Hindustan Unilever Limited has its circulation network country-wide, which acts as its strength.
WEAKNESS is the intrinsic factors which restrict the business to gain an advantage over its competitors. For example, family feuds or fund shortage for a business can act as its disadvantage.
OPPORTUNITY is a lucrative condition that can be gained from an external environment. The opportunities that are seized add to the strength of a business and bestow a competitive advantage. For example, demand growth, globalization and liberalization act as opportunities for a company.
THREAT is a hostile condition in the external environment which may act as a danger for business. For example, increasing competitors in the market or the addition of more multinational companies in India can be a threat for the Indian firms.
Significance of SWOT analysis
SWOT Analysis is one of the vital tools of strategic management. It is needed for strategic formulation and selection. It helps the firm in knowing the difference between the things it can do and the things it is allowed to do. A strategy becomes effective when the business focuses more on the capitalization of the opportunities and counterbalances any threat which may affect it badly. Furthermore, it allows a business to gain a competitive advantage of its strength and work on its weaknesses. Some of the examples of strength, weakness opportunities and threats are given below:
STRENGTHS
- Patents
- A strong brand portfolio
- Favourable access to the distribution network
- Goodwill in the market
- Strong brand name
WEAKNESSES
- Weak brand name
- High cost
- Dispersed manufacturing locations
- No patent
- Lack of goodwill in the market
OPPORTUNITIES
- Increased penetrations especially in rural areas
- Frequency of usage in all categories
- New innovations
- Brand growth by fulfilling customer’s needs
THREATS
- Increased trade barriers
- Fluctuation in fiscal benefits
- Arrival of spurious products
- Low-priced competition
- Continuous change in the customer’s taste and preferences
- Regular change in the oil prices
Closing Note
A manager is responsible to identify the strengths and weaknesses of the organisation and work on them. He should also ensure that the organization can capitalize on opportunities and shun threats. Through SWOT analysis, the managers can easily create effective strategies that can drive a business towards success. So, the managers must be trained to follow effectively follow this technique. At MIT School of Distance Education (MIT-SDE), we train all future managers so that they can create effective strategies. We offer management courses in different specialisations including IT, HR, operations, marketing, finance, and many more. Our courses are equivalent to correspondence MBA but better than it in the sense that our syllabus is up-to-date. Our course includes a rich mix of theory and practical that provides industry-specific knowledge to the candidates. So, apply for our distance MBA equivalent courses and enhance your employability.