The purpose of this essay is to present the theoretical background of SWOT analysis, its advantages and the disadvantages. One of the tools used in many researches not only in business area has blurred and contradicting views of its origins. Every company, business or alone actor needs to be aware of its strengths, weaknesses, threats and opportunities and here is where SWOT analysis comes in hand in order to reach the specific companies, business or enterprise’s goals. Since in today’s world, it is not enough to be just good, one needs to have a strategic advantage with added value to consumers. In order to reach that you need to have a SWOT analysis done. Many different tolls of research are known today and one that can be effective when taking into consideration both advantages and disadvantages is also examined SWOT analysis.
The origins of SWOT are not clear (Lewin Eyal 2012, 17). The begging of a method goes back to the year 1950 to 1970 (Pahl, Richter 2007, 7). Last but not least the essay will examine the advantages and disadvantages of the SWOT analysis. The SWOT analysis is a tool and a method that examines as can be seen from its acronym strengths, weaknesses, opportunities and threats (Speth 2015, 5). It is an important decision making tool (Valentin, Lewin 2012, 18). With strengths mostly internal factors such as employees, team, management, and members and their experience and competence play a vital role. Weakness need to be addressed to improve your enterprise and make it even better and come over the obstacles. Opportunities are (Harvard Business School Publishing Corporation 2006, 4) “trends, forces, events, and ideas that companies or unit can capitalize on”. With threats mostly external factors that will have influence on you conducting of business matter, such as regulations and politics, competition, market, social, economic and technological conditions. Every single one of factors analysis as it one part have an effect on all others. With SWOT analysis the maximization of strength and minimization of weakness can be overcome. It needs to be used in strategic purposes with showing external and internal prioritizations factors (Septh 2015, 7).
The reason and purpose of doing SWOT analysis are to achieve plans for the future and set the goals, where strengths and weaknesses are internal factors and opportunities and external threat. Purpose and reason for doing SWOT can be derived from Porter’s Fife Forces that can help the business decide either to enter some industry or not and they include power of suppliers, power of barriers, competitive rivalry and availability of substitutes (Porter 1998). It matters how many suppliers the company has since that determines their power. It is important what kind of product one has and what importance it represents to the consumers, are there any competitors with similar product or service, and what are the input and output costs. With these and other factors defined by Porter taken into account the company can calculate the profitability and attractiveness. The company is working in the network of buyers, suppliers and substitutes where competition and new entrants play a very important role. For the strategic analysis Porters concepts prove to be valuable for newly started business even more. All actors on the market compete with each other and that’s why the theory of Competitive Advantage matters. Outperformance of others can be achieved (Porter 1998) with access to natural resources, skilled personnel, geographic location, entry barrier that does not permit others to become a concurrence, new technologies, that lead to a better product or service in accordance with the consumer’s needs. The focus should not be only on one core components, but on the trade-offs activity in order to reach sustainability of a strategy (Porter 1996). Based on Porter organization needs to develop unique skills that have not been seen by other organizations that need to be used in the context that makes them valuable for the company (Arhyres and McGahan 2002, 47). The purpose of the Competitive strategy is not to write strategy per se, but to create a useful strategic plan by using the right set of skills for the right purposes. The right question needs to be answered and that is why the SWOT analysis is important to be developed before an overall strategy. Porter argued that the strategy must rest on the certain economic fundamentals even though changes are constant present (Arhyres and McGahan 2002, 49). Strategic planning must focus on the purpose of the company, vision and values, key issues company is facing, with external and internal analysis, aim of competitions, operational plan and projects, sales and resource plan, monitoring and learning that will be included into the strategy that should be customized through the time (Kaplan and Northon, 2008). We can see that from Porter to Kaplan and Northon all have argued the factors that are already foreseen in the SWOT.
Advantages of the SWOT analysis lie in identifying the most important internal and external factors that will have an influence on the company. The strengths, weakness, opportunities and threats are being summarized in order to “eliminate weakness and exploiting its capabilities, or to use an option in the fight against threats” (Oreski 2012, 284). Another advantage of the SWOT lies in its simplicity of usage and it is based on the real data and information not only on a theoretical level. It uses both external and internal factors. It can be used for analyzing various actors in order to create a good and effective strategy. With the SWOT strengths can reverse its weaknesses. The organizational threats can be overcome with the clear points. With a concept the objective stance is achieved with almost no extra costs for the company. With the SWOT analysis one can understand the business better. With the SWOT the identification and clarification of fundamental policy choices, programs can be seen (Kearns 1992, 25).
Disadvantages of the SWOT analysis as argued by Wang can be to open nature without clear method to conduct the analysis and cannot be effective without the incorporation strategy (Wang 2015, 1). The whole SWOT is hard to present because of the changing nature of the circumstances company works. It can happen that some of the four factors because of various factors cannot be examined and because of the changing life cycle on the way to contribute to the success (Wang 2015, 2). Inability of SWOT to “quantify the effects of weight and strategic factors on alternatives” is another disadvantage. The analysis is presented as factors do not influence each other which are incorrect since they are not independent but interconnected. Another disadvantage was presented by Oreski (2012, 286) such as based only on qualitative analysis. Only using the factor determined by SWOT analysis will not suffice the needs because of the general and brief analysis not taking into account other more complicated aspects. Shallow and misleading results can be produced (Valentin 2001, 54). Many critics have gone to the simple factors included, looking into the information without interconnections and consequences of each factor have on others. It focuses on fulfilling the set of factors without looking forward to the strategic implications it wants to reach. Hill and Westbrook (1997) have even stated that it can harm the performance. The failure to prioritize and give meaning findings should eliminate the SWOT analysis from conducting. The limitation can be seen also in inability of management to control various factors. To summarize the disadvantages no prioritization, no solutions or alternatives, many different ideas without the focus on the main one, much information can be useless.
The essay has showed unclear history of the origins of the SWOT analysis. Many various and contradicting information and data have been found with no real evidence of its epistemology. Regardless of its innovator that has roots around the globe that has led to today’s most known research tool, various articles were taken into consideration with presenting the advantages and disadvantages of the SWOT. To sum up both one can conclude that in some cases the SWOT can lead to good results and in many also in the opposite direction. Conduced in the right way its simple used framework can be used in various companies, actors, enterprises from a more educated and sophisticated manager to the ordinary man. For newly started companies defining the strengths, opportunities, threats and weaknesses lead to structural orientation, setting the goals and the aim company wants to achieve. For every new actor, new start up or joint venture Porter’s theory of competitive advantage can be useful. Competitive advantage needs to be reached in order for a business to be profitable and achieve its goals in an ever more interconnected world.
References:
Arhyres, Nicholas, McGahan, M. Anita. (2002). An Interview with Michael Porter. Web. Retrieved from <file:///C:/Users/PuskA/Downloads/Content%20Interview%20%20(1).pdf>
Harvard Business School Publishing Corporation. 2006. SWOT Analysis I: Looking Outside for Threats and Opportunities. Retrieved from file:///C:/Users/PuskA/Downloads/SWOT%20Analysis%20I%20-%20Threats%20and%20Opportunities%20(1).pdf
Harvard Business School Publishing Corporation. 2006. SWOT Analysis II: Looking Inside for Strengths and Weaknesses. Retrieved from: file:///C:/Users/PuskA/Downloads/Strength%20&%20Weaknesses%20HBR%20(1).pdf
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