The SWOT matrix (also known as SWOT or SWOT in English), is a tool used for the formulation and evaluation of strategy. It is generally used for companies, but it can also be applied to people, countries, etc.
Its name comes from: Weaknesses (D), Opportunities (O), Strengths (F) and Threats (A).
Strengths and weaknesses are factors internal to the company, which create or destroy value. They include resources, assets, skills, etc.
Opportunities and threats are external factors, and as such are beyond the control of the company. These include competition, demographics, economics, politics, social, legal or cultural factors.
The process of creating a SWOT matrix is very simple: in each of the four quadrants, a list of factors is made. They can then be assigned a weight or ranking, according to the priorities of the company or entity being evaluated.
Although the resulting SWOT matrix is attractive and simple to understand, experts believe that the most valuable and revealing part of the tool is the analysis process itself to get there.
The simplicity and intuitiveness of SWOT analysis has made it very popular in companies, governments, departments, countries, etc. However, it is not without its critics. The main criticism is its dependence on subjective judgments, and lack of objective arguments (concrete measures, numerical values).
To identify the purpose of the SWOT analysis, two definitions can be used, one on “Strategic Management”; another, on SWOT analysis. Fred David defines Strategic Management in the following way:
“A company should try to carry out strategies that take advantage of its internal strengths, take advantage of external opportunities, mitigate internal weaknesses and avoid or lessen the impact of external threats. In this process lies the essence of the Strategy Management ”.
On the SWOT analysis, Steiner raises the following.
“SWOT analysis is a critical step in the planning process. Correctly examining future opportunities and dangers (threats) of a company, and relating it in an impartial study with its potentialities (strengths) and weaknesses represents a huge advantage ”. With this, it can be clear that the essential purpose of SWOT analysis is the generation of strategies that allow the organization to “connect” its actions with the possibilities (opportunities) that it can take advantage of in its external environment, as well as prepare to face dangers (threats), leaning on their strengths and reducing the negative impact that their weaknesses may have.
Strategic analysis of the environment
Conventionally, we call "environment" everything that is "outside" of the company (in many translations it is called "external environment"). Includes: suppliers, customers, competitors, banks, markets, government institutions, environment, community, legislation, national and international economy, etc. For its analysis, specialists divide it into two parts: the "micro-environment", or "competitive environment" and; the "macro-environment", or "general environment".
The "competitive environment" includes the factors that influence a certain type of business, in a specific "industry", which Michael Porter defines as follows:
“An industry (or industrial sector) is made up of a group of companies that produce products (or services) that are substitutes for each other. It constitutes the "business" in which a company operates, therefore it is what allows it to identify who its customers are, its competitors and what the market is ".
Internal strategic analysis (diagnosis)
To respond to the demands and trends that can be identified in the environment, the company must realistically analyze the resources and possibilities it can rely on, which are its “strengths”. But, also, the resources or internal factors that can limit its performance and results, which would be its “weaknesses”.
To carry out the internal analysis (diagnosis), the company's management team can be guided by various instruments. One of them may be the "value chain", which "runs through" the entire essential process of generating value, from obtaining supplies to marketing their products. A functional approach to this process allows identifying, as fundamental components of a company: Equipment, Technology, Logistics, Marketing, Distribution channels, Human Resources, Finance, Administration and organization.
Deficiencies in the use of SWOT. Main causes and recommendations.
The use of SWOT is a recurring theme in master's courses, workshops, and management consulting. Most of the participants have some experience, knowledge, or “concerns” about this tool.
Promoting the exchange of criteria and experiences in these groups is useful, not only to enrich the knowledge of the participants, but also to systematize trends and experiences that can be shared with other groups.
PEST analysis tool
PEST analysis is a very useful tool to understand the growth or decline of a market, and consequently, the position, potential and direction of a business. It is a business measurement tool. PEST is composed of the initials of Political, Economic, Social and Technological factors, used to evaluate the market in which a business or unit is located.
The PEST works as a framework to analyze a situation, and like SWOT analysis, it is useful to review the strategy, position, direction of the company, marketing proposal or idea. Completing a PEST analysis is straightforward, and convenient for workshop discussion, brainstorming, and even as an exercise for team-building games.
The factors analyzed in PEST are essentially external; It is advisable to carry out this analysis before the SWOT analysis, which is based on internal factors (Strengths and weaknesses) and external (opportunities and threats). The PEST measures the market, the SWOT measures a business unit, proposal or idea.
The PEST analysis is sometimes extended to 7 factors, including Ecological, Legislative and Industry, thus becoming PESTELI.
Many consider this extension unnecessary, since if done correctly, the PEST naturally covers the additional factors (Legislative would enter Political, Industry in Economy and Ecological dispersed among the four). The extension should be used only when something appears to be missing in the first four factors.
SWOT analysis measures a business unit or proposal; PEST analysis measures the potential and situation of a market, specifically indicating growth or decline, and consequently its attractiveness, business potential and the appropriateness of its access.
PEST analysis uses four perspectives, which give it a logical structure that allows you to understand, present, discuss and make decisions. These four dimensions are an extension of the traditional Advantages and Disadvantages table. The PEST template encourages proactive thinking, rather than waiting for knee-jerk reactions.
The PEST analysis template is presented as a table with four sections, one for each of the factors. The sample template below includes sample questions, the answers to which can be included in the same section. The questions are examples of talking points, and can be altered depending on the subject of the analysis.
As in SWOT analysis, it is important to be clear about the issue analyzed - if focus is lost, the result of the analysis will also be out of focus.
A market is defined by what is directed towards it, be it a product, a company, a brand, a business unit, a proposal, an idea, etc. Consequently, it is important to be clear about how the market being analyzed is defined, especially if the PEST analysis will be conducted in a workshop, in a team exercise or as a delegated activity. The subject of the analysis must be a clear definition of the market to which it is directed, and can be from any of the following perspectives:
- A company seeing its market A product seeing its market A brand relative to its market A local business unit A strategic option, such as entering a new market or launching a new product A potential acquisition A partnership potential An investment opportunity.
Make sure the subject of the analysis is clearly described, so that those who contribute to it, and those who view the finished analysis, understand the purpose of the analysis and its implications.
Differences and relationship between PEST and DOFA
PEST is useful before SWOT - generally, not vice-versa. The PEST will surely help identify SWOT factors. Although they may have common areas (similar factors can appear in both), they are still different perspectives:
PEST: assesses a market, including competitors, from the point of view of a particular proposition or business.
SWOT: evaluates a business or business proposal, yours or your competitor's.
Strategic planning is not a precise science, and no tool is required. It is a matter of pragmatic choice, deciding which best helps to identify and explain the relevant issues.
The PESE becomes more useful and relevant, as the business or proposal becomes more complex; But even for a small, local business, the PEST analysis can yield one or two important factors that might otherwise have been missed.
The four quadrants of the PEST vary in their significance, depending on the type of business. For example, social factors are more important for a consumer goods company or for a B2B company located in the supply chain very close to the consumer. Political factors, on the other hand, would be more relevant to a global munitions supplier or aerosol manufacturer.
All companies benefit from SWOT analysis, and it is useful for all of them to do such an analysis of their main competitors. This, in turn, can feed back the economics of the PEST analysis.
Bibliography
Derkra Collage,
www.degerencia.com/tema/analisis_dofa
www.deguate.com/infocentros/gerencia/mercadeo/mk17.htm
es.wikipedia.org/wiki/An%C3 % A1isis_DAFO
www.12manage.com/methods_swot_analysis_es.html
www.rrppnet.com.ar/foda.htm
