SWOT analysis theory
1. Introduction
The SWOT analysis is a tool that allows to form a picture of the current situation of the company or organization, thus allowing to obtain an accurate diagnosis that allows decisions to be made based on the objectives and policies formulated.
The term SWOT is an acronym made up of the first letters of the words Strengths, Weaknesses, Weaknesses and Threats (SWOT: Strenghts, Weaknesses, Opportunities, Threats). Among these four variables, both strengths and weaknesses are internal to the organization, so it is possible to act directly on them. On the other hand, the opportunities and threats are external, so in general it is very difficult to modify them.
Strengths: they are the special capabilities that the company has, and for which it has a privileged position compared to the competition. Resources that are controlled, capacities and abilities that are possessed, activities that are developed positively, etc.
Opportunities: they are those factors that are positive, favorable, exploitable, that must be discovered in the environment in which the company operates, and that allow obtaining competitive advantages.
Weaknesses: are those factors that cause an unfavorable position against the competition. resources that are lacking, skills that are not possessed, activities that are not developed positively, etc.
Threats: are those situations that come from the environment and that can even threaten the permanence of the organization.
2. Analysis
The SWOT Analysis is a very simple and clear concept, but behind its simplicity lie fundamental concepts of the Administration. I will try to scrap the SWOT to expose its fundamental parts.
We have one goal: to convert the data of the universe (as we perceive it) into information, processed and ready for decision-making (strategic in this case). In terms of systems, we have an initial set of data (universe to be analyzed), a process (SWOT analysis) and a product, which is the information for decision making (the SWOT report that results from the SWOT analysis).
I argue that almost anyone can do a SWOT analysis. I say almost because that person has to have the ability to distinguish in a system:
1. The relevant from the irrelevant
2. The external of the internal
3. The good from the bad
Sounds easy right?
Let's put it in other words: the SWOT will help us analyze our company as long as we can answer three questions: What I am analyzing, is it relevant? is it inside or outside of the company? Is it good or bad for my company?
These three questions are nothing more than the three threads seen in the central process in the drawing above. Let's explain:
Relevance is the first process and works as a filter: not everything deserves to be elevated to a component of strategic analysis. It is common sense since in all areas of life it is essential to distinguish the relevant from the irrelevant. In SWOT this filter reduces our analysis universe, reducing our need for processing (which is no small thing).
Examples: it is doubtful a comparative advantage is the bathroom cleaning system of a petrochemical company, or the color of the monitors, or if the paper used is letter or A4. It seems silly, but it is incredible how many times it is difficult for human beings to distinguish the main thing from the accessory, whether in an argument, a decision or wherever.
Of course, the relevance of something depends on where we are standing, and this concept of relativity is important. The hygiene of the bathrooms can be key in a Hospital or a Hotel. The order in which the steps are done when making a sale is not as important as the steps that firefighters take to put out a fire. Discipline and formal authority are neglected in many "New Economy" ventures… but for an army in battle it can cost its life. That is why whoever does a SWOT analysis must know the business (neither more nor less than knowing what they are talking about).
Filtered the data, we can only classify them. Applying common sense, we can construct a matrix with two dimensions (inside / outside, good / bad):
| Positive | Negative | |
| Exterior | Opportunities | Threats |
| Inside | Strengths | Weaknesses |
Whoever invented SWOT Analysis chose a word for each intersection: thus the intersection of "good" and "exterior" is an opportunity, while the "positive" issues of the "interior" of our company are a strength, and so on.
Distinguishing between the inside and the outside of the company is sometimes not as easy as it sounds. It's easy to say that from Ferrari's point of view, M. Schumager is an (internal) strength, and that if M. Hakkinen loses his team's job, it will be an (external) Opportunity for Ferrari. But the control of a scarce resource (oil) or an exclusive supplier is physically outside my company… and yet they are Strengths. The key is to adopt a systems vision and know how to distinguish its limits. For this, it is necessary to take into account, not the physical disposition of the factors, but the control that I have over them. Remembering an old definition of limit: what affects me and I control, is internal to the system. What affects me but is beyond my control is the (external) environment.
We only have the positive / negative dimension, which apparently should not offer difficulty, but we must be careful. The competitive business environment is full of maneuvering, deception, etc. In WWII, the Axis was happy that the Allied landing was at Calais, because it had a lot of fortresses in that case. But D-day was in Normandy and that is why today the world is what it is.
Circumstances can change from one day to the next within the company as well: the Strength of having that young and clever employee can turn into a serious Weakness if you leave (and worse if you leave with the competition). And the Weakness of having an employee close to retirement and who has a hard time adapting to new technologies can reveal itself as a Strength too late… when he retires and we realize that we depended on him because he was the only one who knew "where everything was" and "how to do things."
The sagacity of the entrepreneur must turn Threats into Opportunities and Weaknesses into Strengths. Examples: Partner with our lifelong competition to face a heavier foe; move an unstructured and outgoing employee from an organizational task that he does wrong, to the front line of customer service. The possibilities are many.
And those are the three necessary steps to analyze the current situation of the organization through SWOT Analysis.
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