What is swot analysis and explain its relevance to business decision making?

Answer 1

SWOT analysis is a powerful tool that can help decision makers achieve their goals and objectives. For businesses, this tool can be of great importance.

SWOT analysis allows decision makers to bring transparency to the various factors that can affect the achievement of their business goals and objectives. Using the low-level details provided by SWOT analysis, businesses can clearly see what will or will not work for them towards their goals and objectives.

SWOT stands for Strength, Weakness, Opportunities and Threats. These four factors are the major players when it comes to business decision making. Each refers to things that may be internal or external to the business, which might have significant impact on achieving goals and objectives.

Strengths encompass things such as expertise, leadership, finance, etc. These areas usually refer to what the company or business possesses internally.

Weaknesses can be seen as the opposite of anything that constitutes strength for the company. Thus, it can encompass things such lack of expertise or leadership, limited available finance, etc. Most importantly weaknesses can be found in the inter- and intra-communication channel of the business.

Opportunities can be seen as the strength of the business but on the external level. Things such as strong demand, low competition, location, etc. Opportunities are generally viewed as anything that increases the likelihood of achieving the business's goals and objectives.

Threats can be seen as the opposite of Opportunities. Anything that can serve as a hurdle towards achieving the business's goals and objectives, on the external level, can be a threat.

How and when to use SWOT?

To start off, you should have a clear goal/objective written down. The goal should be realistic. Then you need to consider each component of the SWOT analysis tool in turn on your business objective/goal, writing down what constitutes a strength, weakness, opportunity or threat.

The next step is to figure out how to balance things. That is, can an opportunity be maximized in order to minimize or account for a given weakness? The same thing goes for opportunity and threat. Can a given opportunity be exploited better and more efficiently so that a given threat can be lowered?

Next you need to draw what is called a SWOT matrix. For this, you need some additional components besides the 4 components of the SWOT analysis. Those additional components include anyone who can be seen as a stakeholder in the business. For instance, consumers, competitors, investors and suppliers are 4 major components in the matrix.

Write down the 4 components of SWOT (strength, weakness, opportunity, threat) on, say, the left side of the matrix. Write down the additional 4 components on top of the matrix. Then inside each of the 4 squares of the matrix, write down what is true for the given square. That is, what about the business is a weakness for competitors? What about the business is a threat to investors?

Make sure you exhaust all possibilities so that you can gain good insights from the analysis. Once you are done, proceed with rigid analysis of the various elements involved and see how you compromise on certain things, trade certain things, balance certain criteria to ultimate obtain a great conclusion.

Please note that certain things will be based on forecasting. Therefore, your SWOT analysis should not be taken as the sole source of insight to help you make good business decisions.

SWOT analysis can be a great tool to help you understand what is involved in making business decisions. SWOT analysis is a great way of expressing relationships between components of business decision making. So next time you have to make a business decision, be sure to try out SWOT analysis.