SWOT-Analysis

The environment in which an organization exists can be described in terms of the opportunities and threats operating in the external environment apart form the strengths and weaknesses existing in internal environment.

            Business firms undertake SWOT-analysis to understand the external and internal environment. SWOT is the acronym for strengths, weaknesses, opportunities, and threats. Through such analysis, the strengths and weaknesses existing within an organization can be matched with the opportunities and threats operating in the environment so that an effective strategy can be formulated. An effective organizational strategy, therefore, is one that capitalizes on the opportunities through the use of strengths and neutralizes the threats by minimizing the impact of weaknesses.

            The four environmental influences could be described as follows.

Strength: Strength is an inherent capacity which an organization can use to gain strategic advantage over its competitors. An example of strength is superior research and development skills which can be used for new product development.

Weakness: A weakness is an inherent limitation or constraint which creates a strategic disadvantage. An example of a weakness is overdependence on a single product line, which is potentially risky for a company in times of crisis.

Opportunity:  An opportunity is a favorable condition in the organization’s environment which enables it to consolidate and strengthen its position. An example of an opportunity is growing demand for the products or services that a company provides.

Threat: A threat is an unfavorable condition in the organization’s environment which creates a risk for, or causes damage to, the organization. An example of threat is the emergence of strong new competitors who are likely to offer competition stiff to the organization.