SWOT which stands for an abbreviation of (strength, weakness, opportunity and threat); is an analysis that defined as method to examine organization’s internal factors dealing with strengths and weaknesses, and its environmental opportunities and also the threats. SOWT analysis usually use in the preliminary phase of decision making as a general tool which it designed for being antecedent to strategic planning in different case and applications. (Johnson et al., 1989; Bartol et al., 1991). Based on some other definitions like what has been discussed by Ward and Peppard (2002), SWOT analysis can be used as a model, process, technique or framework to generate information about those factors in organization by having many applications with possibility of being used in all the levels of the organization. So, SWOT can be defined as internal analysis of organizational Strengths (the things has been done proper by the organizational operation) and Weaknesses (the things that has not been proper enough by the organizational operation) and as well as the external analysis of environmental Opportunities (possible advantageous circumstances, suitable situation, auspicious conditions for an organizational operation) and Threats (possible unfavorable conditions for the organizational operation). SWOT presented as a general tool at the initial stages of strategic planning and also as a part of the latter stages of analyzing the performance and planning for further development of the organization on. SWOT analysis is used as a technique in order to develop a planning process and solutions for the problems that are related with different internal and external factors and maximize the possible and potential of strengths and opportunities as well as minimizing the contradiction of weakness and threats (Schermerhorn, 2006; Bennett, et al., 2003).
Figure 1. Sample SWOT Analysis Diagram
A systematic study on the resources of the organization and also it capabilities can consider as the first step of SWOT analysis. Strength in SWOT analysis is related to competitive advantages and differentiating competencies of the company in its market environment, while weaknesses considered as limitations that can affect the progress of the company in a negative way. This evaluation includes identifying core competencies by considering special strengths which are superior to the competitors. Houben et al. (1999) defined the core competency as an especial strength that gives competitive advantage to the organization and which may founded in “special knowledge or expertise, superior technologies, efficient manufacturing technologies, or unique product distribution systems, among many other possibilities.” Strategy formulation goal is to form strategies that leverage core competencies for competitive advantage by constructing organizational strengths and minimizing the impact of weaknesses (Houben et al., 1999; Schermerhorn, 2006).
Figure 2. SWOT Analysis of Strengths, Weaknesses, Opportunities, and Threats
(Schermerhorn, 2006, p.88)
Strengths: The first internal element in SWOT analysis which covers what organization is doing well and proper. The strengths may be being low-cost producer or high quality product producer based on the perspective that may occure. (Bennett, et al., 2003, p.2).
Weaknesses: Another internal element of the SWOT analysis which cover identifying the areas that organization face with difficulties and not doing well enough by examining from the internal and external perspective of the operation. Usually all operations, regardless of size or profitability have weaknesses (Bennett, et al., 2003, p.2).
Opportunities: The first external element of the SWOT analysis which cover any useful situation in that organization deal business’s environment that the operation may gain an advantage form. Diversification range and also the use of new technologies to market trends and relationship developments, besides usually all operations have some opportunities which clarify why it’s important to analyze. (Bennett, et al., 2003, p.2).
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Threats: Another element of the SWOT analysis is the external threats which all operations can face and they can range from lower international prices to key relationships that have some problems. The operation of the organization must take some actions to prevent the external threats (Bennett, et al., 2003, p.2). SWOT analysis is used as inputs to generate possible strategies. And next step is to decide these strategies after the identification and analysis of strengths, weaknesses, opportunities and threats (Houben et al., 1999).
3. SWOT Analysis and Strategic Planning
SWOT analysis is mainly part of the strategic planning process buy studying on internal and external forces in the business environment of a company of organization. As a first step of a strategic planning system, the strategic factors that are related with the potential of the company, should be identified and evaluated. The identification and evaluation of the strategic factors helps to reach an actual strategic plan and as a result the managers are able to gain insight of internal and external nature of the company and establish suitable actions in order to reach good performance (Houben et al., 1999, p.2) In order to have good performance in strategic planning, the future objectives on the company’s strength and the weaknesses of the company must be considered by the company. Internal strengths and weaknesses are the main components of the strategic management process but it must be reinforced with considering opportunities and threats from the external environment. According to Hill and Roy (1997, p.46), “SWOT analysis is one of the most straightforward approaches for analyzing the strategy of an organization.” SWOT as it explained before stands for “strengths, weaknesses, opportunities and threats” which according to Zack (1999, p.126) is “one of the famous frameworks to define a strategy.” Considering Zack, Hill and Roy statements about SWOT, it can conclude that this approach can be used in order to define and analyze organization’s strategy by consisting of two parts as; first, analyzing the internal characteristics and capabilities of the organization which helps to identify the strengths and the weaknesses that the organization has. In the second part, analyzing of the external position in the competitive circumstances is necessary to identify the opportunities and the threats that the company may faces and deals with.
Through the below table, Ward and Peppard (2002, p.305) explained that it recommended “a set of criteria that can be used as a basis for a strength, weaknesses, opportunities and threats (SWOT) analysis of the current applications, to determine the need for action, either to improve their contribution or enable other, related applications to be developed or used better.”
Table.1 SWOT analysis of existing portfolio (Ward and Peppard 2002, p.306)
After identification of these four factors, a strategy for the company can be presented. Based on Zack statement (1999, p. 127) strategy is the act of balancing between internal and external situations of a given organization. And a good strategy is the one which ensure a fit between external situations of the company with its own internal capabilities (Hill and Westbrook, 1997, p.47). This analysis was in power for at least 30 years. Zack (1999, p.128) believes that companies who have superior knowledge, can sustain their competitive advantage by the use of those knowledge in order to combine, coordinate, develop and exploit their resources and capabilities in a new way and better than their competitors.
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After explaining SWOT framework in previous section, and talking about knowledge as a strategic asset and the sustainable competitive advantage which could be achieved through the application of the knowledge that exists in an organization, the author (Zack, 1999, p. 130) proposes that: “Firms need to perform a knowledge-based SWOT analysis, mapping their knowledge resources and capabilities against their strategic opportunities and threats to better understand their points of advantage and weakness”. The outcome of this analysis could be a map that can help the organization to strengthen its knowledge advantages and reduce its knowledge weaknesses. This map reveals the knowledgebase resources and capabilities of one organization and the knowledge that this organization needs in order to be competitive in the market by providing the products and services. As we mentioned earlier, we can thought of this as a knowledge strategy. Zack (1999, p.131) mentions three steps that should be taken in order to describe the link between strategy and knowledge:
“1. Organization needs to identify its strategic goals.
2. Organization must evaluate the knowledge that it needs in order to achieve its strategic goals.
3. Comparison between the knowledge that one organization has and the knowledge that one organization needs reveals the strategic knowledge gaps of that organization.”
A firm, according with its current knowledge, should recognize the most suitable merchandise and possible opportunities for the market for exploiting that knowledge. For instance, it identifies the differences in between and managed and developed its strategic knowledge accordingly (Zack, 1999, p.131), therefore it can be considered the knowledge as an important strategic resource for sustaining the competitive advantage. There are 3 reasons why knowledge makes the advantage sustainable, as first that knowledge which is gained from organizational procedures through experience is unique and cannot easily be reproduced. Because acquiring this knowledge require competitors to engage in similar experiences which need time and money. Second is that, those firms which know more can learn more in comparison to their competitors who have just started to gather knowledge. Third reason is that, the integration between newly gained knowledge and the knowledge that the firm already has can create unique insights and more valuable knowledge that is difficult for the competitors to gain. These reasons all lead to a sustainable competitive advantage. Strategic management is a collection of decisions and actions that are taken by the business management to determine the long-term activities of the company. Basically strategic management has three elements (Houben et al., 1999, p.126), “the formulation of a strategy; the implementation of a strategy; the control and evaluation of the strategy.” Internal and external environment analysis should be conducted before applying these stages, while analyzing of the internal and external environment will result in an overview of all opportunities and threats and also weaknesses and strengths will be reviewed that can conclude as the SWOT analysis results. To define the internal and external environments it can mentioned that the external environment include the variables existing outside the company which they are mostly short-term and out of control of the company and they are from the context in which company exists and functions (Houben et al. 1999 and Schermerhorn, 2006). The external variables categorized as direct and indirect environment and they can define by the elements or groups are straightly affected with the actions that company take, and considered as the direct environment (industry environment), such as; shareholders and suppliers, and also government and other local authorities, the competitors, the clients, the creditors and the employee’s organizations. The general forces that have an impact on the long term decisions of the company are considered as indirect environment (macro-environment) such as; economic, socio-cultural, technological, political and juridical influences (Houben et al., 1999, p.126; Schermerhorn, 2006, pp.87-88).
4. SWOT Analysis in Practice
In this section with over viewing the SWOT analysis of organizational performance of small and medium enterprises in Egypt, the practical use of this analysis explore through a real case. Shobery et al. (2010) studied on the “organization performances of small medium enterprises in Egypt through promoting the human factors in quality management systems.” They have done this analysis with the help of surveys results which analyzed by the SWOT method in order to identify the Egyptian manufacturing SMEs’ (Small, Medium Enterprise), Strengths, Weaknesses, Opportunities, and Threats. To generate information about their effects on organizational performance and to determine if there is a need to support systems for the organization’s development or a need for system improvement (Shobery et al. 2010).
This analysis the research team used as a guideline for developing the QMS model with focus on human factors. In Shobery et al. (2010) paper, it highlighted that Egyptian manufacturing SMEs (Small-Medium Enterprises) have much strength and weaknesses, and many opportunities and threats which are generated from the business environment and have effects on the whole organization. Strengths of SMEs were confirmed by the results of the questionnaire and have supported, developed and promoted as a part of the basic infrastructure needed to achieve the criteria of the business excellence practices. Weaknesses indicated the problems and ineffective work systems which need to be solved and improved gradually to get a new and better infrastructure (Shobery et al. 2010). In their research they figured it out that opportunities mainly increase the number of international markets open to Egyptian manufacturing SMEs. Threats are mainly generated through competitive situations from the international trading competitors and free trade areas (FTAs). There is an increase in the number of overseas competitors most of which have a higher potential for international trade than Egyptian firms. Generally, strengths and opportunities influence the organization’s performance in positive ways and also support the development of a QMS. Shobery et al. (2010, p: 77) discussed that “in contrast, the weaknesses and threats have negative effects on the organizational performance, which hamper a successful implementation of a QMS.” Strengths, weaknesses, opportunities, and threats effects on the organizational performance in Egyptian manufacturing SMEs are presented in Table 2 and Figure 3. Based on their findings, a systematic schedule for the analysis of strengths and weaknesses is something constantly gaining popularity. Companies must undertake specific actions in order to distinguish their competitive strengths and weaknesses. History has shown this to be not particularly simple. Many companies only have vague ideas of the source of certain competencies and the extent to which they possess them. The absence of a global company overview prevents a clear picture being obtained. Despite these problems the development of a competitive strategy depends on having a global overview as regards strengths and weaknesses.
Table2. Effects of strengths, weaknesses, opportunities, and threats on organizational performance (Shobery et al. 2010, p: 87)
Figure3. Effects of strengths, weaknesses, opportunities, and threats on the organizational performance in Egyptian manufacturing Small Medium Enterprises (Shobery et al. 2010, p: 88)
From this study it can be concluded that SWOT Analysis which can be used as a model, process, technique or framework to generate information about those factors in organization by having many applications with possibility of being used in all the levels of the organization, enables to see the competitiveness and capability of organizations in flow of internal and external environment. After completing your SWOT analysis some points could be clarified as how strengths factors could be used to allow the organization to take advantage of the opportunities that have been identified by SWOT analysis and how the strengths can be used to overcome the identified threats. Besides, it can give an outcome to how properly overcome the identified weaknesses to take advantage of the possible recognized opportunities and also minimizing the weaknesses by overcoming the identified threats. Since the first step of a strategic planning system, is analyzing the strategic factors that are related with the potential of the company, both internal and external, SWOT analysis can be mainly part of the strategic planning process buy studying and analyzing the internal and external forces in the business environment of a company of organization. Internal and external environment analysis must be done before applying these stages. While analyzing of the internal and external environment will result in an overview of all opportunities and threats and also weaknesses and strengths will be reviewed and these are SWOT analysis results.
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