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SWOT Analysis

Chapter · January 2015

DOI: 10.1002/9781118785317.weom120103

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Tanya Sammut-Bonnici David Galea

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SWOT analysis its ability to combine them into competitive
products and processes. Examples of strategic
Tanya Sammut-Bonnici and David Galea capabilities are the following: developing inno-
vative technology products, reducing the time
CONCEPTUAL FRAMEWORK to market, creating more efficient distribu-
tion channels and retail outlets, capturing
A SWOT analysis evaluates the internal the consumer’s attention through marketing,
strengths and weaknesses, and the external and managing customer relationships to gain
opportunities and threats in an organization’s long-term brand loyalty.
environment. The internal analysis is used to Core competencies are derived from capabili-
identify resources, capabilities, core competen- ties and, if they are unique in the industry, they
cies, and competitive advantages inherent to the will create sustainable competitive advantage for
organization. The external analysis identifies the firm. How an organization turns its capabili-
market opportunities and threats by looking ties into core competencies is less visible to rivals,
at competitors’ resources, the industry envi- making competencies difficult to understand and
ronment, and the general environment (see imitate.
Figure 1). The objective of a SWOT analysis is The components of an internal analysis
to use the knowledge an organization has about of strengths and weaknesses are the firm’s
its internal and external environments and to resources (summarized in Figure 2) into the
formulate its strategy accordingly. This article functional categories of financial, managerial,
provides a toolkit of templates to conduct a infrastructural, suppliers, manufacturing, distri-
SWOT analysis and discusses practical insights bution, marketing, and innovation resources.
on how to formulate strategic decisions. Financial resources are defined as the extent
to which an organization has access to capital.
ANALYSIS OF INTERNAL STRENGTHS AND
Organizations with high brand equity and a
WEAKNESSES high reputation are likely to have access to less
The internal analysis of the organization is expensive sources of finance. The cost of capital
critical in identifying the source of competi- is lower for established companies and higher
tive advantage. It pinpoints the resources that for operations that have a risk of failure. Other
need to be developed and sustained to remain sources of finance are derived from a balanced
competitive. By definition, competitive advan- business portfolio that has a good mix of cash
tage must be unique to the firm to generate generating products, which make up for costly
profits above the industry average. The strategic products that are in the introductory phase of
management process starts with an in-depth their life cycle. Some organizations may opt
evaluation of the organization by looking at its for high levels of gearing, where interest on
internal resources and capabilities, these being capital is likely to diminish profits. A strong
the source of its core competencies, which in cash flow position for an organization is vital to
turn create a competitive advantage. buy in resources that will sustain operations and
Resources are defined as the tangible or intan- growth in the long term.
gible inputs required to produce a product or Managerial resources create the competencies
service. Tangible resources include raw mate- of an organization in relation to the planning,
rials, premises, machinery, and equipment. control, and the leading of functions. For
Examples of intangible resources are financing, example, historically, football teams have relied
technology, human capital, supplier networks, on the strengths of a single outstanding player
sales force structures, distribution networks, such as Pele and Maradona amongst others
patents, trademarks, customer base, brand for their success. Commercial football clubs
equity, and firm reputation. Resources can be have changed their strategy from depending
combined and developed into capabilities, which on individual high performers to depending
in turn creates core competences. on dynamic teams. High-ranking football clubs
Capabilities are defined as the firm’s capacity such as AC Milan and Manchester United focus
to make efficient use of internal resources, and on developing and renewing a pool of highly

Wiley Encyclopedia of Management, edited by Professor Sir Cary L Cooper.

Copyright © 2014 John Wiley & Sons, Ltd.
2 SWOT analysis

SWOT
analysis

Analysis of Analysis of
internal environment external envrionment
Strengths and Weaknesses Opportunities and Threats
(micro environment) (macro environment)

Organizational functions Competitor environment

Industry environment
General environment

Figure 1 SWOT analysis main components.

SWOT analysis template

Internal Strengths (S) and Weaknesses (W)
(micro analysis)

Internal environment Weaknesses Strategic

Strengths
action

1. Financial
2. Managerial
3. Infrastructural
4. Suppliers
5. Manufacturing
6. Distribution channels
7. Marketing
8. Brand equity
9. Innovation resources

Figure 2 Template for the analysis of internal strengths and weaknesses.

skilled players and a management style that logistics, and customer relationship manage-
rewards team performance. ment. The analysis can go a step further by
Infrastructural resources are the backbone of evaluating the platforms on which the systems
the company allowing operations to run effi- run, such as computer based, mobile, and cloud
ciently while providing information to improve
the current processes. Examples of infras- platforms that may increase usability across the
tructural resources are computerized systems organization’s departments and employees.
for finance, accounts, procurement, internal Suppliers and the nature of their products and
processes, production, stores, marketing, sales, services will have a bearing on the competitive
 SWOT analysis 3
advantage of an organization. Different methods level of finance, managerial skill, and technolog-
and techniques are used to rate and evaluate ical infrastructure. The incoming supply chain
suppliers. An effective assessment is based and outgoing distribution chain may be common
on the key deliverables of the product range, throughout the industry.
quality, availability, lead times, and service Organizations with similar resources are likely
responsiveness. to have similar strategies. Another phenomenon
Manufacturing resources such as plant, is that organizations are more likely to engage
machinery, automation, and technical support in coopetition, a form of collaborative competi-
are essential to develop quality products. Flex- tion designed to increase revenues by growing
ibility in manufacturing is another factor to the industry as a whole rather than growing
consider as it enables innovation and product market shares. The rules of competition become
development. Modular manufacturing and survival through tacit complicity to grow the
outsourcing of production are other factors that market collectively.
would cater for innovation and change in the This is the case for the telecommunications
product line. industry. Mobile network operators such as
Distribution channels can be analyzed to seek Vodafone and T-Mobile have access to the
the strengths and weaknesses of logistics, part- same network suppliers (such as Ericsson and
ners, and distribution chain management. Siemens) and telephone suppliers (such as
Other areas of assessment are the motivation Nokia, Samsung, Apple, and Sony). Managerial
of channel members, product, pricing, and skill is brought in from an international supply
motivation issues in the marketing channels. pool. Innovation is dependent on the same
Marketing functions are reviewed in terms of technology providers who hold the patents for
their effectiveness concerning industry knowl- new products.
edge through research, product development, Adaptive behavior arises from competition
product life cycle management, pricing policies, and cooperation among the system agents at
distribution channel design, advertising, public the level of technological standards and physical
relations, sales, and product promotion. platforms. In this environment, competition
Brand equity is the goodwill derived from the becomes the driving force behind cooperation.
reputation of the organization and its brands. Competing firms are observed to forge alliances
The strengths and weaknesses are extracted for and symbiotic relationships to increase the
different brand names, the market’s perceptions industry’s size. Coopetition emerges as mobile
of quality and reliability, and the organiza- network operators move toward similar network
tion’s reputation with stakeholders such as interdependence, standardization of technology,
suppliers, financers, prospective employees, and the limitations imposed by the regulatory
channel members, and customers. The objective environment.
of the analysis is to create brands that are differ-
entiated from the competition, thereby reducing CHALLENGES OF INTERNAL ANALYSIS
the number of substitutes in the marketplace. When it comes to completing the internal
Innovation resources are part of the culture of strengths and weaknesses section of a SWOT
an organization that encourages a climate for analysis, management practitioners make the
new ideas and technological capabilities, and has common mistake of listing all the factors in
the capacity to innovate. Measureable innovation which the organization is believed to be robust
resources take the form of copyrights, patents, or most vulnerable. They end up with a long
trademarks, and commercially sensitive business list of factors, which would make it difficult to
blueprints. analyze and to translate into strategic action.
While the generation of such a list is appro-
RESOURCE SIMILARITY
priate in a context, its contribution toward the
Resource similarity occurs when characteristics development of business level strategy is limited.
of competitors are almost the same (see Figures 1 Management practitioners are best advised
and 2). Competitors may have access to the same to identify those factors that have a direct
4 SWOT analysis
bearing on the ultimate source of competitive Banks, financial intermediaries, and a host of
advantage that an organization is seeking to new digital transaction firms are preparing for
achieve. For example, having high levels of the next wave of growth.
cleanliness and hygiene in a back office oper- Threats are situations in the external environ-
ation is intrinsically beneficial but unlikely ment that are an obstacle to an organization’s
to make a significant contribution toward the competitive advantage. For example, online
source of competitive advantage that the orga- readership of books, newspapers, and magazines
nization is seeking. On the other hand, high is rapidly catching up with print readership
levels of cleanliness and hygiene are compulsory and is likely to surpass it. Smartphones and
in industries such as catering establishments, tablets are expected to outnumber personal
pharmaceutical manufacturers, and hospital computer and laptop sales. The external threat
institutions – where client health and safety from mobile technology and the implication for
could be compromised. In these contexts, publishing companies, such as Wiley, Pearson,
hygiene cannot be defined as a strength but Reed Elsevier, and Cengage, is that their print
more of a mere basic requirement. Ideally, an products would need to be reengineered for
internal analysis should be prepared on the basis digital consumption on mobile platforms.
of an organization’s attributes in comparison The external analysis of opportunities and
to its competition. The attributes are reviewed threats is categorized into three main areas (see
with respect to how they contribute or limit Figure 3). The analysis of the competitor envi-
the organization from achieving a competitive ronment focuses on the organizational resources
position. of competitive rivals and conditions that are
likely to affect future market shares, revenues,
ANALYSIS OF EXTERNAL OPPORTUNITIES AND and profits. The analysis of the industry environ-
THREATS ment is based on Porter’s framework of factors
influencing an industry’s dynamics and struc-
The objective of an external environment anal- ture. The analysis of the general environment
ysis is to help organizations recognize major adopts frameworks from political, economic,
developments and future implications. The social and technological (PEST) and its deriva-
external environment consists of variables that tives. The strategies that emerge from the three
are beyond the control of an organization, but areas of analyses determine the organization’s
which require analysis to realign corporate vision, mission, and strategic planning.
strategy to shifting business environments. An Competitor environment is an area of analysis
external analysis identifies possible threats and that is largely concerned with the collection
opportunities for further expansion. and processing of knowledge on rival firms.
Commercial opportunities emerge in the The methodology involves looking at each
environment that can be exploited to create competitor, gathering information on resources,
competitive advantage. For example, mobile capabilities, core competences, and competitive
money transactions are estimated to reach $1 advantage. The opportunities and threats to the
trillion by 2015. With the widespread diffusion organization become apparent as each element is
of tablets and smartphones, higher transmis- identified. This would, hence, imply that Nokia
sion speeds and an advantageous regulatory needs to learn as much as it can about its main
environment, the global market is ready for the challengers, such as Samsung, Apple, LG, RIM,
service to become widely diffused. The revenue HTC Motorola, Huawei, and Sony Ericsson to
opportunities lie in the percentage commission meet and exceed the pace of product innovation.
on each mobile transaction and fees for storing Industry environment analysis is the review
monetary values in digital wallets. The oppor- of factors that have a direct impact on the
tunities for new revenue streams and business organization’s income stream and that require a
models are wide open for mobile operators. strategic response. The objective is to minimize
The top six operators namely, China Mobile, negative implications and exploit positive oppor-
Vodafone, Airtel, América Móvil, Telefónica, tunities. The analysis is based on Porter’s five
and Orange are gearing up for the challenge. forces of competition, as follow: the intensity
 SWOT analysis 5

SWOT analysis template

External Opportunities (O) and Threats (T)
(macro analysis)

Strategic
External environments Opportunities Threats
action

Competitor environment
Financial
Managerial
Organizational
Suppliers
Manufacturing
Distribution channels
Marketing
Brand equity
Innovation resources

Industry environment
Intensity of rivalry among competitors
Threat of new entrants
Threat of substitute products
Bargaining power of suppliers
Bargaining power of buyers

General environment
Political
Economic
Socio-cultural
Technological
Legal
Environmental
Demographic
Ethical
Regulatory

Figure 3 Template for the analysis of external opportunities and threats.

of competitive rivalry, threat of new entrants, and profitability. The industries and the
power of buyers, power of suppliers, and the geographic markets in which a firm chooses
threat of product substitutes. The business to operate have a higher impact on performance
model, revenue streams, and profitability among than strategic decision concerning internal
competitors are determined by these five factors. resources, capabilities, and core competencies.
The implications of the industry environment According to the resource-based view (RBV)
for strategic management are twofold: perspective, organizations should locate a
From the industrial organization’s (I/O) competitive position in the market space, where
perspective of strategy, the organization should it can influence and control the five factors
identify and seek to operate in markets that (entrants, suppliers, buyers, substitute, rivalry)
provide the best opportunities for competitiveness or where it can protect itself from their threats.
6 SWOT analysis

External environment
Opportunities and threats Impact
sample of dimensions
Competitor activity Establishment of a hypermarket chain Potential loss of customers to the new
with an outlet in close proximity to the outlet that may afford to charge lower
supermarket. prices due to economies of scale.
Suppliers Establishment of a large number of new Increased competition is likely to drive
suppliers for fruits and vegetables. down their price.
Government Harsher HACCP requirements to ensure Higher compliance costs in an effort to
optimal food safety in establishments make changes to existing operations to
comply with new requirements.
Economic changes Economic recession is eroding the Potential reduction in demand or a shift
disposable income of potential buyers. from more expensive to less expensive
food items.
Societal Working families with limited time Increased demand for healthy ready meals
available for cooking who are becoming at the supermarket.
increasingly health conscious.
Technology Increased accessibility through on-line Market spread for products and services
channels. have increased as a result of e-commerce
with a positive impact on sales.

Figure 4 Sample of external environment dimensions. Analysis of opportunities and threats for a supermarket chain.

The greater the ability of an organization to forces could in turn define whether such change
influence the industry environment, the likelier presents an opportunity or a threat to the orga-
it is to earn profits above the industry’s average. nization performing the analysis. In contrast
The analytical structure of SWOT that is used to the model, opportunities and threats are
to review the external environment tends toward business specific rather than industry specific.
the RBV view. The assumption that organiza- In particular, a threat for one organization in an
tions can strategize against threats implies that industry could be an opportunity for another.
they are reactive to their environment. Microsoft For example, advancement in information
has been instrumental in shaping the computing and communication technologies have eradi-
environment and the commercial environment, cated boundaries for traditional tour operators
in general. Apple acted as a game changer when offering all-inclusive packages to prospective
it introduced major technological innovations clients. Although this could be considered as a
such as iPod, iPhone, and iPad. Other companies threat to established players, it creates oppor-
are influential in establishing new technological tunities for new forms of intermediaries to
standards, such as the consortia of telecommu- compete in the tourism market.
nications companies forming the GSM and the Figure 4 provides an example of an analysis
3G standards. based on a sample set of dimensions within
General environment analysis looks at the
the external environment and applied to a
broader dimensions of society and business that
supermarket chain.
have consequences for the organization and its
industry. The dimensions are typically viewed SOURCES OF EXTERNAL ANALYSIS
from political, economic, sociocultural, tech-
nological, ecological, demographical, ethical, Organizations use different sources of infor-
and regulatory perspectives. These are derived mation to build a picture of the external
from the traditional PEST framework and its environment, including a broad variety of
variations. The general environment analysis industry-specific magazines, news items, acade-
typically identifies the key factors that drive mic papers, market research reports, commercial
change within elements making up Porter’s five- publications, and trade shows. Information can
force model. The change in dynamics in industry be sought through informal communication or
 SWOT analysis 7
structured research with suppliers, customers, TOWS MATRIX
potential customers, and the public. Employees
and industry personnel who are in direct contact An adaptation of the SWOT Analysis is
with the market have a great deal of information Weihrich’s TOWS Matrix (see Figure 5).
about the competitive landscape, competitive The matrix identifies potential tactical strate-
behavior, and possible trends. Customer care gies that could be deployed for the purpose of
representatives, salespeople, procurement exec- exploiting opportunities or defending against
utives, public relations, and communications threats through the leverage of the existing
agencies interact with the external environment strengths and the reduction of weaknesses.
and are good sources of information. The TOWS Matrix seeks to develop tactical
strategies based on four different positions.
COGNITIVE INERTIA AND EXTERNAL The WO strategy in the first quadrant
ANALYSIS attempts to maximize opportunities arising
from the external environment and eliminating
An organization’s environmental analysis can
the organization’s internal weaknesses that
be biased in terms of the level of focus given to
different factors of the external environment. hinder its growth. For example, an electronics
Strategists may review their business environ- manufacturer may be aware of the growing
ment by creating cognitive maps, which act as demand for tablets, but may lack the technology
tools to process knowledge. These frameworks required for producing screens. Possible strate-
are shaped mainly from personal experience. gies would be to create joint ventures with
Individual and collective cognitive maps within firms that have the technology and possibly the
an industry can be indifferent to significant patents for interactive screens, which are at the
economic indicators and market signals during edge of innovation. Another option would be
a time when an industry is changing rapidly. to subcontract the function to firms that have
Cognitive inertia, unless reexamined by regular competency in this field. If no action is taken,
reviews of incoming information that refresh the opportunity of market growth is left to
the strategist understanding of the business competitors.
environment can lead to the decline of an The SO strategy in the second quadrant is
organization. an ideal situation where an organization can

Weaknesses (W) Strengths (S)

Opportunities (O)

Examines strategies Examines strategies

that take advantage of that use strengths to
opportunities to avoid make use of
weaknesses (WO) opportunities (SO)

Examines strategies
Threats (T)

Examines strategies
that minimize the
that use strengths to
effect of weaknesses
overcome or avoid
and overcome or
threats (ST)
avoid threats (WT)

Figure 5 TOWS matrix.

 8 SWOT analysis
maximize on both strengths and opportunities. not necessarily provide a guide to the strategic
Apple was in a similar situation with a strong action, which is required. SWOT is more of a
cash balance of $140 billion reported in 2013, descriptive tool to conduct an overview of the
more than twice the size of Facebook’s market environment. It is not a prescriptive tool that
value. Apple employs a strategy of using excess determines the nature of strategic planning.
capital to develop its supply chain. More manu- An analytical approach should go beyond the
facturers are contracted to meet demand. More mere generation of lists under each heading
capital is invested in process improvement and and should seek to determine the cause and
logistics management to increase efficiency and effect arising from each factor in the process.
decrease the time to market. A number of proponents have made various
The ST strategy uses the organization’s recommendations with a view to enhance the
internal strengths that can counteract threats effectiveness of the tool. Strategy scholars have
from competitors, the industry, and the greater suggested combining the SWOT analysis to the
environment. However, a company with strong Balanced Score Card and the Quality Function
market power would have to address threats in Deployment (QFD) into a single tool for anal-
the external environment with caution. The ysis. In spite of its limitations, there is general
legal system tends to react forcibly in such acceptance that SWOT remains a useful tool for
situations. Microsoft was fined €561 million reviewing a firm’s competitive position.
($731 million) in 2013 for noncompliance of a
regulatory request failing to offer consumers the
option to choose their web browser when using a See also dynamic capabilities; five forces of compe-
Windows platform. The world’s largest software tition; industry analysis; PEST analysis; resource-
producer has faced several fines in the United based view
States and Europe. Microsoft has incurred a
total of €2.2 billion in fines by the EU in 10 years Bibliography
for charges on noncompetitive strategic action.
The WT strategy in the fourth quadrant is the
Hitt, M.A., Ireland, R.D. and Hoskisson, R.E. (2012)
worst-case scenario when an organization has
Strategic Management Cases: Competitiveness and
to minimize both its weaknesses and its threats. Globalization, South-Western Pub, USA.
However, external forces may not be avoidable as Ip, Y.K. and Koo, L.C. (2004) BSQ strategic formulation
in the case of the tobacco industry. The survival framework: A hybrid of balanced scorecard, SWOT
of the world’s largest cigarette manufacturers, analysis and quality function deployment. Managerial
Philip Morris International, China National Auditing Journal, 19 (4), 533–543.
Tobacco, Japan Tobacco International, Imperial McGee, J., Thomas, H. and Wilson, D. (2010) Strategy:
Tobacco Group, and British American Tobacco Analysis and Practice, McGraw-Hill, Maidenhead,
depends on the constant preemptive strategy UK.
to counteract strong regulation and lawsuits in Sammut-Bonnici, T. and McGee, J. (2002) Network
many countries. strategies for the new economy. European Business
Journal, 14, 174–185.
CRITIQUE OF SWOT ANALYSIS Sirmon, D.G., Hitt, M.A., Arregle, J.L. and Camp-
bell, J.T. (2010) The dynamic interplay of capability
In spite of its apparent simplicity, SWOT anal- strengths and weaknesses: investigating the bases of
ysis can be misused by practitioners. The correct temporary competitive advantage. Strategic Manage-
use of the tool is essential in ensuring that the ment Journal, 31 (13), 1386–1409.
right strategic action is defined in the process. Weihrich, H. and Cannice, M.V. (2010) Management, Tata
It is good at drawing a picture of the current McGraw-Hill Education, India.
internal and external state of affairs, but it does

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