By CfL, updated June 2024
If you are interested in strategic work, you have probably heard of SWOT. It is one of the most well-known and widely used strategic tools that, in a simple matrix, describes the strengths and weaknesses that characterize your company, and the opportunities and threats it faces.
A SWOT analysis summarizes the most important internal and external factors that can have a decisive impact on which strategy a company should pursue – combined with the likelihood that the strategy can be executed.
The simple model invites quick conclusions, so let it be stated upfront:
SWOT is not really an analysis per se, but rather a summary, synthesis, or conclusion drawn from a series of more detailed analyses that were conducted beforehand as a basis for identifying precisely the strengths and weaknesses, opportunities and threats.
SWOT comes from the English words – Strengths, Weaknesses, Opportunities, and Threats – and the model dates back to 1965, when it was first described in the book Corporate Strategy by Igor Ansoff.
The key to conducting a good SWOT analysis is to ensure that the core points in each of the four areas meet the following criteria:
Strengths and weaknesses relate to internal factors that the company itself can influence. In contrast, opportunities and threats relate to the external environment – aspects that the organization can only influence to a limited extent, if at all. However, these external factors have a significant impact on the company.
Once the core points are noted in the matrix, your company’s strategic position and potential can be analyzed.
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How CfL Works with Strategy – from Purpose to Analysis to Change.
SWOT is typically used by an entire leadership team, and the goal of conducting a SWOT analysis is not simply to fill all four boxes with as many factors as possible.
The first step is to clarify and select analytical factors within each area. The next step is to prioritize the selected factors. Here, a point system can be a useful approach.
The prioritization of opportunities and threats can be based on:
Economic impact
Available resources
Time horizon
Each area can then be scored — for example, on a scale from 1 to 6, with 18 as the maximum score — though it's up to management to adjust the system to the specific situation.
The assessment of strengths and weaknesses can also be based on a fixed number of points, but a more systematic approach would be to evaluate each strength and weakness based on its effect across four bottom lines:
Impact on employee outcomes
Impact on customer outcomes
Impact on society
Impact on financial performance
Read also: Introduction to the PEST Analysis
The fundamental idea behind a SWOT is to examine how the four areas – strengths and weaknesses, opportunities and threats – are interrelated.
If your internal strengths align well with the external opportunities, then your company is in a favorable position. Conversely, adjustments of varying severity are required if you are internally weak in relation to external opportunities.
The real challenge arises if there is a match between internal weaknesses and external threats. In that case, significant changes are needed – perhaps even a new strategy.
The art is to maximize the exploitation of opportunities by using your strengths while simultaneously minimizing the influence of weaknesses and threats. This is how a SWOT analysis can help identify and formulate the strategy you should pursue.
