Content uploaded by Tanya Sammut-Bonnici
Author content
All content in this area was uploaded by Tanya Sammut-Bonnici on Oct 30, 2017
Content may be subject to copyright.
SWOT analysis
Tanya Sammut-Bonnici and David Galea
CONCEPTUAL FRAMEWORK
A SWOT analysis evaluates the internal
strengths and weaknesses, and the external
opportunities and threats in an organization’s
environment. The internal analysis is used to
identify resources, capabilities, core competen-
cies, and competitive advantages inherent to the
organization. The external analysis identies
market opportunities and threats by looking
at competitors’ resources, the industry envi-
ronment, and the general environment (see
Figure 1). The objective of a SWOT analysis is
to use the knowledge an organization has about
its internal and external environments and to
formulate its strategy accordingly. This article
provides a toolkit of templates to conduct a
SWOT analysis and discusses practical insights
on how to formulate strategic decisions.
ANALYSIS OF INTERNAL STRENGTHS AND
WEAKNESSES
The internal analysis of the organization is
critical in identifying the source of competi-
tive advantage. It pinpoints the resources that
need to be developed and sustained to remain
competitive. By denition, competitive advan-
tage must be unique to the rm to generate
prots above the industry average. The strategic
management process starts with an in-depth
evaluation of the organization by looking at its
internal resources and capabilities, these being
the source of its core competencies, which in
turn create a competitive advantage.
Resources are dened as the tangible or intan-
gible inputs required to produce a product or
service. Tangible resources include raw mate-
rials, premises, machinery, and equipment.
Examples of intangible resources are nancing,
technology, human capital, supplier networks,
sales force structures, distribution networks,
patents, trademarks, customer base, brand
equity, and rm reputation. Resources can be
combined and developed into capabilities, which
in turn creates core competences.
Capabilities are dened as the rm’s capacity
to make efcient use of internal resources, and
its ability to combine them into competitive
products and processes. Examples of strategic
capabilities are the following: developing inno-
vative technology products, reducing the time
to market, creating more efcient distribu-
tion channels and retail outlets, capturing
the consumer’s attention through marketing,
and managing customer relationships to gain
long-term brand loyalty.
Core competencies are derived from capabili-
ties and, if they are unique in the industry, they
will create sustainable competitive advantage for
the rm. How an organization turns its capabili-
ties into core competencies is less visible to rivals,
making competencies difcult to understand and
imitate.
The components of an internal analysis
of strengths and weaknesses are the rm’s
resources (summarized in Figure 2) into the
functional categories of nancial, managerial,
infrastructural, suppliers, manufacturing, distri-
bution, marketing, and innovation resources.
Financial resources are dened as the extent
to which an organization has access to capital.
Organizations with high brand equity and a
high reputation are likely to have access to less
expensive sources of nance. The cost of capital
is lower for established companies and higher
for operations that have a risk of failure. Other
sources of nance are derived from a balanced
business portfolio that has a good mix of cash
generating products, which make up for costly
products that are in the introductory phase of
their life cycle. Some organizations may opt
for high levels of gearing, where interest on
capital is likely to diminish prots. A strong
cash ow position for an organization is vital to
buy in resources that will sustain operations and
growth in the long term.
Managerial resources create the competencies
of an organization in relation to the planning,
control, and the leading of functions. For
example, historically, football teams have relied
on the strengths of a single outstanding player
such as Pele and Maradona amongst others
for their success. Commercial football clubs
have changed their strategy from depending
on individual high performers to depending
on dynamic teams. High-ranking football clubs
such as AC Milan and Manchester United focus
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.
2SWOTanalysis
SWOT
analysis
Analysis of
internal environment
Strengths and Weaknesses
(micro environment)
Organizational functions
Analysis of
external envrionment
Opportunities and Threats
(macro environment)
Competitor environment
Industry environment
General environment
Figure 1 SWOT analysis main components.
Internal environment Strengths Weaknesses action
1. Financial
2. Managerial
3. Infrastructural
4. Suppliers
5. Manufacturing
6. Distribution channels
7. Marketing
8. Brand equity
9. Innovation resources
Strategic
SWOT analysis template
Internal Strengths (S) and Weaknesses (W)
(micro analysis)
Figure 2 Template for the analysis of internal strengths and weaknesses.
skilled players and a management style that
rewards team performance.
Infrastructural resources are the backbone of
the company allowing operations to run ef-
ciently while providing information to improve
the current processes. Examples of infras-
tructural resources are computerized systems
for nance, accounts, procurement, internal
processes, production, stores, marketing, sales,
logistics, and customer relationship manage-
ment. The analysis can go a step further by
evaluating the platforms on which the systems
run, such as computer based, mobile, and cloud
platforms that may increase usability across the
organization’s departments and employees.
Suppliers and the nature of their products and
services will have a bearing on the competitive
SWOT analysis 3
advantage of an organization. Different methods
and techniques are used to rate and evaluate
suppliers. An effective assessment is based
on the key deliverables of the product range,
quality, availability, lead times, and service
responsiveness.
Manufacturing resources such as plant,
machinery, automation, and technical support
are essential to develop quality products. Flex-
ibility in manufacturing is another factor to
consider as it enables innovation and product
development. Modular manufacturing and
outsourcing of production are other factors that
would cater for innovation and change in the
product line.
Distribution channels can be analyzed to seek
the strengths and weaknesses of logistics, part-
ners, and distribution chain management.
Other areas of assessment are the motivation
of channel members, product, pricing, and
motivation issues in the marketing channels.
Marketing functions arereviewedintermsof
their effectiveness concerning industry knowl-
edge through research, product development,
product life cycle management, pricing policies,
distribution channel design, advertising, public
relations, sales, and product promotion.
Brand equity is the goodwill derived from the
reputation of the organization and its brands.
The strengths and weaknesses are extracted for
different brand names, the market’s perceptions
of quality and reliability, and the organiza-
tion’s reputation with stakeholders such as
suppliers, nancers, prospective employees,
channel members, and customers. The objective
of the analysis is to create brands that are differ-
entiated from the competition, thereby reducing
the number of substitutes in the marketplace.
Innovation resources are part of the culture of
an organization that encourages a climate for
new ideas and technological capabilities, and has
the capacity to innovate. Measureable innovation
resources take the form of copyrights, patents,
trademarks, and commercially sensitive business
blueprints.
RESOURCE SIMILARITY
Resource similarity occurs when characteristics
of competitors are almost the same (see Figures 1
and 2). Competitors may have access to the same
level of nance, managerial skill, and technolog-
ical infrastructure. The incoming supply chain
and outgoing distribution chain may be common
throughout the industry.
Organizations with similar resources are likely
to have similar strategies. Another phenomenon
is that organizations are more likely to engage
in coopetition, a form of collaborative competi-
tion designed to increase revenues by growing
the industry as a whole rather than growing
market shares. The rules of competition become
survival through tacit complicity to grow the
market collectively.
Thisisthecaseforthetelecommunications
industry. Mobile network operators such as
Vodafone and T-Mobile have access to the
same network suppliers (such as Ericsson and
Siemens) and telephone suppliers (such as
Nokia, Samsung, Apple, and Sony). Managerial
skill is brought in from an international supply
pool. Innovation is dependent on the same
technology providers who hold the patents for
new products.
Adaptive behavior arises from competition
and cooperation among the system agents at
the level of technological standards and physical
platforms. In this environment, competition
becomes the driving force behind cooperation.
Competing rms are observed to forge alliances
and symbiotic relationships to increase the
industry’s size. Coopetition emerges as mobile
network operators move toward similar network
interdependence, standardization of technology,
and the limitations imposed by the regulatory
environment.
CHALLENGES OF INTERNAL ANALYSIS
When it comes to completing the internal
strengths and weaknesses section of a SWOT
analysis, management practitioners make the
common mistake of listing all the factors in
which the organization is believed to be robust
or most vulnerable. They end up with a long
list of factors, which would make it difcult to
analyze and to translate into strategic action.
While the generation of such a list is appro-
priate in a context, its contribution toward the
development of business level strategy is limited.
Management practitioners are best advised
to identify those factors that have a direct
4SWOTanalysis
bearing on the ultimate source of competitive
advantage that an organization is seeking to
achieve. For example, having high levels of
cleanliness and hygiene in a back ofce oper-
ation is intrinsically benecial but unlikely
to make a signicant contribution toward the
source of competitive advantage that the orga-
nization is seeking. On the other hand, high
levels of cleanliness and hygiene are compulsory
in industries such as catering establishments,
pharmaceutical manufacturers, and hospital
institutions – where client health and safety
could be compromised. In these contexts,
hygiene cannot be dened as a strength but
more of a mere basic requirement. Ideally, an
internal analysis should be prepared on the basis
of an organization’s attributes in comparison
to its competition. The attributes are reviewed
with respect to how they contribute or limit
the organization from achieving a competitive
position.
ANALYSIS OF EXTERNAL OPPORTUNITIES AND
THREATS
The objective of an external environment anal-
ysis is to help organizations recognize major
developments and future implications. The
external environment consists of variables that
are beyond the control of an organization, but
which require analysis to realign corporate
strategy to shifting business environments. An
external analysis identies possible threats and
opportunities for further expansion.
Commercial opportunities emerge in the
environment that can be exploited to create
competitive advantage. For example, mobile
money transactions are estimated to reach $1
trillion by 2015. With the widespread diffusion
of tablets and smartphones, higher transmis-
sion speeds and an advantageous regulatory
environment, the global market is ready for the
service to become widely diffused. The revenue
opportunities lie in the percentage commission
on each mobile transaction and fees for storing
monetary values in digital wallets. The oppor-
tunities for new revenue streams and business
models are wide open for mobile operators.
The top six operators namely, China Mobile,
Vodafone, Airtel, América Móvil, Telefónica,
and Orange are gearing up for the challenge.
Banks, nancial intermediaries, and a host of
new digital transaction rms are preparing for
the next wave of growth.
Threats are situations in the external environ-
ment that are an obstacle to an organization’s
competitive advantage. For example, online
readership of books, newspapers, and magazines
is rapidly catching up with print readership
and is likely to surpass it. Smartphones and
tablets are expected to outnumber personal
computer and laptop sales. The external threat
from mobile technology and the implication for
publishing companies, such as Wiley, Pearson,
Reed Elsevier, and Cengage, is that their print
products would need to be reengineered for
digital consumption on mobile platforms.
The external analysis of opportunities and
threats is categorized into three main areas (see
Figure 3). The analysis of the competitor envi-
ronment focuses on the organizational resources
of competitive rivals and conditions that are
likely to affect future market shares, revenues,
and prots. The analysis of the industry environ-
ment is based on Porter’s framework of factors
inuencing an industry’s dynamics and struc-
ture. The analysis of the general environment
adopts frameworks from political, economic,
social and technological (PEST) and its deriva-
tives. The strategies that emerge from the three
areas of analyses determine the organization’s
vision, mission, and strategic planning.
Competitor environment is an area of analysis
that is largely concerned with the collection
and processing of knowledge on rival rms.
The methodology involves looking at each
competitor, gathering information on resources,
capabilities, core competences, and competitive
advantage. The opportunities and threats to the
organization become apparent as each element is
identied. This would, hence, imply that Nokia
needs to learn as much as it can about its main
challengers, such as Samsung, Apple, LG, RIM,
HTC Motorola, Huawei, and Sony Ericsson to
meet and exceed the pace of product innovation.
Industry environment analysis is the review
of factors that have a direct impact on the
organization’s income stream and that require a
strategic response. The objective is to minimize
negative implications and exploit positive oppor-
tunities. The analysis is based on Porter’s ve
forces of competition, as follow: the intensity
SWOT analysis 5
SWOT analysis template
External Opportunities (O) and Threats (T)
(macro analysis)
External environments Opportunities Threats Strategic
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,
power of buyers, power of suppliers, and the
threat of product substitutes. The business
model, revenue streams, and protability among
competitors are determined by these ve factors.
The implications of the industry environment
for strategic management are twofold:
From the industrial organization’s (I/O)
perspective of strategy, the organization should
identify and seek to operate in markets that
provide the best opportunities for competitiveness
and protability. The industries and the
geographic markets in which a rm chooses
to operate have a higher impact on performance
than strategic decision concerning internal
resources, capabilities, and core competencies.
According to the resource-based view (RBV)
perspective, organizations should locate a
competitive position in the market space, where
it can inuence and control the ve factors
(entrants, suppliers, buyers, substitute, rivalry)
or where it can protect itself from their threats.
6SWOTanalysis
Opportunities and threats Impact
Competitor activity Establishment of a hypermarket chain
with an outlet in close proximity to the
supermarket.
Potential loss of customers to the new
outlet that may afford to charge lower
prices due to economies of scale.
Suppliers Establishment of a large number of new
suppliers for fruits and vegetables.
Increased competition is likely to drive
down their price.
Government Harsher HACCP requirements to ensure
optimal food safety in establishments
Higher compliance costs in an effort to
make changes to existing operations to
comply with new requirements.
Economic changes Economic recession is eroding the
disposable income of potential buyers.
Potential reduction in demand or a shift
from more expensive to less expensive
food items.
Societal Working families with limited time
available for cooking who are becoming
increasingly health conscious.
Increased demand for healthy ready meals
at the supermarket.
Technology Increased accessibility through on-line
channels.
Market spread for products and services
have increased as a result of e-commerce
with a positive impact on sales.
External environment
sample of dimensions
Figure 4 Sample of external environment dimensions. Analysis of opportunities and threats for a supermarket chain.
The greater the ability of an organization to
inuence the industry environment, the likelier
it is to earn prots above the industry’s average.
The analytical structure of SWOT that is used
to review the external environment tends toward
the RBV view. The assumption that organiza-
tions can strategize against threats implies that
they are reactive to their environment. Microsoft
has been instrumental in shaping the computing
environment and the commercial environment,
in general. Apple acted as a game changer when
it introduced major technological innovations
such as iPod, iPhone, and iPad. Other companies
are inuential in establishing new technological
standards, such as the consortia of telecommu-
nications companies forming the GSM and the
3G standards.
General environment analysis looks at the
broader dimensions of society and business that
have consequences for the organization and its
industry. The dimensions are typically viewed
from political, economic, sociocultural, tech-
nological, ecological, demographical, ethical,
and regulatory perspectives. These are derived
from the traditional PEST framework and its
variations. The general environment analysis
typically identies the key factors that drive
change within elements making up Porter’s ve-
force model. The change in dynamics in industry
forces could in turn dene whether such change
presents an opportunity or a threat to the orga-
nization performing the analysis. In contrast
to the model, opportunities and threats are
business specic rather than industry specic.
In particular, a threat for one organization in an
industry could be an opportunity for another.
For example, advancement in information
and communication technologies have eradi-
cated boundaries for traditional tour operators
offering all-inclusive packages to prospective
clients. Although this could be considered as a
threat to established players, it creates oppor-
tunities for new forms of intermediaries to
compete in the tourism market.
Figure 4 provides an example of an analysis
based on a sample set of dimensions within
the external environment and applied to a
supermarket chain.
SOURCES OF EXTERNAL ANALYSIS
Organizations use different sources of infor-
mation to build a picture of the external
environment, including a broad variety of
industry-specic magazines, news items, acade-
mic papers, market research reports, commercial
publications, and trade shows. Information can
be sought through informal communication or
SWOT analysis 7
structured research with suppliers, customers,
potential customers, and the public. Employees
and industry personnel who are in direct contact
withthemarkethaveagreatdealofinformation
about the competitive landscape, competitive
behavior, and possible trends. Customer care
representatives, salespeople, procurement exec-
utives, public relations, and communications
agencies interact with the external environment
and are good sources of information.
COGNITIVE INERTIA AND EXTERNAL
ANALYSIS
An organization’s environmental analysis can
be biased in terms of the level of focus given to
different factors of the external environment.
Strategists may review their business environ-
ment by creating cognitive maps, which act as
tools to process knowledge. These frameworks
are shaped mainly from personal experience.
Individual and collective cognitive maps within
an industry can be indifferent to signicant
economic indicators and market signals during
a time when an industry is changing rapidly.
Cognitive inertia, unless reexamined by regular
reviews of incoming information that refresh
the strategist understanding of the business
environment can lead to the decline of an
organization.
TOWS MATR I X
An adaptation of the SWOT Analysis is
Weihrich’s TOWS Matrix (see Figure 5).
The matrix identies potential tactical strate-
gies that could be deployed for the purpose of
exploiting opportunities or defending against
threats through the leverage of the existing
strengths and the reduction of weaknesses.
The TOWS Matrix seeks to develop tactical
strategies based on four different positions.
The WO strategy in the rst quadrant
attempts to maximize opportunities arising
from the external environment and eliminating
the organization’s internal weaknesses that
hinder its growth. For example, an electronics
manufacturer may be aware of the growing
demand for tablets, but may lack the technology
required for producing screens. Possible strate-
gies would be to create joint ventures with
rms that have the technology and possibly the
patents for interactive screens, which are at the
edge of innovation. Another option would be
to subcontract the function to rms that have
competency in this eld. If no action is taken,
the opportunity of market growth is left to
competitors.
The SO strategy in the second quadrant is
an ideal situation where an organization can
Weaknesses (W) Strengths (S)
Opportunities (O)
Examines strategies
that take advantage of
opportunities to avoid
weaknesses (WO)
Examines strategies
that use strengths to
make use of
opportunities (SO)
Threats (T)
Examines strategies
that minimize the
effect of weaknesses
and overcome or
avoid threats (WT)
Examines strategies
that use strengths to
overcome or avoid
threats (ST)
Figure 5 TOWS matrix.
8SWOTanalysis
maximize on both strengths and opportunities.
Apple was in a similar situation with a strong
cash balance of $140 billion reported in 2013,
more than twice the size of Facebook’s market
value. Apple employs a strategy of using excess
capital to develop its supply chain. More manu-
facturers are contracted to meet demand. More
capital is invested in process improvement and
logistics management to increase efciency and
decrease the time to market.
The ST strategy uses the organization’s
internal strengths that can counteract threats
from competitors, the industry, and the greater
environment. However, a company with strong
market power would have to address threats in
the external environment with caution. The
legal system tends to react forcibly in such
situations. Microsoft was ned €561 million
($731 million) in 2013 for noncompliance of a
regulatory request failing to offer consumers the
option to choose their web browser when using a
Windows platform. The world’s largest software
producer has faced several nes in the United
States and Europe. Microsoft has incurred a
total of €2.2 billion in nes by the EU in 10 years
for charges on noncompetitive strategic action.
The WT strategy in the fourth quadrant is the
worst-case scenario when an organization has
to minimize both its weaknesses and its threats.
However, external forces may not be avoidable as
in the case of the tobacco industry. The survival
of the world’s largest cigarette manufacturers,
Philip Morris International, China National
Tobacco, Japan Tobacco International, Imperial
Tobacco Group, and British American Tobacco
depends on the constant preemptive strategy
to counteract strong regulation and lawsuits in
many countries.
CRITIQUE OF SWOT ANALYSIS
In spite of its apparent simplicity, SWOT anal-
ysis can be misused by practitioners. The correct
use of the tool is essential in ensuring that the
right strategic action is dened in the process.
It is good at drawing a picture of the current
internal and external state of affairs, but it does
not necessarily provide a guide to the strategic
action, which is required. SWOT is more of a
descriptive tool to conduct an overview of the
environment. It is not a prescriptive tool that
determines the nature of strategic planning.
An analytical approach should go beyond the
mere generation of lists under each heading
and should seek to determine the cause and
effect arising from each factor in the process.
A number of proponents have made various
recommendations with a view to enhance the
effectiveness of the tool. Strategy scholars have
suggested combining the SWOT analysis to the
Balanced Score Card and the Quality Function
Deployment (QFD) into a single tool for anal-
ysis. In spite of its limitations, there is general
acceptance that SWOT remains a useful tool for
reviewing a rm’s competitive position.
See also dynamic capabilities;ve forces of compe-
tition;industry analysis;PEST analysis;resource-
based view
Bibliography
Hitt, M.A., Ireland, R.D. and Hoskisson, R.E. (2012)
Strategic Management Cases: Competitiveness and
Globalization, South-Western Pub, USA.
Ip, Y.K. and Koo, L.C. (2004) BSQ strategic formulation
framework: A hybrid of balanced scorecard, SWOT
analysis and quality function deployment. Managerial
Auditing Journal,19 (4), 533 –543.
McGee, J., Thomas, H. and Wilson, D. (2010) Strategy:
Analysis and Practice, McGraw-Hill, Maidenhead,
UK.
Sammut-Bonnici, T. and McGee, J. (2002) Network
strategies for the new economy. European Business
Journal,14, 174 –185.
Sirmon, D.G., Hitt, M.A., Arregle, J.L. and Camp-
bell, J.T. (2010) The dynamic interplay of capability
strengths and weaknesses: investigating the bases of
temporary competitive advantage. Strategic Manage-
ment Journal,31 (13), 1386 –1409.
Weihrich,H. and Cannice, M.V. (2010) Management,Tata
McGraw-Hill Education, India.
