SWOT Analysis Definition

SWOT analysis is a method to analyse the existing position of a firm and how it is likely to perform in the future

  • S- Strengths of firm
  • W- Weakness of firms
  • O – Opportunities
  • T – Threats

Example, Waterstones booksellers

Strengths

  • Established as premier book retailer in UK
  • Good distribution network
  • Prime retail location in many towns
  • A degree of monopoly power in book retail
  • Good staff motivation and low turnover.

Weaknesses

  • Becoming uncompetitive to online book retailers.
  • Can’t carry as much stock as online retail
  • Declining profit margins from greater competition

Opportunities

  • Ability to diversify shops, e.g.  add coffee shops with main bookstore to raise extra source of revenue and bring more people into the shop.
  • Diversify into higher profit margin – gift and card sectors

Threats

  • Growing dominance of e-book, e.g. kindle diminish prospects for traditional hard copy books. There may soon be no market for traditional books
  • New generation may increasingly buy online rather than in high street.

Benefits of Doing SWOT Analysis

  • Helps firm work out where it is doing well, and where it is doing badly.
  • Helps to look at firm from a different angle.
  • Helps in the planning process, e.g. where to expand, how to attract custom.
  • Helps set clear goals on how to turn the firm around.
  • SWOT may be stronger if done by an outside management consultant.

Limitations of SWOT Analysis

  • Present management may be unable to see weakness in company. (Management may be a weakness itself)
  • Hard to predict all threats and opportunities. e.g. microsoft, IBM companies which failed to stay on top of new developments in technology and lost out.
  • Some economic events outside firms control, e.g. credit crunch of 2008 adversely affecting banks and mortgage companies.
  • SWOT analysis doesn’t change anything. It only shows the company where it is doing well and badly. A strategy is still needed.

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