A SWOT analysis is a strategic planning framework designed to help businesses, organizations, and individuals, helping them identify internal and external factors that can impact their goals and objectives. In this article, we’ll discuss the SWOT Analysis Benefits and Limitations.
SWOT Analysis Benefits: Why Is a SWOT Analysis Important?
Here, there are some of the benefits of the SWOT Analysis technique.
1 – It helps with preliminary feasibility studies and situational analysis
By analyzing and comparing the various components of the SWOT analysis, a business can determine the viability of a business model or new product, making it an important part of any detailed feasibility study. SWOT analysis is also a fundamental part of situational analysis, which is a technique used to identify internal and external challenges and opportunities of a business or products.
2 – The technique is easy to visualize
It is well known that information is easier to understand when displayed as images. Thereby, SWOT analysis makes it easier o conceptualize large amounts of complex information by placing them in well-differentiated sections, which easily allows any viewer to grasp the nature of the subject being examined.
3- It simplifies complex issues and large amounts of data
Most times, a SWOT analysis can be simplified into groups of bullet points written under their respective sections. This allows the reader to quickly scan through the analytic framework and grasp The key information it is trying to pass along without burdening themselves with intricate details or large amounts of data.
4 – The technique promotes communication
Since this analytical technique allows you to simplify complex ideas as well as represent them pictorially, it promotes communication by allowing you to share information between two parties easily. This method is simple to understand and compresses large amounts of information, making it an efficient communication tool that different divisions can understand within the company as well as external parties such as investors.
5 – The method is applicable across a wide range of situations
Even though within the context of this article, we have mainly focused on how a SWOT analysis can be used to analyze a business or product, the technique can also be applied to a wide range of fields and disciplines. This can include anything from personal developments to fiscal assessments. Its versatility also allows it to be used by a number of vastly different organizations, ranging from large multinational companies to brick-and-mortar shops.
6 – It offers a balanced assessment
Unlike certain analytical tools which over-emphasize one aspect of a business over another, a SWOT analysis offers a balanced look at both the positive and negative features of a business, such as the strengths and opportunities versus weaknesses or threats. It also forces businesses to examine both internal and external factors affecting the organization. This makes it much more helpful as a tool when it comes to strategic planning.
7 – A SWOT analysis can be used to develop a matching and converting strategy
Matching and converting is a strategy mostly unique to SWOT analysis, which involves pairing your strengths with your opportunities in order to discover or maximize your competitive advantages. It also involves looking for ways to convert weaknesses/threats into strengths/opportunities, or at the least minimize their harmful effects.
For example, pairing a strength such as being a first-mover in a novel industry with an opportunity like favorable government legislation is a great idea. This is because it allows you to carve out a greater share of the market and build strong brand equity without having to worry about government attempts to regulate this new industry.
8 – Companies can use the technique to capitalize on the concept of strategic fit
Strategic fits is a concept within the business world that can be defined in simple terms as how well-suited a business is to its available Internal and external resources, as well as prevailing constraints. The idea behind this is that a business should strive to maximize the advantages it possesses (in terms of strengths and opportunities) while mitigating its constraints (concerning weaknesses and threats) in order to achieve optimal (or near optimal) function.
9 – It can help a company craft the optimal strategy to adopt
Generally speaking, a business can adopt an aggressive growth plan or a defensive growth plan. An aggressive growth plan is typically adopted during situations in which the business holds a significant competitive advantage, which includes a mixture of various strengths and opportunities. On the other hand, a more cautious or defensive strategy is usually advised when dealing with situations where significant threats and/or weaknesses exist in the business environment.
10 – The strategy allows you to utilize different perspectives
One of the key advantages of using this SWOT analysis is that it promotes the gathering of data and perspectives from different sources. For example, when creating a SWOT analysis, it is expected that different divisions within the business will be invited to provide input. This can range from marketing to corporate financing and even manufacturing. This enables the business to obtain a holistic Schematic of the organization, as well as how these different parts interact to form a functional business model.
11 – A good SWOT analysis should promote data-driven and evidence-based decision-making
One of the advantages of a SWOT analysis is that if done properly, all the inferences developed from the process should be supported by concrete data which has been vetted from different sources. This allows the business to build a dependable framework that can be utilized for future strategizing.
12 – The technique is cheap
One of the advantages of a SWOT analysis is its cost-effective nature. It does not require capital-intensive accounting processes, hiring expensive external consultants, or any significant rearrangements of resources. In most situations, it can be carried out entirely in-house and requires inputs from mainly key figures working at different divisions within the business.
13 – It promotes discussion and fosters relationships within the company
Another advantage of the SWOT analysis technique is that it encourages different divisions within a business to collaborate and share insights concerning their area of expertise, as well as fields outside their area of specialization. This fosters communication within the company as well as builds deeper relationships loving various members of the organization to obtain a complete understanding of how the business functions, as well as interactions between different branches of a business structure.
14 – The strategy is not overly technical
Another reason that the SWOT analysis technique is so important is that its simple nature allows it to be carried out by nearly anyone with a basic understanding of the key principles behind how each section is derived. This means that it does not require significant education or expertise in areas like finance, branding, marketing, or business administration.
15 – It can provide key market insights
In the process of trying to evaluate both the internal and external factors affecting a business, important trends or insights about the market may be discovered. This allows the business to capitalize on these opportunities and further strengthen its position.
SWOT Analysis Limitations
Despite all the advantages associated with the technique, there are some limitations to the SWOT analysis method. Let’s take a look at some key examples.
1 – It can be somewhat preoccupied with strengths/opportunities over weaknesses/threats
Although a SWOT analysis is meant to offer a balanced evaluation of a business, many users tend to focus on the strengths/opportunities offered by your business model over the weaknesses/ threats. Well, this may allow them to capitalize on these beneficial factors. Still, it leaves them vulnerable to a range of potential dangers and therefore defeats the purpose of using this analytical framework.
2 – Users may over-leverage the strengths/ opportunities outlined by the model
For example, a business that lists one of its strengths as low-cost manufacturing may decide to extend this advantage to the point where the quality of the products it produces may drop. At this point, our previous strength has now been overextended to the point of being detrimental to the success of the business.
3 – The technique does not outline what to do after crafting the SWOT analysis
One of the issues with SWOT analysis is that it fails to guide users on the necessary steps after the framework has been designed. Due to this, there is a tendency to abandon the technique after the initial stages of strategic planning and thereby reducing the usefulness of the technique.
4 – There may be a failure to deeply examine inputs from all the relevant sources
One of the key strengths of a SWOT analysis is the fact that it uses contributions from different sources. If, for any reason, there is information suppression, then this may lead to the creation of an incomplete SWOT framework and, therefore, the failure of the entire project.
5 – Each point may not be of equal relevance or prioritized according to the importance
Even though it’s a useful idea to list the various points under each section of a SWOT analysis according to their relative importance to the business model, at times, it is hard to carry this out since there is no well-defined metric for this action. Therefore, a subjective approach is typically used to determine which points are more important than others, and this, of course, is prone to error.
6 – A SWOT analysis can be deceptively simple
One of the purposes of a SWOT analysis is to simplify complex ideas into easily understandable schematics. However, this has the unfortunate disadvantage of creating the impression that the various divisions, interactions, and functions which are carried out within the business organization can be easily classified into deceptively basic forms. Most of the ideas outlined by a SWOT analysis are a refinement of extremely complex interactions and serve mainly as a guide instead of actionable information.
7 – The technique does not offer solutions
One of the key shortcomings of the SWOT analysis technique is that it does not offer solutions to the weaknesses or threats identified by the strategy. In some sense, identifying an issue without proffering a solution makes the entire process futile.
8 – The entire process can be quite subjective
Various efforts are made to introduce as much objectivity to the SWOT analysis process as possible, such as using reliable factual information in order to make evidence-based decisions as well as obtaining information from a wide array of sources in an attempt to obtain a holistic picture without bias. Despite this, there is a great degree of subjectivity within the process of creating a SWOT analysis.
9 – The process can be overwhelming if not well-refined
Though it is important to list the key points when crafting a SWOT analysis, one must also keep in mind that overcrowding the framework may lead to decision paralysis and greater confusion. Therefore, the best idea is to only include the most relevant points as well as merge as many factors as possible. Remember, a SWOT analysis is not a detailed report upon which definitive strategies are built, but rather a guide that can be used as a quick reference for further stages of strategic planning.
10 – It may be deficient in certain areas
Despite your best efforts, some vital points may be skipped or omitted from the SWOT analysis due to human error. That is why many of the techniques mentioned above have been adopted to reduce the opportunity of this occurring as much as possible.
From the above, it is clear to see that the SWOT analysis technique is one of the most important evaluation tools in the arsenal of any business. Carrying out the technique while keeping in mind its main principles is the best way to ensure that you enjoy the full benefits of the process as well as limit the extent of weaknesses.