What is SWOT analysis? 

SWOT analysis is a technique used to evaluate a company's competitive position. SWOT stands for strength, weakness, opportunities and threats.

It is used to develop a strategic plan that focuses on the strength and opportunities of a company while remaining aware of its weaknesses and threats.

This article details what SWOT analysis means. It also explains what SWOT analysis is used for and how it is carried out.

SWOT analysis definition

SWOT (strengths, weaknesses, opportunities, and threats) analysis examines a company’s fundamentals and competition in a fact-based, data-driven manner. It focuses on a business’ attributes and how they measure up in the broader market context. SWOT analysis helps identify areas that could make or break a company’s financial performance.

The methodology can also analyse an entire industry, a division within a company or individual products. While it is a valuable decision-making tool, a SWOT analysis should not be used in isolation from other business evaluation frameworks. 

SWOT analysis example: How to write a SWOT analysis 

Writing a SWOT analysis is relatively straightforward. You can begin by collecting and listing data points under four main categories: strengths, weaknesses, opportunities and threats. 

Participants need to answer simple questions like:

• What are the strengths and weaknesses of the company?

• What makes the company unique, and what are its problems?

• What potential threats does the company face?

• What are the strengths and weaknesses of the competition?

• What opportunities exist in the current market?

SWOT analysis is typically represented as a 2x2 grid. Each section shows one element of the SWOT analysis. 

Elements of SWOT Analysis

To better explain SWOT analysis, let’s explore its four principal parts:

Strengths of SWOT analysis

Strengths can be defined as areas in which the company excels or that give it a competitive advantage. Some examples of strengths include strong customer loyalty, a recognisable brand, unique products, technological patents, exclusive partnerships, a strong balance sheet, valuable assets. 

For example, customer loyalty to the iPhone coupled with Apple’s strong brand has helped the tech giant become the most valuable company globally by market capitalisation.

Weaknesses of SWOT analysis

Weaknesses are unique to each company. They are the speed bumps that prevent firms from working at an optimum level. Not addressing weaknesses could damage a company’s long-term performance. Examples of weakness are a low-profit margin, a high level of debt, a high working capital, and an over-reliance on third parties.

Opportunities of SWOT analysis

Opportunities are actions that a company could take to gain more market share, produce a new source of income or simply earn more revenue and profits. Opportunities could arise from favourable macro developments, including the collapse of a competitor, the discovery of new technology, obsolescence of old products, a change of government and so on.

Threats of SWOT analysis

Threats are external events or conditions that can negatively impact a company’s business. Some examples of threats include a disruption in the supply chain, a rise in energy prices, an increase in lending rates, or the arrival of a new market competitor.