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SWOT is a framework to analyze a company's current status based on two axes, internal/external factor and positive/negative influence, to decide what action should be taken.

Contents

Overview

A company is required to make a decision in various aspects, and it is very important to understand the circumstance that the company is in. For example, actions to be taken by a company which has the largest market share in the industry are different from ones appropriate for newcomers. Depending on the status of the company, appropriate actions vary.

SWOT is a simple framework to analyze the company's current status and then translate the result into a strategy. Owing to its simplicity, not a few people are skeptical about the effectiveness of SWOT. However, it is surely a very effective tool to grasp the current overview as well as one of the most famous frameworks today.

It is said that SWOT originates from "Business Policy: Text and Cases" (1965) by Kenneth Andrews et al. and the research conducted by Albert Humphrey et al. in Stanford Research Institute.

Application

In order to apply SWOT to actual cases, a company must take two phases, a status-analysis phase and an action-decision phase. The output of status-analysis phase must be faithfully reflected to the decision making about the action. On the other hand, status analysis is not effective until its output is used in action-analysis phase.

Distinguishing these two, the analysis phase is sometimes called "SWOT analysis" while the decision phase is called "TOWS analysis" or "Cross-SWOT analysis."

Status-Analysis Phase

In advance of decision making about actions, a company must grasp the current status. During the analysis, factors related to the company should be clarified and be classified into 4 categories based on the two criteria: "internal factors or external ones" and "factors with positive impact to the achievement of goals or ones with negative impact."

The classification is usually done by using 2x2 matrix shown below. Categories are named as follows. The word "SWOT" is derived from the initial letters of them.

positivenegative
internal StrengthWeakness
external Opportunity Threat
  • Internal/Positive: Strength
  • Internal/Negative: Weakness
  • External/Positive: Opportunity
  • External/Negative: Threat

External factors include economic trend, population/demography, amendment of laws or institutions, exchange rates, and market circumstances, such as competitors, customers, suppliers and substituting products, and so on.

On the other hand, internal factors include finance, marketing, skills, organization/workforce, brands, and so forth.

Action-Decision Phase

Actions are decided after status analysis is done. Just like the status-analysis phase, a 2x2 matrix is used: the vertical axis of it represents opportunity and threat and the horizontal axis represents strength and weakness. Actions are decided for each of 4 categories. By doing in this way, the result of analysis can be directly translated into the decision about actions.

strengthweakness
opportunity SO-StrategyWO-Strategy
threat ST-Strategy WT-Strategy
  • Strength/Opportunity: Strategies to maximize strength under the opportunity. They are called SO-strategies derived from the initial letters of Strength and Opportunity.
Example: Additional investment for the expansion of production lines when the company has enough technological capabilities (Strength) and market's needs are expected (Opportunity)
  • Strength/Threat: Strategies to avoid threats by taking advantage of strength. They are called ST-strategies derived from the initial letters of Strength and Threat.
Example: Customer retention by means of selling supplemental products when the company has enough technological capabilities (Strength) and newcomers are expected (Threat)
  • Weakness/Opportunity: Strategies to take advantage of the opportunity by complementing the weakness. They are called WO-strategies derived from the initial letters of Weakness and Opportunity.
Example: Technical cooperation when the company lacks technological capabilities (Weakness) while market's needs are expected (Opportunity)
  • Weakness/Threat: Strategy to prepare for business contraction or retreat. They are called WT-strategies derived from the initial letters of Weakness and Threat.
Example: Sellout of the department when the company lacks technological capabilities (Weakness) and newcomers are expected (Threat)

Relation between BPM and SWOT

BPM acts on internal factors in SWOT, and it should be practiced and emphasized for business process under Opportunity, i.e.WO-strategies and SO-strategies.

KGI, CSF, and KPI are defined based on strategies identified by SWOT. Towards the achievement of KGI, BPM is practiced by utilizing KPI for business process that CSF is related to.

As explained above, SWOT helps identify business process which BPM should focus on and provides effective tools to practice BPM.

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