- Components of a SWOT Analysis
- Why perform a SWOT Analysis
- When to perform SWOT Analysis
- How to perform SWOT Analysis
- From SWOT Analysis to TOWS Analysis
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and so a SWOT Analysis is a technique for assessing these four aspects of a business. SWOT analysis (or SWOT matrix) is a strategic planning tool used to help organizations identify strengths, weaknesses, opportunities, and threats related to business competition or project planning.
Strengths and weaknesses are internal to the company, things over which they have some control and can change. Examples include who is on the team, intellectual property and patents, and location.
Opportunities and threats are external things that are going on in the larger market outside the company. The business can take advantage of opportunities and safeguard against threats, but it can’t be altered. Examples include competitors, raw material prices, and shopping trends.
The purpose of SWOT Analysis is to define the goals of the business venture or project and to identify the internal and external factors favourable and unfavourable to achieving those goals. This combination of evaluation metrics means that early in the project life cycle, a SWOT analysis is particularly useful for gaining a thorough overview of a company, product, brand, or a new project. SWOT has been defined as the tried-and-true strategic analysis tool
A SWOT Diagram is used to perform SWOT Analysis. A two-by-two grid forms a SWOT analysis diagram. Each quadrant has an outline of the strengths, weaknesses, opportunities, and threats ( SWOT) of the subject. A SWOT analysis is a simple way in any context to discover positive and negative factors. In particular, a 4-quadrant diagram identifies strengths, weaknesses, opportunities, and threats.
Creating a SWOT chart forces contributors to critically examine their circumstances and discover which obstacles need to be overcome or minimised. A SWOT can also help identify steps for short- and long-term success that should be taken.
Figure : SWOT Diagram and its quadrants
Components of a SWOT Analysis
Strengths, weaknesses, opportunities and threats are the components of SWOT analysis. Strengths and weaknesses assess an organization’s internal environment. Opportunities and threats assess whether or not the external business climate is favorable to the organization.
Strengths are the characteristics that give the organization an edge over its rivals. For instance, a strong market brand image, huge market share, loyal employee base, and better technological know-how, can act as strengths for an organization.
Weaknesses are the characteristics that put an organization behind its rivals. This may include a lack of top management commitment, limited production capabilities, lack of innovative technology accessibility, and poor organizational policies.
Opportunities are the circumstances that an organization can exploit to its advantage. If an opportunity exists, the organization may acquire, within the same industry, a small-scale, financially stable firm to strengthen its existing market base and expand into new target markets. Similarly, tariff cuts could be an opportunity for a company to export its goods to a new market and increase its market share.
Threats are the circumstances or components of an organization that could cause trouble. For instance, a situation like an abrupt change in the lifestyles of people or new technologies can be a threat to the organization. Examples of how organizations succumb to their inability to recognize threats are Nokia and Kodak.
Example: SWOT Analysis of Amazon
Why perform a SWOT Analysis
As part of the overall corporate planning process, SWOT analysis is conducted in which financial and operational goals are set for the coming year and strategies are created to achieve the desired goals.
Figure: SWOT Analysis to identify key factors
Using Resources Efficiently
Each business has a limited supply of labour, manufacturing capacity and capital, even the biggest ones that dominate its markets.
Assessing the company’s strengths helps to determine how these resources can be allocated in a way that will lead to the greatest possible revenue growth and profitability potential.
Where the business can compete most effectively is examined by the management team. The firm often finds that it has competitive strengths that have not been fully utilised in the past.
Improving Business Operations
When the management team looks at the company’s weaknesses, it is not to blame for past performance deficits. In order for the company to compete more effectively, it is to recognise the most critical areas that need to be improved.
Strategic blunders such as entering a market with products that are clearly inferior to what well-established rivals offer are also prevented from a realistic evaluation of weaknesses.
Continuous improvement in all areas of a company’s operations is an important aspect of staying ahead of competitors. It is possible and necessary to transform current weaknesses into future strengths.
Discovering New Opportunities
Business growth requires searching for new opportunities, including new potential groups of customers, wider distribution of products, development of new categories of products and services, and geographical expansion.
The management team identifies emerging opportunities to take advantage of right now in a SWOT analysis and tries to predict longer-term opportunities so that advance planning can be done to be ready when the time is right to enter the market.
Dealing with Risks
Another term for risk is a threat in SWOT analysis: an occurrence outside the control of the company that could have a negative impact on performance.
Companies face many threats beyond those triggered by direct rivals. Changes in the regulatory environment can have an adverse impact on performance. For example, consumer tastes can change abruptly when a recession causes consumers to cut back on buying luxury goods and services.
When it takes the time to develop contingency plans to implement quickly if the threats become reality, risks are less threatening to an organization. SWOT analysis helps a company be better prepared for whatever it is going to encounter in the external environment.
Competitive Positioning and Strategy
Many companies do a form of SWOT analysis on their key competitors. The management team begins to get an image of how the company should position itself against competitors, combined with the information from the company’s SWOT analysis of itself.
The firm wants to attack the weaknesses of competitors with its own strengths. In football, it is much like game planning, trying to find where the opposing team is vulnerable.
Conversely, if the rival has an overwhelming advantage, it does not want to meet the strengths of a competitor head on. Analysis of SWOT shows a business that even its most powerful rivals have weaknesses that can be exploited.
When to perform SWOT Analysis
A SWOT analysis is a useful tool for brainstorming and strategic planning. SWOT is a useful tool when evaluating strategic options for a particular company or business unit. It is a very simple model to build an overview of an organization current state and prospects for the future in a single page. For example, SWOT analysis can help to decide if and how to:
- take advantage of a new business opportunity
- respond to new trends
- implement new technology
- deal with changes to the competitors’ operations.
- when considering acquiring a business
- when developing a strategic plan for the future
- to present an executive overview of an organization
SWOT Analysis can also be used for addressing issues such as
- staffing issues
- business culture and image
- new product development
- organizational structure
- financial resources
- Operational efficiency
Live analysis of Amazon is performed below to derive the Strengths, Weaknesses, Opportunities, and Threats of Amazon.
SWOT Analysis of Amazon – Strengths
In their own words, Amazon’s strengths can be summed up; the company is guided by “customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.”
They are also in line with the Amazon mission statement that puts everything and everyone else above their customers, thereby emphasizing their focus is on Customers, which is also their strength.
Some other strengths of Amazon that set it apart from its competitors include:
According to emarketer, Amazon has 38.7 per cent of the e-commerce market. Nearly 2 in 5 shoppers shop on Amazon. To give you a scope of Amazon’s dominance, Walmart, which is in second place, has only 5.3% of the e-commerce market.
Brand Image and Recognition
Everyone knows about Amazon. Most people have also shopped there. It is a household name, one that is often referred to as an example of a lot of people who have had to enjoy their favorite product. It has a positive brand image and high recognition, in other words.
Amazon is a website for e-commerce and does not have a major physical presence and the associated costs. Through this, as well as many strategic partnerships and well-implemented strategies, Amazon maintains its image in the market as a low-cost vendor.
Innovation and Uniqueness
Every day you see new types of products and services (many times through third-party sellers) being added to the Amazon platform. You also see new trends with a focus on user-friendly features and a great shopping experience that distinguishes it from rivals. This is a great example of the strategic differentiation of Amazon.
Scalability and IT
As we just mentioned, Amazon is regularly expanding its inventory and its client base is not shrinking either. It continues to refine its processes and tools by using state-of-the-art technology, ensuring that the user experience is not compromised. This makes it possible for the e-commerce giant to remain ahead of the game.
Customers’ First Choice
The customers of Amazon are its priority, which is evident from the mission statement of Amazon, which states the goal of the company to be the world’s most customer-centric business. The company offers low costs, great deals, and a phenomenal shopping experience to keep them satisfied, in line with this mission. For millions of people, this makes it the go-to place for shopping.
Whether it is a strategic alliance with Evi Technologies or, among other things, the acquisition of Whole Foods, Amazon partnerships result in a massive increase in the company’s profits.
Amazon has partnered with 1300 businesses, which employ 85,000 people, across 400 delivery stations across the US, according to RBC Capital Markets. Together with innovations like drone delivery, Amazon’s broad and deep supply chain keeps Amazon at the forefront of e-commerce.
SWOT Analysis of Amazon – Weaknesses
The SWOT Analysis help identify the weaknesses and enables the company (Amazon in this case) to overcome the Weaknesses.
Amazon sellers are concerned about new developments in stock storage limits, faster demands for delivery, threats from “black hat” practises, and competition from Amazon’s private product label. Amazon will fall out of favour if these concerns are not addressed; particularly when anti-Amazon businesses such as Shopify, Etsy, and Walmart are nibbling at the heals of Amazon.
Amazon’s work culture is described by employees as hyper-competitive, critical, insensitive, and unfair. They also mention a lack of praise, disregard for work-life balance, and lack of benefits as other elements they are not satisfied with.
Lack of Substantial Physical Presence
This point proves that a single factor can act as both an advantage and a hurdle. While the online-for-the-most-part approach enables the business to save a large amount of expenses, it prevents Amazon from tapping into markets where e-commerce is still an emerging trend.
When a customer places an order above $25, Amazon generally offers free shipping to its customers (on eligible items). As no one likes to pay for shipping, this has a role to play in its popularity. It is an expensive approach, however, and can greatly influence the margins of the company. Although it seems to be working for now, in the future, the strategy may require some consideration.
SWOT Analysis of Amazon – Opportunities
To effectively identify all of Amazon’s opportunities, the SWOT analysis on amazon is definitely the way to go.
Lockdown measures persuaded customers to switch to online shopping for stuff they would normally have bought from retail stores. Consumer spending on Amazon is up by 70 percent year-on-year according to a report from Facteus.
With its Amazon Music platform, Amazon has recently integrated a podcast service. The new move is intended to bite into the share of Spotify and Apple as the leading podcasting services. With Amazon’s Alexa, this service would work well.
Amazon Fresh, Amazon’s newest company, provides seamless in-store and online shopping along with consistently low prices. Amazon Fresh stores could be a game-changer for Amazon, with its first store already open to select customers in Woodland Hills, California.
Another avenue to leverage Amazon’s supply chain expertise is Amazon’s venture into food delivery. Zomato, the leading food delivery company in India, has voiced concerns about Amazon entering this lucrative business.
Among other steps that strengthen the brand and enable it to expand its horizons, strategic alliances or acquisitions are clearly a good option. In the past, such partnerships have benefited Amazon; there is no reason why they will not prove to be instrumental in the company’s future growth.
SWOT analysis of Amazon – Threats
SWOT Analysis indicates the threats facing the company and also presents steps to overcome the threats.
The Government of India banned Amazon ‘s sales of non-essential goods in the early months of the pandemic. A $398 million loss resulted from the ban. Government policies have also been more favourable to local retailers than to the e-commerce industry. Such policy changes are and will continue to pose a significant threat to Amazon ‘s growth domestically and internationally.
Cybercrime and data theft are modern-day criminal activities that put internet users at risk, especially those individuals who shop online. There is an increased public awareness of the perils of sharing personal and bank account details over the internet today. This has forced individuals, to some extent, to avoid shopping online when they can.
Walmart announced the Walmart Fulfilment Service. With this launch, third-party sellers now have an alternative to Amazon. Although the gap in market share between Amazon and its closest rival is huge, the gap is expected to shrink in the years to come.
How to perform SWOT Analysis
A SWOT analysis is a tool for documenting internal strengths (S) and weaknesses (W) in the business, as well as external opportunities (O) and threats (T). This information can be used for business planning to help achieve the business goals.
The following 8 steps can be used to conduct a SWOT analysis
Decide on the objective of the SWOT analysis
The primary goal must be idealised at the outset in order to get the most out of SWOT analysis. SWOT analysis, for example, can help decide whether it is possible to launch a new product or service or whether there is a change in processes.
Perform research on the business, industry and market
There is a need to do some research to understand the company, industry and market before the SWOT analysis begins. By talking to the employees, business partners and customers, perspectives must be gathered. In order to find out about rivals, some market research must also be carried out.
List the business’s strengths
The first step is to define and list what the strengths of the enterprise are. For example, strengths related to staff, financial resources, business location, cost advantages and competitiveness could be included.
The list doesn’t need to be definitive at this stage of the SWOT analysis. Any thoughts and ideas are encouraged. Step 7 is where priority is given to the list.
List the business’s weaknesses
This step involves listing things that can be seen as weaknesses (i.e. that put the company at a disadvantage to others) in the company. The weaknesses could include the absence of new products or customers, the absence of employees, the absence of intellectual property, the decline in market share and market distance.
Make sure that the shortcomings raised in the SWOT analysis are addressed. The list of weaknesses may show how, over time, the company has grown. A sign of progress can be witnessed after a review of the SWOT analysis when weaknesses have been resolved.
List potential opportunities for the business
Think of the potential external opportunities for the company. These are not the same as internal strengths and are not necessarily definite-a threat to another may be an opportunity for one aspect of the company (e.g. A company may introduce a new product to keep up with consumer trends, but a similar product may already be available to competitors).
Keep this in mind, but the same item should not be listed as both an opportunity and a risk for the SWOT analysis.
Opportunities could include new technology, training programs, partnerships, a diverse marketplace and a change of government.
List potential threats to business
List the external factors that could be a threat to the company or cause a problem. Rising unemployment, increasing competition, higher interest rates and the uncertainty of global markets could be examples of threats.
Establish priorities from the SWOT
4 separate lists can be derived when the above steps are completed. Ideally, these lists can be shown side-by – side, so there can be an overall picture of how the company operates and what problems need to be addressed. The company can then work out what issues are the most important and what can be addressed later (i.e. create 4 priority lists).
Develop a strategy to address issues in the SWOT
The final steps involve reviewing the 4 prioritized lists by asking:
- How can the strengths be used to take advantage of the opportunities identified?
- How can these strengths be used to overcome the threats identified?
- What needs to be done to overcome the identified weaknesses in order to take advantage of the opportunities?
- How weaknesses be minimized to overcome the identified threats?
Once these questions have been answered and lists are finalized, SWOT analysis can be used to develop strategies for achieving the business goals.
From SWOT analysis to TOWS analysis
A list of strengths, weaknesses, opportunities, and threats is a useful business guide, but it is necessary to take this exercise one step further to develop business improvement strategies and plans.
A TOWS analysis is called the exercise about to be done. It helps to make connections between each analysis quadrant. This can be performed by working around the square, combining information from two quadrants to create actionable strategies.
|Opportunities (Internal, positive)||Threats (external, negative)|
|Strengths (internal, positive)||Strength-Opportunity strategies |
Which of the Company’s strengths can be used to maximize the identified opportunities?
|Strength-Threats strategies |
How can the company’s strengths be used to minimize the threats identified?
|Weaknesses (external, negative)||Weakness-Opportunity strategies |
What actions can be taken to minimize the company’s Weaknesses using the identified Opportunities?
|Weakness-Threats strategies |
How can the company minimize the weaknesses to minimize the threats identified?
- Strengths–Opportunities: Using the internal strengths to take advantage of opportunities.
- Strengths-Threats: Using strengths to minimize threats.
- Weaknesses-Opportunities: Improving weaknesses by taking advantage of opportunities.
- Weaknesses-Threats: Identifying steps to eliminate weaknesses to avoid threats.
Here’s an example of a completed TOWS analysis of Amazon.
|Internal Strengths (S)
||Internal Weaknesses (W) |
|External Opportunities (O)
(S2 + S8 + O1) Use strengths such as Global Recognition and Strong Supply Chain to take boost sales during the Pandemic
(S7 + O2) Use Partnerships to add new albums, series into the Podcasting segment
(S7 + O4) Use Partnerships to expand into new segments of the Food Industry
(W3 + O3) Increase the physical presence by hiking the number of Amazon Fresh stores in emerging markets
(W4 + O1) Use the Free Shipping option to serve the customers during the pandemic.
|External Threats (T) |
(S5+T2) Use the IT capabilities to prevent Cybercrime
(S2+S3+S4+T3) Use Brand Image, Cost Leadership and Innovation to stay ahead of Competition
(W1+T3) Improve Seller Relationships to stay Competitive
(W2+T3) Increase Employee Morale to stay of Competitors
Potential Strategies for Amazon
A walkthrough on the strengths, weaknesses, opportunities, and threats of Amazon has been presented in the above section and here are some of the potential strategies the company can put into play, derived from the SWOT analysis on amazon.
- Consolidate the dominance of the market by enhancing its marketing efforts, promotional activities and competitive benefits.
- Dealing strategically with global disputes. Amazon needs to resolve tax issues and effectively manage the features of its app to decrease negative market advertising.
- Increase its limited presence by opening physical stores outside the United States This will increase the popularity of brands and market reach.
- Enhance its strategic entry into developing countries where there are many possibilities for growth.
- Increase the competitive edge and widen the gap between Amazon and its largest rivals.
- By upgrading technology measures, addressing the issues of counterfeit sales and cyber crimes.
- Improve network security systems for the protection of the rights of consumers.