The SWOT analysis is an extremely useful tool to assess a company’s strategic positioning
Use a SWOT analysis to determine whether a company’s key strategies are aligned with its objectives and what obstacles have to be overcome
Internal positive factors are called Strengths, internal negative factors are called Weaknesses, external positive factors are called Opportunities, and external negative factors are called Threats. This framework is seldom used in the day-to-day work of MBB consultants because it overlaps between many categories (for example, customers putting pressure on prices can be seen as either an external threat or an internal weakness of the customer base). However, in case interviews, the SWOT analysis can still be used as a tool to segment influences into a 2x2 matrix.
We will now go over each of the four branches in more detail and provide examples.
Strengths (Internal positive factors)
The strengths of a company are its resources and capabilities, for example:
- Financial resources
- Access to networks, natural resources
Weaknesses (Internal negative factors)
Weaknesses can usually be viewed as the absence of specific strengths or things that are done better by competitors, for example:
- Poor reputation
- High cost structure
- Lack of customer/employee loyalty
- Lack of innovative R&D
- Lack of access to key distribution channels/resources/trade associations
Opportunities (External positive factors)
Opportunities reveal new options for growth in profits including:
- New technologies
- Removing barriers to trade
- Loosening of regulations
- Entry into new markets
Threats (External negative factors)
External changes that will have a negative effect on growth and profit are threats, for example:
- A shift in customers’ needs, expectations and taste away from the core of the companies products
- New regulations
- Neutral factors like this can also be opportunities if they are beneficial to the company
- Especially with external factors like these, it is important to set it into the context of the respective company
- New market entrants/low barriers to entry
- Emergence of a substitute product (see Porter's Five Forces)
Once you have completed the SWOT analysis, draw insights into the matrix
After lining out the gathered information in a simple 2x2 Matrix, step further by identifying strategies that address the following questions:
- How to use strengths to take advantage of the opportunities.
- How to take advantage of the strengths to avoid threats.
- How to use opportunities to overcome weaknesses.
- How to minimize weaknesses and avoid them.
- The SWOT matrix is a simple analysis of internal strengths and weaknesses as well as external opportunities and threats.
- Opportunities can be seen as threats and vice versa.
- SWOT matrices don’t show the interrelationship between internal and external factors.
- The SWOT analysis itself does not allow us to make strategic decisions but can be used for meaningful insights.
SWOT Analysis Example ( Case Study)
- What does the company do well?
- Is the company strong in its market?
- Does the company have a strong sense of purpose and the culture to support the purpose?
- What does the company do poorly?
- What problems could be avoided?
- Does the company have serious financial liabilities?
- Are industry trends moving upward?
- Do new markets exist for the company‚Äôs products/ services?
- Are there new technologies that the company can exploit?
- What are competitors doing well?
- What obstacles does the company face?
- Are there troubling changes in the company‚Äôs business environment (technologies, laws, and regulations)?
The following case study demonstrates how SWOT can be used to create a strong business strategy.
In the mid-1990s, Dell Computer used a SWOT analysis to create a strong business strategy that has helped it become a very strong competitor in its industry value chain. Dell identified its strengths in selling directly to customers and in designing its computers and other products to reduce manufacturing costs. It acknowledged the weakness of having no relationships with local computer dealers. Dell faced threats from competitors such as Compaq and IBM, both of which had much stronger brand names and reputations for quality at that time. Dell identified an opportunity by noting that its customers were becoming more knowledgeable about computers and could specify exactly what they wanted without having Dell salespersons answer questions or develop configurations for them. It also saw the internet as potential marketing tool. The results of dell‚Äôs SWOT analysis are:
- Sell directly to consumers
- Keep costs below competitors
- No strong relationships with computer retailers
- Consumer desire for one-stop shopping
- Consumers know what they want to buy
- Internet could be a powerful marketing tool
- Competitors have stronger brand names
- Competitors have strong relationships with computer retailers
The strategy that Dell followed after doing the analysis took all for of the SWOT elements into consideration. Dell decided to offer customized computers built to order and sold over the phone, and eventually, over the internet. Dell‚Äôs strategy capitalized on its strengths and avoiding relying on a dealer network. The brand and quality threats posed by Compaq and IBM were lessoned by dell‚Äôs ability to deliver higher perceived quality because each computer was custom made for each buyer.