This essay provides an outline of SWOT analysis, what it is and how it helps businesses. You can also find examples of SWOT analysis from key business sectors.
What is SWOT analysis?
The SWOT analysis was originally arrived at by Andrews Christiansen, Guth and Learned in 1969 and its basic organising principles have remained largely unchanged in the field of strategic management. It is a systematic framework which helps managers to develop their business strategies by appraising their internal and external determinants of their organisation’s performance. Internal environmental factors include leadership talent, human resource capabilities, the company’s culture as well as the effectiveness of its policies and procedures. External factors include competition, government legislation, changing trends and social expectations.
The SWOT analysis framework involves analysing the strengths (S) and weaknesses (W) of the business’s internal factors and the opportunities (O) and threats (T) of its external factors of performance. Through this analysis “strengths and weaknesses within an organisation can be matched with the opportunities and threats operating in the environment so that an effective strategy can be formulated”. Therefore an organisation can derive an effective strategy by taking advantage of its opportunities by using its strengths and neutralise its threats by minimising the impact of its weaknesses. Moreover, SWOT analysis can be applied to both a whole company as well as a specific project in order to identify new company strategies and appraise project feasibility.
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The strengths and weaknesses of a company relate to its internal elements such as resources, operational programs and departments such as sales, marketing and distribution. More specifically, a strength is an advantageous skill or competency that a business or project possesses that allows it to create competitive advantages, such as its strong research and development capabilities. A weakness on the other hand is a strategic disadvantage such as a skill that the business or project lacks which limits it and creates potential risks in negative economic conditions.
An opportunity is a desirable condition which can be exploited to consolidate and strengthen a strategic position, such as growing demand for a trendy new product which it could consider selling. A threat on the other hand, is a condition that creates uncertainties which could potentially damage an organisation’s performance and market share. Threats include the introduction of new competing products or services, foreign competition, technological advancements, and new regulations. Therefore, the company needs to develop strategies to overcome these threats in order to prevent the loss of its market share. It must be noted, however, that opportunities and threats exist in the environment and therefore are often beyond the control of the organisation but they do offer suggestions for strategic direction. The SWOT analysis, as a result, demands a great deal of research into an organisation’s present and future position. Its results provide a useful source of information from which an organisation can go on to develop policies and practices which allow it to “build upon its strengths, minimise its weaknesses, seize its opportunities” and make contingency plans or measures to cancel or reduce threats.
SWOT analysis is widely used by managers because of its simplicity as a planning tool as well as being adaptable to any situation or project. Whilst it is not the only technique available to managers, it can often be the most effective if used properly. The basis for a SWOT is usually drawn from the audit review as well as from independently carried out interviews with staff and customers. Data is then analysed to arrive at a list of issues which can be categorised into strengths, weaknesses and opportunities and threats. The key issues and company activities are then reassessed through great discussion between managers and reduced further to identify the most important issues and the potential impact they could have on the organisation. If too many issues are included in the analysis, there will be a lack of focus in the development of a new company strategy. Additionally, the issues considered should be made in view of the customer opinions and perceptions which would therefore require objectivity. Ideally, a company should carry out a SWOT analysis on a regular basis in order to assess its situation against its competitors in a constantly evolving market environment. According to Stalk et al. “the essence of strategy is not the structure of a company’s products and markets but the dynamics of its behaviour”.
It is also recommended that an organisation develop a SWOT on its competitors so that it may be able to take into account consumer perceptions and determinants of their buying behaviour. This is particularly the case with issues such as quality in which perceptions are more powerful than the reality. In today’s highly competitive and fast changing market environment, the greatest mistake managers make when evaluating their resources is failing to assess them relative to competitors”. A competitive analysis as part of the SWOT framework is always necessary in order to determine its position in the market. For example, if a project or business strength is the amount of capital it has to invest in improved IT functionality, it may not be the case if its competitor is investing double this amount to improve its own IT functionality. Therefore it is no longer a strength but rather a weakness for the company. The same competitive analysis should be taken into account when assessing opportunities and threats. “Whether an issue is a threat or an opportunity depends on the relative strengths of the competing businesses.”
McDonald states that the “SWOT device…whilst potentially a very powerful, analytical device is rarely used effectively”. Moreover, he recommends using a summary from the marketing audit to arrive at a good SWOT as well as keeping it focused on the critical factors only and to maintain a list of differential strengths and weaknesses in comparison to competitors, focusing mainly on competitive advantages. Additionally, only critical external opportunities and threats should be listed with a focus on the real issues. Finally, the reader of the SWOT analysis should be left with the main issues encompassing the business to the extent that they are able to derive and develop marketing objectives from them. A “good SWOT analysis is characterized by the rigorous process of analysis, which reduces the number of external and internal issues to those that are of paramount importance.” At the end of the analysis, the organisation is left with reasons behind their choices as well as their potential impacts, which provides them with a stronger basis from which to form future strategic decisions.
Example of a SWOT analysis of the McDonald’s Corporation (MD):
Open door policy to the press
During loss of public confidence arising from the safety of beef and poultry the MD had an open door, allowing the press into a limited number its restaurants and suppliers. In March 2001, MD opened its doors to both TV and printed advertisement with a view to seeing how the company was being managed.
CERES guidance and co-ordination & active CSR
MD co-ordinates with investors, environmental and Corporate Social Responsibility (CSR) organisations, such as CERES, to continuously improve its social and environmental programs.
Selective supply chain strategy
MD works to ensure that its suppliers meet safety and quality standards as well as sustainable food supply and animal welfare.
Rigorous food safety standards
MD works hard to ensure its high food safety standards are met through training, food, safety and quality and menu development in each restaurant. This filters through to its partners ensuring that they operate ethically and meet social responsibility standards.
Affordable prices and high quality products
MD is an efficient provider and always seeks to offer the best value to its customers.
Nutritional information available on packaging
MD is one of the first fast food restaurants to disclose its nutritional information on its packaging and continues to seek new ways in which it can provide nutrition and balanced active lifestyles for its customers.
Decentralised yet connected system
MD provides a core system of values, principles and standards which managers adhere to in combination with its “Freedom within the framework” program which provides them with the flexibility to respond to the diversity of its customers and local markets.
Innovative excellence program
MD has mystery shoppers which shop unannounced and inspect the premises as customers and rate it accordingly. Many restaurants provide customer comment contact numbers and employee satisfaction surveys.
Promoting ethical conduct
MD works hard to maintain its integrity with its shareholders through a
MD is profitable with sufficient capital which allows it to grow and realise gains on its investments. This allows MD to offer help to charities as well as itself when in need
Inflexible to changes in market trends
If customer trends move towards eating Eco-friendly or Bio foods, MD would be unable to follow this trend without changing suppliers and incurring significant financial losses. MD could consider the introduction of new product with the aid of market research, over the coming years to prepare them for such an inevitable change.
Difficult to find and retain employees
MD has had hostile relationships with workers rights unions and although this has been controlled, the company does find it difficult to find and retain good employees. The company can build on its reputation for developing top level managers to motivate entry level employees to remain.
Drive for achieving shareholder value may counter CSR
When MD’s profits fall, its stock price often falls as well and is often forced to take drastic actions to resolve the problem. This can oftentimes be at the cost of being socially and environmentally irresponsible. MD could be more proactive in finding more long-term CSR suppliers and processes that provide low costs and higher profit margins, rather than being reactive.
Promote unhealthy food
Despite providing healthier product varieties, MD continues to sell burgers that have 850 calories as well as other unhealthy products. This could continue to harm its reputation as an unhealthy fast food provider. MD could research ways to reduce the calories in its products whilst still maintaining their taste, or at the least provide low calorie burger options.
Promoted CSR meat imports in error
MD claimed to provide meat from socially and environmentally responsible sources, but a court case found that meat had been imported from Latin America where rainforests are cleared to create green fields for cattle. Where MD carries out CSR processes or investments it may wish to consider carrying out random checks to ensure their standards are continually met, to minimise embarrassing press.
Attractive & flexible employment
MD offers a variety of job opportunities and is proud to say that 42% of its top managers first started by serving customers. It is also helpful to society in being always able to hire even in times of recession, helping to keep jobless rates lower.
Positive environmental commitments
MD incorporates environmental commitments in its daily operations, from maintaining daily drive-thru cleanings to providing sustainable fish sources to using recycled packaging.
Higher standards demanded from suppliers
MD sets the standards it demands from suppliers for low cost high quality, socially responsible supplies, in return for a long-term business commitment.
Corporate Responsibility Committee
MD has a standing Corporate Responsibility Committee that acts as an advisor to its Board of Directors.
Honest & real brand image
MD has built and maintains a trusting relationship with its shareholders and customers through truthful marketing and communications.
Fabricated stories about the quality of our chicken
E-mails and websites have published fabricated information that MD is using ‘monster-chickens’ in its products. MD could build on its open door policy with the press and apply it to the web, to combat false distribution of information.
Unhealthy foods for children
If competitors begin to offer premium healthy alternatives for children with small gifts to encourage them to eat healthy, this would be a significant threat to MD. MD’s positive strategy to provide a range of healthy products could include healthy products for children.
Health concerns surrounding Beef, Poultry & Fish
There are various initiatives working against hormone induced cows and other issues such as bird flu epidemics and heavy metal levels in fish could reduce MD’s sales and cause profits and its share price to fall. MD could use its purchasing power to its advantage to source supplies that are healthy and at low prices.
Labour exploitation in China
Chinese manufacturers exploit labour in their production of ‘Happy Meal’ toys. MD could use its purchasing power to its advantage to demand that manufacturers provide a toys without exploiting labour.
CSR at the risk of profit loss
If share prices and profitability are under pressure, managers will inevitably seek to resolve it at the risk of a CSR issue.
Contributor to global warming
MD is the largest consumer of beef. Greenfields used to supply this beef comes at the expense of rainforests, heavy use of chemicals, fertilizers and pesticides. MD could use its purchasing power to its advantage to source CSR suppliers.
Local fast food restaurants
Local restaurants which are less environmentally threatening than MD and have less purchasing power may have better reputations with local suppliers and customers.
From the above SWOT of McDonald’s and the summary that follows it, it can be seen how an organisation by highlighting its position it can identify areas that could be strengthened, opportunities seized and threats and weaknesses minimised or prevented completely.
In summary, a SWOT analysis provides a systematic framework for appraising an organisation’s internal and external position in its environment and their potential impact on performance. It is a useful tool as it can form the basis from which a range of strategies can be developed by taking advantage of its opportunities through the use of its strengths and neutralising its threats by minimising the impact of its weaknesses. In order for it to be most effective, it must also be constantly updated to compensate for changes in the company’s environment and also assessed in relation to the position of its competitors in the market. Whilst it may be difficult for management to resolve all of the weaknesses and threats highlighted the company is at least made aware of them and can bare them in mind when implementing future strategies. The McDonald’s SWOT analysis highlighted several CSR threats and weaknesses and its strengths highlighted its strong purchasing power which could potentially be used to demand socially responsible production from its Chinese manufacturers and meat suppliers. It also showed how a more proactive and longer-term approach to its strategies can help it to anticipate changing consumer tastes and demands.You can get expert help with your business essays. Find out more...
SWOT Analysis Example Essays
Below are some essays based on SWOT analysis which include examples of SWOT analysis:
SWOT Analysis Essays - Example 1: SWOT Analysis The Toddler Warehouse
The Toddler Warehouse will be a full-service child care/development facility in the city of Perth that cares for toddlers from age three to five. The Toddler Warehouse will be concentrating on the upper end of the market, two income professional parents. These personally ambitious parents are typically eager in terms of their children's development and are willing to pay to have their children attend the best facilities. Through specialized training of the support staff and innovative learning systems, The Toddler Warehouse is cutting edge in terms of child development. This curriculum, coupled with a custom designed facility and a low teacher/student ratio ensures a top-shelf service for the children and the parents. The Toddler Warehouse expects to become profitable by month 11, and has projected $43,000 as the revenue for year three.
SWOT Analysis Essays - Example 2: SWOT Analysis Motor Store
Motor Store is a newly established company in the auto industry situated in Omagh, Northern Ireland. Its objective is to satisfy local demand for auto parts and to sell products to local garages as well as to the general public. Chairperson Brendan McAnulla will be in charge of the start-up of the store, its daily operations and also be responsible to the board. Financial resources for the company will be supported by the business program run by the Bank of Ireland. In terms of human resources available a skilled workforce drawn from the local and surrounding areas will contribute to the success of the business in terms of both its management and operation functions.
SWOT Analysis Essays - Example 3: SWOT Analysis BMW
This report will provide a detailed analysis of BMW's current corporate appraisal analysis. This will help to identify the company's current strength, weaknesses, opportunities and threats. This will help the companies decision makers understand where the organisation is now. The report will also critically evaluate BMW's human resources policy as a key area of the organisation. We will highlight how BMW has strategically responded to the drivers for change in terms of its structure, conduct and performance. Finally, offer recommendations for the future development and improvements in human resource management, and how those will impact on its organisational structure, conduct and performance.
SWOT Analysis Essays - Example 4: SWOT Analysis NHS
The NHS was set up on 5th July 1948 to provide healthcare for all citizens, based on need, not the ability to pay. (www.nhs.uk) Prior to this date access to treatment depended on either the ability to pay, or the goodwill of doctor's in hospitals funded by charitable donations. The latter was a very strained resource and often it was only the working parent, usually the man, who was able to access such treatment, which he often paid for by way of deductions from salary to schemes such as the Hospital Saving Association ( www.hsa.co.uk ). Today the health service is formed of many trusts, reporting into the department of health, consisting of community services Trusts, Ambulance Trusts to Hospital Trusts.
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