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SWOT which stands for an abbreviation of strength, weakness, opportunity and threat; is an analysis that defined as method to examine organization's internal factors dealing with strengths and weaknesses, and its environmental opportunities and also the threats. SOWT analysis usually use in the preliminary phase of decision making as a general tool which it designed for being antecedent to strategic planning in different case and applications. (Johnson et al., 1989; Bartol et al., 1991). Based on some other definitions like Formisano (2003), SWOT Analysis can be used as a model, process, technique or framework to provide information about those factors strengths, of an organization by having many applications with possibility of being used in all the levels of the organization. In most organizations there are series of analyses that each focus on some specific product/market combination, and regarding to that an understanding of all external factors, threats and opportunities, together with an internal examination of strengths and weaknesses provides in forming a vision of the future. Basically it means that every company is probably facing a variety of internal and external forces which, on the one hand can include potential incentives, or on the other hand can compromise potential limitations as regards the performances of the company or the objectives that wish to achieve by company.
SWOT analysis is a part of the strategic planning process. Companies have some internal
and external forces in the business environment. As a first step of a strategic planning
system, the strategic factors that are related with the potential of the company, should be
identified and evaluated. The identification and evaluation of the strategic factors helps to
reach an actual strategic plan and as a result the managers are able to gain insight of
internal and external nature of the company and establish suitable actions in order to
reach good performance (Houben et al., 1999, p.2) In order to have good performance in
strategic planning, the future objectives on the company's strength and the weaknesses of
the company must be considered by the company. Internal strengths and weaknesses are
the main components of the strategic management process but it must be reinforced with
considering opportunities and threats from the external environment.
SWOT analysis involves with specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. SWOT is the most well-known approach to defining strategy, having influenced both practice and research in strategic planning.
SWOT Analysis and Strategic Planning
The current strategic position forms a very important point of departure for the development of a future strategy. It is very difficult to understand the current strategy if a formal planning system was previously absent. The studying of the competition, the current strategic prospects, performances from the past, the market possibilities and the market environment provide us with insight concerning information required for the indication of strengths and weaknesses. Where possible these strengths and weaknesses are to be represented in objective terms. It must be commented that most strengths concern the capabilities of certain personnel members or the resources at hand. A distinction can accordingly be made according to the present product/market combinations. It is therefore sensible to make a distinction according to the extent to which these strengths and weaknesses are of a critical nature. As regards the critical factors, an attempt must be made to sort them on the basis of strengths (Johnson et al., 1989; Bartol et al., 1991).
Good performances within a company are the results of correct interaction of the business management with its internal and/or external environment. To operate successfully in this respect, the company must concentrate its future objectives on its strengths, while averting tendencies related to the companies weaknesses. Responding to internal strengths and weaknesses is therefore an essential component of the strategic management process. But success can only be achieved in this respect to the extent that one is familiar with the opportunities and threats resulting from the external environment. Mintzberg and Quinn (1991) explained the recognition of the internal strengths and weaknesses, as well as external opportunities and threats, takes place on the basis of a SWOT-analysis. Within the framework of this study, however, we chose to concentrate solely on the internal business environment. This therefore only concerns the identification of strengths and weaknesses. Companies must undertake specific actions in order to distinguish their competitive strengths and weaknesses. The strengths and weaknesses are found in the functional company fields, or they may be a consequence of abnormal interaction between different fields. Furthermore, the strengths and the weaknesses of an aspect are measured at different levels of the organization; this can be at group level, at individual enterprise level or at product or market level.
SWOT Analysis Steps
Based on Houben et al. (1999) as a first step in the development of a strategic planning system, business managers therefore commence with the identification and evaluation of these strategic factors which assist or hinder the company in reaching its full potential. Normally every company is confronted with a dynamic environment; the relative importance of a strategic factor will change constantly, so the SWOT analysis is correspondingly to be of a permanent nature. The list of strategic factors can be used as a point of departure for the actual strategic plan within a small or medium sized enterprise. It is a flexible instrument. The greatest advantage is that it helps managers of small and medium sized enterprises survey the different management areas, gain insight into the significance within the framework of the company, and accordingly initiate suitable actions.
Good performances within a company are the results of correct interaction of business management with its environment. As Zack (1999) discussed, this environment can be of either an internal or external nature. To operate successfully in this respect, the company must concentrate its future objectives on its strengths, while averting tendencies related to the companies weaknesses. To simplify the way that SWOT analysis usually used, there are to initial steps to follow: 1. Internal Analysis: Examining the capabilities of organization. Carefully examining all strengths and weaknesses and drawing ideas from projects that have both successfully and unsuccessfully completed. 2. External Analysis: Looking at the main points in the environmental analysis, and identifying those points that pose opportunities for organization, and those that pose threats or obstacles to performance. Carefully examining the market in which it intends to launch the product and analyze what the status of the competition.
Bartol et al. (1991) mentioned that responding to internal strengths and weaknesses is therefore an essential component of the strategic management process. But success can only be achieved in this respect to the extent that one is familiar with the opportunities and threats resulting from the external environment. The recognition of the internal strengths and weaknesses, as well as external opportunities and threats, takes place on the basis of a study, which called SWOT analysis. Generally no standard list of crucial factors which apply for all companies exists because of the specificity of this set. Within the framework of this study, however, we chose to concentrate solely on the internal business environment. This therefore only concerns the identification of strengths and weaknesses.
Strengths thereby relate to the competitive advantages and other distinguishing competencies which can be exploited by the company on the market. A distinguishing competence is something which can be done very capably by a company. Weaknesses, on the other hand, are limitations which hinder the progress of a company in a certain direction. Weaknesses are those attributes of the organization that impede achieving the objective and limitations or deficiency in one or more resources or competencies relative to competitors that impedes a firm's effective performance. Opportunities are outside conditions that help to achieve the objective major situation in a firm's environment. Key trends are one source of opportunities and identification of a previously overlooked market segment, changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities for the firm. Threats are also outside conditions that impede achieving the objective and impediments to the firm's current or desired position. The entrance of new competitors, slow market growth, increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations could represent threats to a firm's success (Mintzberg and Quinn, 1991).
According Johnson et al. (1989) ; Bartol et al. (1991) taking strategic actions is advised for the organizations to preserve or sustain strengths, offset weaknesses, avert or mitigate threats, and capitalize on opportunities. Strategies can consider as the balancing act between the external environment like opportunities and threats and the internal capabilities of the firm such as strengths and weaknesses. Basically SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations.
As a first step in the development of a strategic planning system, business managers should therefore commence with the identification and evaluation of these strategic factors which assist or hinder the company in reaching its full potential. Because every company is confronted with a dynamic environment, the relative importance of a strategic factor will change constantly, so this analysis is accordingly to be of a permanent nature. In identifying SWOT a particular factor is relevant only with reference to a specific objective. For example, a large cash balance is strength if the objective is expansion. If the objective is to discourage a hostile take-over, a large cash balance is a weakness. The SWOT analysis headings provide a good framework for reviewing strategy, position and direction of a company or business proposition, or any other idea. Completing a SWOT analysis is sometimes simple and useful which can be used for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports (Houben et al.1999).
Figure1. SWOAT Analysis Diagram
The strengths and weaknesses can be found in the functional company fields, or they may be a consequence of abnormal interaction between different fields. Furthermore, the strengths and the weaknesses of an aspect must be measured at different levels of the organization; this can be at group level, at individual company level or at product or market level. The evaluation of the performances of the past may not be neglected with the measuring of strengths and weaknesses because it provides historic insight into the strategy of the company previously implemented as well as the successes accordingly achieved (Glass, 1991). Historic investigations may not only be limited to the pure analysis of the paths followed by the company in the past and the results achieved, they must also devote attention to the reasons for this success. With the lists compiled, sort and group facts and ideas in relation to the objectives. It may be necessary for the SWOT participants to select their five most important items from the list in order to gain a wider view. Clarity of objectives is a key to this process, as evaluation and elimination will be necessary to cull the wheat from the chaff. Although some aspects may require further information or research, a clear picture should, at this stage, start to emerge in response to the objectives (Johnson et al., 1989; Bartol et al., 1991).
By doing the SWOT analysis usually there are some ready expected advantages such as, an impetus to analyze a situation and develop suitable strategies and tactics, a basis for assessing core capabilities and competences, the evidence for, and cultural key to, change, a stimulus to participation in a group experience.
SWOT Analysis in Practice
In this section we can overview the SWOT analysis of organizational performance of small and medium enterprises in Egypt through promoting the human factors in quality management systems. This analysis has been done by the survey results (the answers in the studied questionnaire) were analyzed by the SWOT method in order to identify the Egyptian manufacturing SMEs' Strengths, Weaknesses, Opportunities, and Threats, in order to generate information about their effects on organizational performance and to determine if there is a need to support systems for the organization's development or a need for system improvement (Shobery et al. 2010).
This analysis the research team used as a guideline for developing the QMS model with focus on human factors. Egyptian manufacturing SMEs (Small-Medium Enterprises) have much strength and weaknesses, and many opportunities and threats which are generated from the business environment and have effects on the whole organization. Strengths of SMEs were confirmed by the results of the questionnaire and have supported, developed and promoted as a part of the basic infrastructure needed to achieve the criteria of the business excellence practices. Weaknesses indicated the problems and ineffective work systems which need to be solved and improved gradually to get a new and better infrastructure (Shobery et al. 2010).
In their research they figured it out that opportunities mainly increase the number of international markets open to Egyptian manufacturing SMEs. Threats are mainly generated through competitive situations from the international trading competitors and free trade areas (FTAs). There is an increase in the number of overseas competitors most of which have a higher potential for international trade than Egyptian firms. Generally, strengths and opportunities influence the organization's performance in positive ways and also support the development of a QMS. In contrast, the weaknesses and threats have negative effects on the organizational performance, which hamper a successful implementation of a QMS. Effects of strengths, weaknesses, opportunities, and threats on the organizational performance in Egyptian manufacturing SMEs are presented in Table 1 and Figure 2.
Based on their findings, a systematic schedule for the analysis of strengths and weaknesses is something constantly gaining popularity. Companies must undertake specific actions in order to distinguish their competitive strengths and weaknesses. History has shown this to be not particularly simple. Many companies only have vague ideas of the source of certain competencies and the extent to which they possess them. The absence of a global company overview prevents a clear picture being obtained. Despite these problems the development of a competitive strategy depends on having a global overview as regards strengths and weaknesses.
Table1. Effects of strengths, weaknesses, opportunities, and threats on organizational performance
Figure2. Effects of strengths, weaknesses, opportunities, and threats on the organizational performance in Egyptian manufacturing Small Medium Enterprises
A SWOT analysis can be an excellent, fast tool for exploring the possibilities for initiating new programs. It can be used for decision making within departments and committees or even by individuals. A SWOT analysis also looks at future possibilities for the institution through a systematic approach of introspection into both positive and negative concerns. It is a relatively simple way of communicating ideas, policies, and concerns to others. It can help administrators to quickly expand their strategic vision. Probably the strongest message from a SWOT analysis is that, whatever course of action is decided, decision making should contain each of the following elements: building on Strengths, minimizing Weaknesses, seizing Opportunities, and counteracting Threats. In order to be most effectively used, a SWOT analysis needs to be flexible. Situations change with the passage of time and an updated analysis should be made frequently in this analysis. SWOT is neither cumbersome nor time-consuming and is effective because of its simplicity which used creatively and can form a foundation upon which to construct numerous strategic plans. History has shown that this analysis to be not particularly simple and many companies only have vague ideas of the source of certain competencies and the extent to which they possess them. The target basically is to build a system which is interactive, can capture the knowledge of experts, can run on a personal computer and brings a high quality and reliable output of strengths and weaknesses. Thus Basically SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations and nowadays most of the organizations have a long-term goal to offer a high quality SWOT analysis which forms a solid framework for strategic planning.