SWOT Analysis - Benefits & Limitations

Benefits and Limitations of SWOT analysis

Knowing what you can reasonably expect to achieve will make the SWOT analysis more useful for your business, and will save you time. Ultimately, you must be prepared to spend the time to review your SWOT analysis and use it to determine the best way forward in your business.

 

A.    Benefits of SWOT analysis

The main advantages of conducting a SWOT analysis is that it has little or no cost – anyone who understands the business can perform a SWOT analysis. You can also use a SWOT analysis when you don't have much time to address a complex situation. This means that you can take steps towards improving your business without the expense of an external consultant or business adviser.

Another advantage of a SWOT analysis is that it concentrates on the most important factors affecting your business.

1.      Identification of Problem Domain

SWOT analysis can be applied to an organization, organizational unit, individual or team. In addition, the analysis can support a number of project objectives. For example, the SWOT method can be used to evaluate a product or brand, an acquisition or partnership, or the outsourcing of a business function. In addition, SWOT analysis can be beneficial in evaluating a particular supply source, a business process, a product market or the implementation of a particular technology.

2.      Application Neutrality

SWOT analysis is conducted by specifying an objective and conducting a brainstorming session to identify internal and external factors that are favorable and unfavorable to the objective's achievement. This approach remains the same whether the analysis supports strategic planning, opportunity analysis, competitive analysis, business development or product development processes.

3.      Multi-Level Analysis

You can gain valuable information about your objective's chances by viewing each of the four elements of the SWOT analysis – strengths, weaknesses, opportunities and threats – independently or in combination. For example, identified threats in the business environment, such as new government regulations regarding a product design or the introduction of competing products, might alert the business owner that a proposed investment in a new manufacturing production line should be more carefully evaluated.

In addition, an awareness of a company weakness such as a lack of qualified employees might suggest a need to consider outsourcing particular functions. In turn, opportunities such as the availability of low-interest loans for startups might encourage the entrepreneur to pursue the development of a new product to meet a rising customer demand. In contrast, identified strengths, such as extensive experience in an industry experiencing rapid international growth, might suggest the need to partner with foreign companies.

4.      Data Integration

SWOT analysis requires the combination of quantitative and qualitative information from a number of sources. Access to a range of data from multiple sources improves enterprise-level planning and policy-making, enhances decision-making, improves communication and helps to coordinate operations.

5.      Simplicity

SWOT analysis requires neither technical skills nor training. Instead, it can be performed by anyone with knowledge about the business in question and the industry in which it operates. The process involves a facilitated brainstorming session during which the four dimensions of the SWOT analysis are discussed. As a result, individual participants’ beliefs and judgments are aggregated into collective judgments endorsed by the group as a whole. In this way, the knowledge of each individual becomes the knowledge of the group.

6.      Cost

Because SWOT analysis requires neither technical skills nor training, a company can select a staff member to conduct the analysis rather than hire an external consultant. In addition, SWOT is a somewhat simple method that can be performed in a fairly short time.

The SWOT analysis itself, like a brainstorming session, simply functions as a reusable tool to gain a collection of ideas regarding a particular issue or problem. For example, a business determines on each occasion, if a brainstorming session makes sense to address a strategic plan or competitive analysis. If so, the business then decides if it will use the SWOT method or an alternative tool to facilitate the session.

 

 

B.     Limitations of SWOT analysis

All strategic business decisions should be based on reliable and relevant information. In most cases, this means using facts and data from reputable sources. SWOT analysis typically goes against this format. Unlike other formal analyses, SWOT doesn’t require scholarly information to be successful. In 10 minutes, one can start and finish your analysis or one  could dedicate hours to it.

A SWOT analysis may be limited because it:

• Doesn't prioritize issues
• Doesn't provide solutions or offer alternative decisions
• Can generate too many ideas but not help you choose which one is best
• Can produce a lot of information, but not all of it is useful.

 

1.      Difficulty Identifying the Four Elements

It can be difficult to identify the four elements of the SWOT analysis. For example, an opportunity or a threat may not be easy to identify. Another drawback is that something that appears to one person as a strength, may actually be a weakness.

For example, while an executive may believe that the human resources department is a strength, he may not be aware of problems in the department, or may not know that a competing company has a much better human resources department.

A SWOT analysis, is only one stage of the business planning process. For complex issues, one will usually need to conduct more in-depth research and analysis to make decisions.

Keep in mind that a SWOT analysis only covers issues that can definitely be considered a strength, weakness, opportunity or threat. Because of this, it's difficult to address uncertain or two-sided factors, such as factors that could either be a strength or a weakness or both, with a SWOT analysis (e.g. the business might have a prominent location, but the lease may be expensive).

1.a Information overload affects your results

As you now know, SWOT analysis doesn’t tell you where to focus your efforts. It also doesn’t have a threshold for information. You’ll never know if you have too much or too little. Although that can be a problem, the real issue lies elsewhere. Specifically, you may have too much information for a section that doesn’t matter as much as another.

For example: You’ll likely stray closer to the threats section if you’re planning for risks. Strengths aren’t a necessity here. Neither are opportunities. But weaknesses (which can turn into threats) needs focus too. You may run into issues if you spent more time discussing strengths and opportunities than threats and weaknesses. With too little information in the latter sections, your risk planning analysis will be incomplete. Or at least, severely lacking.

Be careful not to end up with a huge list of suggestions under each of the categories.

A long list can be hard to manage, so try to do some gentle pruning as ideas appear. Ask yourself if that idea is financially feasible now. Or, whether you really have room for seven more staff members.

 

However, people can make a number of common mistakes when they are carrying out a SWOT Analysis.

1.b Vagueness, Ambiguity

Try to ensure that each point made is reasonably specific. A certain level of generality is fine at this early stage (we need to increase our sales). However, a more specific point (we need to increase our sales by introducing shift work for the sales team) will provide more focus in any later discussions.

SWOT analysis creates a one-dimensional model which categorizes each problem attribute as a strength, weakness, opportunity or threat. As a result, each attribute appears to have only one influence on theproblem being analyzed. However, one factor might be both a strength and a weakness. For example, locating a chain of stores on well-traveled streets that grant easy access to customers might be reflected in increased sales. However, the costs of operating high-visibility facilities can make it difficult to compete on price without a large sales volume.

 

 

2.      Exclusion of Uncontrolled Factors

Experts warn that a SWOT analysis does not take into account that some elements of the business are not under management control. These elements may include inflation levels; changes in the price of raw materials; changes to government legislation; and lack of sufficiently skilled labor.

Another drawback is that SWOT applies the same process to addressing all problems. A SWOT analysis does not take into account the problems' complexity or depth and may not be suitable for analyzing all types of problems.

3.      Over Simplification of Factors

According to Harvard Business Review, one drawback of a SWOT analysis is that it can oversimplify the type and extent of strengths, weaknesses, opportunities and threats facing the company. It also ignores some of the strengths and weaknesses of other companies that could affect your business.

4.      No Weighting Factors

SWOT analysis leads to four individual lists of strengths, weaknesses, opportunities and threats. However, the tool provides no mechanism to rank the significance of one factor versus another within any list. As a result, it's difficult to determine the amount of any one factor's true impact on the objective.

5.      Subjective Analysis

To significantly impact company performance, business decisions must be based on reliable, relevant and comparable data. However, SWOT data collection and analysis entail a subjective process that reflects the bias of the individuals who collect the data and participate in the brainstorming session. In addition, the data input to the SWOT analysis can become outdated fairly quickly.

 

Regardless of time, people recommend brainstorming throughout the SWOT analysis process. Unfortunately, doing this makes it more prone to bias. Without formal data, the only thing a person can use is their own opinion. Whether that’s true or not affects the integrity of the analysis. Not only that, but the information can also become outdated within a matter of hours.

5.a Not Seeing Weaknesses

It’s sometimes hard for an organization to accept that it has serious weaknesses. So, it might be useful to briefly chat with your customers during the SWOT Analysis process and ask what they think your company’s most serious weakness is.

Or, have a brief meeting with colleagues from outside the overall analysis. This will give you an outsider’s perspective.

 

5.b Difficult to be Realistic About Opportunities

While it’s important to get excited about new opportunities, try not to predict and plan for opportunities that don’t exist yet. For example, that export market you’ve been eyeing may become available at some point, but the trade negotiations to finally open it up could take years to complete.

Don’t forget that a newly opened market segment will also be available to your direct competitors.

6.      Stuck & not keep Thinking Forward

As you are collecting lists of suggestions and ideas, keep in mind that the goal of any SWOT Analysis is to increase sales by seeking out new opportunities.

The analysis process should clearly indicate where your organization is now, and where it needs to be in one year, five years or ten years in order to achieve that goal.

It’s easy to come up with nice ideas without taking them through to their logical or conclusion. For example, providing free lunches to all staff is a nice gesture. But, what evidence is there that it will increase profitability?

Don’t Rely on SWOT Analysis Alone

SWOT Analysis is a valuable planning and assessment tool. It can offer real insights into many aspects of your organization.

However, when used in conjunction with other business planning tools (like  PEST analysis), the results will be more vigorous.