We explain what SWOT analysis is, its components and characteristics. In addition, we discuss its importance, provide examples, and explore CAME analysis.
SWOT analysis is a technique that helps an organization, product, service or project identify its business situation in a given context or market. Its name is an acronym formed by the words: Strengths, Weaknesses, Opportunities, and Threats.
The purpose of a SWOT analysis is to provide relevant data for decision-making and for writing a strategic business plan. Data is derived from the assessment of both the organization's competitive advantages and weaknesses, as well as of the market opportunities and threats that may impact the business.
- For example: A company launching a new product first needs to conduct a SWOT analysis to find out the features the product should have to stand out from the competition.
- SWOT analysis is a tool for analzing a business situation.
- It can be used to assess the performance of an organization, product or service.
- It provides data on the strengths, opportunities, threats, and weaknesses of a business to optimize decision-making.
- See also: Management control
Characteristics of a SWOT analysis
A SWOT analysis comprises four main factors that make up its acronym and which are grouped into two types of elements: internal and external to the organization.
FACTORS INTERNAL TO THE ORGANIZATION
Strengths. They are internal positive elements related to attributes, competitive advantages and all positive qualities of the service, business, or product to be analyzed, which separate it from its competitors.
To identify strengths, we should answer the following questions:
- What advantages do we offer over our direct competitors?
- What advantages do we offer consumers?
- Do we minimize environmental impact and are sustainable?
Weaknesses. They are internal negative elements related to the deficiencies that the product, service, or business to be analyzed needs to improve in order to be profitable, competitive, and sustainable in the market.
To identify weaknesses we should answer the following questions:
- Why do customers choose competitors over us?
- Do we meet customer expectations?
- Do we consider our activity’s impact on the environment?
FACTORS EXTERNAL TO THE ORGANIZATION
Opportunities. They are the external positive elements related to the context where the business operates, which can benefit the organization. For example: A new legislation that facilitates the export of our products to be sold abroad.
To identify opportunities we should answer the following questions:
- What changes can we make to our business to satisfy an additional need besides its original purpose?
- What needs does the current market have and how does our business respond to those demands?
- What limitations do our competitors have to expand? Can we overcome any of these limitations?
Threats. They are external negative elements related to problems and changes in the context in which the business operates. They include the market situation and direct competitors, which might affect the business to a greater or lesser extent.
To identify threats we must answer the following questions:
- Are we affected by local marketing and manufacturing laws?
- Can we cope with the rise in raw material prices?
- How does new legislation affect us?
- Have new competitors offering a competitive advantage emerged?
Example of SWOT analysis
One way to conduct the SWOT analysis of a business is to list the internal and external factors divided into columns according to whether they are strengths, opportunities, weaknesses or threats, adding suggestions to each analysis. This allows for identifying advantages and disadvantages as well as the possible courses of action to take in each situation.
The following is an example of a company that manufactures a line of soaps for skin care wanting to perform a SWOT analysis of its soaps:
What is our market competitive advantage? The quality of raw materials, which are natural and 100% plant-based.
Suggestion: Maintain quality and work processes.
What is the main need to address for consumers of these products? Using secure packaging that does not generate waste, known as “zero waste” in marketing.
Suggestion: Retain our reusable organic cotton bag packaging made by employees from businesses who defend dignified labor.
What is our main disadvantage? Limited logistics to market our products nationwide and internationally.
Suggestion: Establish agreements with chains and retail outlets that are not directly related to our sector but share the same values. For example: stores that sell bulk food products and usually market industrialized products that promote fair trade and healthy eating.
What is our major threat? The new regulations issued by the state regulatory and supervisory body require further analysis and monitoring for the preservation and logistics of cosmetic products, which represents high testing and bureaucratic costs.
Suggestion: Seek advisory services as soon as possible to complete the required procedures by the regulatory body and obtain an “authorization in progress” certificate to continue marketing the batches already produced. In addition, increase the prices of the next product batches slightly to cover the costs.
Importance of SWOT analysis
The SWOT analysis is a technique that allows assessing certain internal and external factors of an organization to understand the business current status.
Conducting a SWOT analysis is key both for the initial stages of a business or a product launch, as well as during their development, as it guides the organization in making well-informed strategic decisions by identifying its strengths and weaknesses.
In business, conditions for marketing, necessary investments, or market rules are not always ideal. Therefore, it is crucial to make strategic decisions based on real and relevant data, and not just on personal assessments. The SWOT analysis is one of the multiple market research methods that allow for obtaining specific data.
The CAME analysis is another analysis technique that allows progress to be made after a SWOT analysis has been conducted; in other words, it is the subsequent step and the implementation of action. The name of the method is an acronym formed by the words: Correct, Address, Maintain, and Explore, related to the words in the SWOT acronym.
- Correct weaknesses. Actions are proposed to help modify or reduce deficiencies and negative aspects of the business.
For example: The soaps are not yet being sold on a large scale nationwide, so it is necessary to make agreements with other chains and stores.
- Address threats. Actions are proposed to overcome or avoid conflicts.
For example: Broaden the product range to avoid relying on a limited product line that may become non-competitive due to the vast number of competitors in the market.
- Maintain strengths. Actions are proposed to maintain the good qualities of the business over time, which represent a competitive advantage.
For example: Always use the same quality raw materials and manufacturing process. The soaps are very effective, do not cause allergies, and both their production and consumption are sustainable and environmentally friendly.
- Explore opportunities. Continuous improvement actions are proposed to optimize strengths and identify new competitive advantages for the business.
For example: An increasing number of consumers are choosing natural products due to the widespread information about the adverse effects of conventional soaps made with big amounts of chemicals that may be harmful to health.
- Raeburn, A. (2021). Análisis FODA: qué es y cómo usarlo (con ejemplos). Asana.
- Schooley, S. (2022). SWOT analysis: What it is and when to use is. BusinessNewsDaily.
- Ramírez Rojas, J. L. (2009). Procedimiento para la elaboración de un análisis FODA como una herramienta de planeación estratégica en las empresas. Universidad Veracruzana, México. UV.