The SWOT Analysis Evaluation (Essay Sample)

The SWOT Analysis Evaluation
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The SWOT Analysis Evaluation
Introduction
SWOT analysis is among the most widely used strategy development tools but is also arguably one of the most misused as far as strategy development is concerned. The SWOT analysis was coined with an objective of helping organizations assess their internal and external environment and thus determine the best strategy to adopt in order to accentuate their strengths, improve on their weaknesses, seize opportunities and deal with looming business threats. In this respect, it has been widely used in combination with other tools to develop strategy and set company goals and objectives. Despite the SWOT analysis being highly popular and easy to use, preceding literature has shown that improper use of this tool could be detrimental to the future of the company. This paper is an evaluation of the SWOT model, with an objective of understanding its application and how it may jeopardize company decisions if wrongly utilized.
Evaluation of the SWOT Analysis
SWOT analysis has been used widely since the 1970s and is defined as a structured planning method which companies use to evaluate their strengths, weaknesses, opportunities and threats; hence the abbreviation SWOT (Helms and Nixon, 2010).The first two components of the tool (strengths and weaknesses) are used to evaluate the internal environment while the last two components (threats and opportunities) represent the company’s external environment (Hajikhani and Jafari, 2013). Each of the components is explained as follows:
Strengths: These represent the business characteristics that set it apart from others or which give it a competitive advantage. These may include unique products, financial strength, market share, brand popularity, strong management, knowledge and skills and technology investment among others (Lafley and Roger, 2013; McDonald, 1992).
Weaknesses: These are the opposite of strengths and depict characteristics that limit the business’ ability to compete by placing it at a disadvantage. They may include poor systems, inexperienced management, low market share, obsolete technology, weak brand, financial scandals and inability to invest in quality systems among others depending on the nature of the organization (Lafley and Roger, 2013). In establishing strategy, companies are expected to work on their weaknesses by developing tactics that will improve the identified issues.
Opportunities: A company’s opportunities refer to those situations or elements that may be exploited to the company’s advantage. They present conditions in the external environment that the company could utilize in order to promote their business and may include elements such as increasing population, changes in customer tastes and preferences, new technology development, increase in demand for certain products and other demographic and market conditions that may create additional business (Beagrie, 2004).
Threats: These are elements that indicate potential risks to the business and which may jeopardize its operations. Examples include competition, changes in government policies, possible increases in price of raw materials, natural disasters, changes in market preferences, technological advancements and economic fluctuations (Dealtry, 1992).
Example of SWOT Analysis
To further understand the use of SWOT in business strategy, the SWOT analysis of Disney’s Parks and Resorts is shown below.
Strengths
* Brand recognition
* Unique concepts and attractions including Disney Cruise Line
* International presence
* Numerous resorts, hotels and theme parks
* Asset leverage
* Innovation
* Customer loyalty
* Guided vacation tour packages at non-Disney sites
* Walt Disney Imagineering

Weaknesses
* High pension and post-retirement benefits
* High cost structure
* Indirect management in Disney-licensed resorts

Opportunities
* Growing travel and tourism industry
* Emerging markets including China, Russia, Latin America, Southeast Asia
and India
* Online market
* New technology
* New services and products

Threats
* International competition
* Competition from other recreational activities
* Seasonality of demand
* Changes in consumer preferences
* Government laws and regulations
* Economic conditions e.g. exchange rate fluctuations
* Natural disasters

SWOT and Strategy Development
The SWOT analysis tool is commonly used as a basis for strategy development because it gives managers a ground for assessing the company’s internal and external environment. Everett and Duval (2010) note that strategy development calls for a clear understanding of the company’s position and factors affecting its growth potential in order to determine what needs to be improved, adopted, eliminated or corrected to promote success of the organization. Conducting an internal and external evaluation is thereby important; hence the use of SWOT analysis and other assessment tools as a prerequisite for strategy development (Brooks, Heffner and Henderson, 2014).
The SWOT model helps us in answering two fundamental questions: What do we have? What might we do? What we have comprises of the strengths and weaknesses while what we might do is represented by the opportunities and threats (Bourgeois, 1996). Developing a strategy following a SWOT analysis should be done with these in mind and the management must be able to strike a good balance among the four elements to promote company growth (Caprarescu, Stancu and Aron , 2013; Carlsen and Andersson, 2011). In developing strategy using SWOT, each of the four elements can be used to produce the desired solutions (Kisiel, et al, 2011; David, 1997). The combinations are discussed as follows:
1 Strengths-opportunities combination ensures that the firm uses possessed strengths to capitalize on available opportunities in the external environment.
2 Opportunities-weaknesses combination calls for companies to adopt strategies that will make use of the available opportunities to eliminate or decrease weaknesses.
3 Weaknesses-threats combination is applied through a decrease in weaknesses in a bid to avoid threats.
4 Strengths-threats combination involves the use of a company’s strengths to reduce or avoid threats.
Mirzakhani, Parsaamal and Golzar (2014), note that the kind of strategy to be adopted depends on the interaction between strengths and opportunities and the interaction between weaknesses and threats. Where there is a strong relation between strengths and opportunities, it is possible for a business to take on an aggressive strategy because its strengths allow it to take seize available opportunities (Mirzakhani, Parsaamal and Golzar, 2014). In the event that weaknesses and threats strongly interact however, the business may be forced to take on a defensive strategy because its systems are too weak to deal with the threats (Lee et al, 2000).
Criticisms and misuse of SWOT
Despite its usefulness in the process of strategy development, SWOT has often been used wrongly, with such misuse becoming the subject of criticism from opponents of the model.
The first notable misuse is that many managers have used SWOT as a means for validating current strategy instead of using it to identify areas of development (Chermack and Kasshanna, 2007). In the event that the company has many strengths, it is common for companies to maintain their current strategy as opposed to seizing new opportunities in the market.
The second wrong use of SWOT is selective analysis, where users often tend to overlook opportunities and threats as they are usually more difficult to identify than the strengths and weaknesses. Accordingly, the strengths and weaknesses section may have a long list of entries while opportunities and threats can barely compare (Chermack and Kasshanna, 2007). This often leads to skewed analysis and could further mislead strategy because the SWOT is based on incomplete information.
A third common manner in which SWOT is misused is where a company mistakes the results of the analysis for strategy. Caprarescu, Stancu and Aron (2013) note that, there is need to realize that SWOT is an analysis and not a strategy. According to Chermack and Kasshanna (2007), some users of SWOT will identify their strengths and weaknesses, make a list of their opportunities and threats and begin execution on tactics to meet their goals; totally neglecting the step of strategy development. In addition, prevailing elucidation of SWOT makes users to assume that SWOT application is easy as it only involves leveraging the strengths identified to seize opportunities and determining how weaknesses may be overcome from a list of checklists identified (Valentin, 2001). They however fail to illustrate that SWOTs have strategic implications and that a significant amount of research should go into the evaluation and not merely developing a list (Everett, 2014). Kotch (2001) notes that in most cases, the SWOT analysis exercise is often poorly researched, hastily done, very general, vague and inconsistent and characterized by unverified reports; all which are improper use of SWOT. This often originates from lack of skill or poor understanding of what SWOT is.
The fourth wrong use of SWOT is the inability to make clear objectives of the analysis and failure to define situational factors that are important in the analysis, often leading to vague results (Sluismans, Lommelen and den Hertog, 2010). This may be demonstrated in the form of wrong classification of elements of SWOT, descriptions that are too broad, unclear description of factors and failure to define the strategic planning timelines ...