SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis provides information which helps a firm to gauge its resources and capabilities in the competitive market. It helps a firm in market research and in developing business growth strategies which are critical for the growth of the organization. Let us take a detailed view of the subject.
Strengths are the resources and capabilities that give you an edge over your rivals in the market. Some examples are:
- Good reputation in the market.
- Exclusive access to certain resources.
- Highly motivated workforce.
- Cost advantages.
- Good distribution network.
Weaknesses can be defined as the areas in which an organization faces some challenges. Some weaknesses can be:
- A weak brand name.
- A disinterested staff.
- Poor reputation among customers.
- Poor distribution networks.
- Debt of shareholders
Opportunities are the favorable external factors that contribute to the expansion of a business. Some opportunities are:
- An unfulfilled customer need.
- Technological improvement.
- Lenient regulations.
- Removal of international trade barriers.
A sudden change in the external environment which is unfavorable to the organization is classified as a threat. Some threats can be:
- Change in customer's tastes preferring other brand to yours.
- Stricter regulations.
- Increased trade barriers.
- It is the largest fast food chain in the world and is one of the widely recognized international brands.
- Offers a variety of products keeping in view the socio-religious factors. For example, while beef burgers are common in western and Muslim world, they are not a part of the menu in India where cow is considered sacred.
- It offers drive-through service for customers on the move, promoting itself as a company for people who don't have enough time in their hands.
- McDonald's has a positive image amongst customers, thanks to the Ronald McDonald House Charity which has done a commendable jobs in the recent years.
- The recent spate of accusations against McDonald's about the high-fat content foods has turned many health conscious people away. Also, the million-dollar lawsuits have only made the matters worse.
- While many agree that when it comes to burgers, McDonald's is up there at the top, but lack of non-hamburger sandwiches are turning customers away to brands like Pizza Hut, Taco Bell etc.
- McDonald's has recently started the program of going green. This can go a long way in helping McDonald's emerge as a societal company.
- McDonald's can develop healthier food which in turn will appeal to health conscious people, who currently avoid it.
- McDonald's has already set up coffee shops, which can considerably increase the sales and open up new avenues for the company.
- The monopoly McDonald's once enjoyed has come to an end with different brands coming up their own exciting menu of burgers. Apart from the established names like KFC, Subway, Burger King, Yum etc., it is facing the challenge from other local establishments around the world.
- McDonald's has one of the highest turnover ratios, that is, people working for McDonald's do not see as a long-term option and just 'fill in' there for time being
- McDonald's inadvertently has become the symbol of American capitalistic economy and has been accused of exploiting its workers. This may not be entirely true, but then it has left a bad taste in the mouths of many customers.
In the field of human resource management, SWOT is used mainly for recruitment purposes. Every new employee can be an asset or a liability for the organization, which makes the HR's role even more important.
A Few Tips
- The person you are putting in charge of SWOT should be knowledgeable about the market environment. He/she ideally can be a business consultant.
- The time taken to complete an analysis should not run into months, rather set a time-frame of about one or two weeks to complete it.
- Make lists, and prioritize the lists so that the lowest priority things are at the bottom.
- While listing down opportunities and weaknesses, do not stroll too far, make a strategy for three or four months.
- A simplistic way of strategic planning for the organization.
- Helps in capitalization of strengths and defends against threats.
- Makes the organization aware about the current market situation.
- Many researchers think that SWOT engages the organization in making lists rather than a real-time, decision-making strategy.
- One more disadvantage is that it lacks is flexibility, that is, it takes the same approach to analyze all the problems.
- Assumptions involved in SWOT also prove to be unfounded.
It is very essential for a firm to review their strengths and weaknesses. It also becomes important to plan against threats and take advantage when the opportunities knock on your door. Using SWOT analysis can definitely help in business planning, provided it is carried out in a right way.