What is SWOT analysis? Explanation and Origins of SWOT analysis

Origins of SWOT Analysis

SWOT Analysis is a business framework created by Harvard Business School in the 1920s. Even now, a century after the framework was created, SWOT analysis is still useful in making good business decisions in every company.

In such SWOT analysis, there are many people who say, “I often hear it, but it seems to be difficult” and “I tried it, but I stopped because it didn’t work out well.”

This time, for those who have questions or worries about SWOT analysis, we will explain SWOT analysis in an easy-to-understand manner for beginners.

What is SWOT analysis?

SWOT analysis is a business framework created to formulate business strategies and sales plans through analysis of the internal environment and external environment.

If you understand your company’s strengths and weaknesses in comparison with competitors, you will be able to see your core strengths, “core competence.”

Core competence is a strength of the company that is not imitated by other companies. Many business strategies are designed with core competencies in mind.

What is a framework?

A framework of thinking that helps logical thinking for problem-solving.

Named SWOT is, “strengths ( S Trength) · weaknesses ( W Eakness) · opportunity ( O Opportunity) · threat ( T Hreat)” has been taken from the 4 words of the first letter of the absolute for each of the SWOT analysis It is an indispensable element.

Since the analysis involves four elements, you may get the impression that it is complicated and difficult. But it’s okay.

The core of SWOT analysis is an analysis method called “matrix analysis,” which makes it possible to think of a lot of information in a simple manner. Therefore, once you learn how it works and how to do it, even those who are not familiar with the marketing framework will be able to easily use SWOT analysis.

Meaning of SWOT analysis matrix (axis)

First, I will briefly explain matrix analysis. Matrix analysis simplifies complex problems by drawing two axes with different meanings so that they cross each other to create a table of 2×2 squares, and arranging the collected information so that it matches the attributes of each square. It is an analysis method that can be grasped.

Not limited to this SWOT analysis, matrix analysis is a useful analysis method in many business situations, so if you do not know it, please remember it now.

As for the main subject, the meanings of the two axes in SWOT analysis are as follows.

  • Vertical axis: Internal environment or external environment
  • Horizontal axis: Plus (positive) element or minus (negative) element

The four elements of SWOT can be determined from this.

4 Elements required for SWOT analysis

Then, I will explain the four elements necessary for SWOT analysis. The four elements of SWOT analysis (strengths, weaknesses, opportunities, threats) are arranged as follows according to the meaning of the two axes.

plus minus
Internal environment S: Strengths W: Weakness
External environment O: Opportunity T: Threat

And the meaning of each of the four elements is as follows.

  • S: Strengths (internal environment) …… Among the characteristics of the company, those that contribute to the achievement of goals
  • W: Weaknesses (internal environment) …… Among the characteristics of the company, those that hinder the achievement of goals
  • O: Opportunity (external environment) …… Among the external characteristics such as competitors and markets, those that contribute to the achievement of goals.
  • T: Threat (external environment) …… Among the external characteristics such as competitors and markets, those that hinder the achievement of goals.

The items that correspond to each element are as follows.

Strengths and weaknesses 

  • Management resources (people, goods, money)
  • intellectual-property
  • Products / Services
  • brand
  • price
  • cost
  • Relationships with major customers
  • Name and reputation
  • Location
  • infrastructure

Opportunity / threat

Opportunity / threat

  • Politics
  • Laws and regulations
  • Economy / Society
  • Market trends
  • Shareholders
  • Technology
  • Competitors

Advantages and disadvantages of SWOT analysis

SWOT analysis is just one of many frameworks, so you may be good at it or you may not be good at it. Know your strengths and weaknesses so that you can make good use of SWOT analysis.

Benefits of SWOT analysis

The big advantage of SWOT analysis is that you can sort out how to utilize your strengths and overcome weaknesses against market threats and opportunities (external environment).

If you decide that your company cannot demonstrate its strengths in the external environment, you will need to approach the external environment to move the market or reform your core competence itself.

Disadvantages of SWOT analysis

The main disadvantage of SWOT analysis is that it is difficult to derive a concrete strategy directly from the results of SWOT analysis. In order to derive a concrete strategy from the SWOT analysis, it is necessary to carry out more in-depth analysis from the obtained analysis results.

Another disadvantage is that depending on the method, the information may be biased or the objectivity of the analysis may be insufficient. Gather information from each department or use other frameworks for accurate analysis results.

How to proceed with SWOT

T analysis

From here, I will explain the order for performing SWOT analysis properly. From the conclusion, SWOT analysis, strategy and planning will proceed as follows.

  1. Make the purpose of SWOT analysis clear
  2. Collect, organize and analyze information
  3. “Cross SWOT analysis” will be incorporated into a concrete strategy

Let’s take a closer look at each step.

① Clarify the purpose of SWOT analysis

Before suddenly creating a SWOT list, let’s first clarify the purpose of SWOT analysis and start by creating a common understanding among the members involved in the analysis.

It is even more important to clarify the purpose because SWOT analysis often requires the time of multiple people to produce accurate analysis results.

For example, let’s say your goal is “the market share of your competitors is starting to grow rapidly in your market. Know what strategies are effective for this problem.”

In this case, if the comparison target is a specific company, it is also a good idea to perform a SWOT analysis on that one company. It will be easier to see the strategy to be taken if you start the SWOT analysis of your company after clarifying the cause of why the market share is starting to increase.

In other words, by sharing the purpose in advance and then starting the SWOT analysis, you will be able to understand which factors to dig deeper into.

Even if you do a SWOT analysis without clarifying the purpose or sharing it firmly, it tends to be just a list. Be sure to start the SWOT analysis with a purpose.

② Collect, organize and analyze information

Once you have a clear idea of ​​what your SWOT analysis is for, start creating a SWOT list.

Depending on the element, it may be difficult to determine whether it applies to the internal environment or the external environment, but in such a case, distinguish by “whether the control is possible”. Elements that cannot be controlled by the company are referred to as the “external environment”, and elements that are not controlled by the company are referred to as the “internal environment”.

Also, for the feature that “both strengths and weaknesses can be taken”, please arrange both interpretations separately.

If you were to make a rough SWOT list using a local ramen shop as an example, it would look like this.

plus minus
Internal environment S: Strengths

  • It is the only restaurant in the region that offers authentic chicken plain hot water ramen and is unique.
  • Existence of repeaters
  • Open until midnight
W: Weakness

  • Only chicken plain hot water ramen is served, and there is a lack of variation.
  • Far from the station
External environment O: Opportunity

  • Delivery penetration
  • There is no nearby store that offers chicken plain hot water ramen
T: Threat

  • Existence of a ramen chain store with a cheaper and richer menu in the neighborhood
  • The mood of self-restraint from going out these days

Share information or use other business frameworks

One thing to remember when submitting information is that if you do what you want to do, it will be biased and the purpose of the analysis will be insufficient.
To avoid this situation, if possible, many people in all sectors should share information or use other business frameworks (such as “MECE” and “3C Analysis”) to reduce barriers .۔

In addition, the indoor environment can be defined more deliberately by identifying the outdoor environment (opportunity / Threat) in front of the indoor environment. The external environment is a feature beyond the company’s control, and it is inevitable that decisions from the external environment will be retrospective.

③ Incorporate into a concrete strategy with “Cross SWOT analysis”

Once you’ve created your SWOT list, it’s time to plan your strategy. However, it is difficult to use the SWOT list as it is for strategy planning, so let’s use the created SWOT list to perform a more in-depth analysis “cross SWOT analysis”.

Cross SWOT analysis is also a type of matrix analysis. The horizontal axis is “strengths/weaknesses” and the vertical axis is “opportunities and threats”. It’s an image that slides the factors of SWOT analysis to the axis as it is.

S: Strengths (internal environment) W: Weakness (internal environment)
O: Opportunity (external environment) Strengths x Opportunities Weakness x Opportunity
T: Threat (external environment) Strengths x threats Weakness x Threat

In this way, “Cross SWOT analysis” is a framework that makes it easier to incorporate the SWOT list into a concrete strategy by considering the internal environment and the external environment in combination. The meanings of the four elements are as follows.

4 elements of cross SWOT analysis

  • Strengths × Opportunities
    How to maximize the profits obtained from opportunities by your own strengths
  • Strengths × Threats
    How do you cover the losses that can be incurred by threats with your own strengths? Or can we find opportunities from threats based on our strengths?
  • Weaknesses x Opportunities
    How do you maximize the profits you get from opportunities after understanding your company’s weaknesses? Or how do you cover your weaknesses with the profits you get from the opportunity?
  • Weaknesses x Threats
    Understand your company’s weaknesses and how to minimize the losses you can incur from threats. Or should it be a stop loss?

You can see that the SWOT list, which was just a list of information, is immediately reduced to the cross SWOT list, and the organic information connection can be seen.

The goal of SWOT analysis ends once with the creation of a SWOT list, but since achieving the goal is the essential goal, let’s think about SWOT analysis as a setup to cross SWOT analysis.

3 business frameworks useful for SWOT analysis

The results of any analysis will vary greatly depending on the content and nature of the data referenced. Especially in SWOT analysis, the process of outputting data is inevitably relied on by human hands, so bias and heuristics (trends, biases, prejudices) tend to cause blurring of results.

In some cases, the result is completely off the mark, and the possibility of making a fatal misjudgment is not impossible.

Frameworks are still effective in preventing such failures. You may have wondered, “What about using a framework to use it?”, But you should actively use it when you can make good use of it.

Now, let me introduce three business frameworks that can be useful when creating a SWOT list.

① PEST analysis

PEST analysis is a framework for macro analysis of the external environment. Named PEST is “politics ( P Olitics) · Economic ( E Conomy) · Social ( S Ociety) · technology ( T has taken the initials of technology)”.

P: Politics

  • Regime change
  • Laws and regulations
  • Tax system
E: Economy

  • Business
  • Financial policy
  • Exchange/stock price
  • Commodities
S: Society

  • trend
  • Population ratio
  • Overcrowding / depopulation
  • Race / nationality discrimination
T: Technology

  • Patent
  • Innovation
  • Withered technology

It is a useful framework for making large-scale management decisions through SWOT analysis, such as risk analysis when developing new businesses, what kind of technology to develop, or whether to select and develop products.

② 5 force analysis

Five Force Analysis (Five Force Analysis) is a framework that analyzes the profitability of the industry from the following five factors that affect the profitability of the industry.

  • Competition within the industry
  • The threat of new entrants
  • Alternative threat
  • Seller’s bargaining power
  • Buyer bargaining power

As a diagram, the contention is centered as shown below.

New entry

What kind of new entrants exists? Is there a large number of new entrants?

seller ▶

Is the position and bargaining power of the company that supplies resources to the company strong?

Conflict

What is the market share

◀ buyer

Who is the buyer of the company’s products? Is the buyer’s position and bargaining power strong?

Replacement

What can be a substitute for our own products?

In this way, 5 force analysis makes it easier to analyze the degree of competition and the nature of competition in the industry to which the company belongs or the industry in which it is trying to enter.

③ 4P analysis

4P analysis is useful for analyzing the internal environment required for SWOT analysis. “Product ( P Roduct) · price ( P Rice) · sales promotion ( P Romotion) · location or distribution ( P for lace)” and acronym elements in English words of P has been configured, in such name It has become.

Product

  • quality
  • brand
  • Warranty
price

  • Affordability
  • Coupon points
  • method of payment
Sales Promotion

  • commercial
  • Advertising
  • E-mail newsletter / DM
Location / distribution

  • Number of stores
  • Supply
  • Delivery days

By arranging information related to our company’s products in this way.Therefore, it is useful for understanding the internal environment.

SWOT analysis summary

SWOT analysis is a very practical framework that allows you to simply capture complex problems and help you formulate specific strategies.

Since the method is matrix (2-axis) analysis, even beginners of analysis can easily get involved, and once they learn how to do it, they can start working on it.

SWOT analysis has great merits, but there is also a weak point that it is easy to get subjective because it is human power when collecting data. Call a person in charge from each department, use other frameworks together, or make some ingenuity to improve the accuracy of the analysis.