SWOT Analysis: Meaning, Types and Example

Let’s pay another visit to Akshay, from the earlier chapters in this module. A few years after his business takes off, he runs into his friend from college. After the initial pleasantries, Akshay’s friend drops the million dollar question.

He asks Akshay - How is your business going? 

Akshay, having seen a few successful years in business, answers enthusiastically about how he’s been having the dream run.

Fast forward to a couple of years later, and Akshay again runs into the same friend. The same preliminary pleasantries follow, and then, the inevitable question to Akshay pops up.

How is your business going?

This time, however, Akshay’s business is seeing some poor turnovers, and he answers dejectedly that his business isn’t going as well as he had planned.

Akshay’s answers in this case are subjective, at best. To arrive at the real answer to the question - How is a business going? - you need to perform SWOT analysis. Wondering what that is? Well, that’s just what this chapter is going to discuss. Strap on your seatbelt and let’s get started on this journey.

What is SWOT analysis?

A SWOT analysis is a straightforward yet effective tool that companies can use to assess where they stand in the industry and in the sector they belong to. An acronym for Strengths, Weaknesses, Opportunities and Threats, SWOT analysis has been established as a tried and tested method to appraise a company’s position. But the beauty of SWOT analysis is that it can be used for a variety of purposes, including assessing a marketing campaign, an individual, and even a country.

Let’s now take a look at what the four pillars of SWOT analysis include.

Exploring the four pillars of SWOT analysis

Strengths, weaknesses, opportunities and threats - assessing these four areas can give you deep insights about a company. Here’s the gist of what these four areas cover.

1. Strengths: What does the company do well?
2. Weaknesses: Where does the company need to get better?
3. Opportunities: What are the favorable avenues open to the company?
4. Threats: What obstacle does the company face?

Strengths and weaknesses are internal to the company, but opportunities and threats are external forces. While this gives you a broad overview of what SWOT covers, you’ll have to dig deeper and find out the answers to some pertinent questions.

Strengths

Strengths are those areas in which a business does exceptionally well. Often, it could be enough to set the company apart from its competition too. Some strengths are visible at first glance, while others may be more deep-seated. For instance, take Nike. The brand has an enviable social media presence, and it’s clear to anyone getting started with Nike’s SWOT analysis that this is one of the biggest strengths of the brand. Infosys, on the other hand, may not have such an obvious strength. However, its sound financials certainly deserve consideration in the strength segment of the SWOT process.

For companies who wish to identify their strengths, the following questions can help.

Weaknesses

If strengths are on one end of the spectrum, weaknesses are on the opposite end. These are the factors that hold back a company and prevent it from being the numero uno in its field. In other words, they are the things that a company doesn’t do very well. And just like strengths, weaknesses can either be obvious or hidden. Poor marketing may be an obvious weakness that’s easy to spot for anyone doing a SWOT analysis. But being drowned by the competition - that is a weakness that you can only identify if you analyse the competition too.

Here as well, companies can rely on some questions to get a better idea of their weaknesses.

Opportunities

Opportunities are positive trends that give a company the chance to grow in the right direction. These opportunities arise in the environment outside the organization. The company may chance upon some of them by chance, but in most cases, businesses need to actively identify and chase after opportunities. One example of an opportunity is expanding consumer interest in a specific area or segment. If that segment is related to the product or service range that a company is currently engaged in, it has the opportunity to further expand its business in the emerging area.

Here are some questions that will help a company spot and take advantage of opportunities.

Threats

Threats are clearly the opposite of opportunities. They impact the business negatively, and often, companies have no control over their threats because they arise in the external environment. They are not easy to identify either, unless a company is proactively looking for things that are pulling it down. This is why it’s important for companies to conduct a SWOT analysis periodically, so it can take advantage of its strengths and opportunities, and work upon its weaknesses and threats.

And here are some questions that can help companies spot potential and existing threats.

Analysing companies: A SWOT analysis example

To assess the current position of a business, it is essential to a SWOT analysis. The questions we discussed in the previous segments and the areas covered are a good place to get started. Nevertheless, there’s nothing like applying the principles to an active company to understand the nuances better. So, we’ll now be taking up our very own homegrown Reliance Industries Limited (RIL) to understand its SWOT stats better.

RIL: SWOT Analysis

SWOT analysis for stocks

Just like how you can conduct SWOT analysis for companies, you can also do the same for stocks. As an investor, you’ll find that conducting a SWOT analysis for the stocks you are interested in can help you make smart investment choices. The strengths, weaknesses, opportunities and threats for stocks vary from the metrics for companies. But the basic premise remains the same. 

Let’s take up one stock and SWOT-analyse it.

Bharti Airtel stock: SWOT Analysis (as on April 7, 2021)

Wrapping up

SWOT analysis is a simple exercise, but when done right, it can offer a wealth of information. Periodic SWOT analysis can help companies keep going on the right track. Similarly, for investors, SWOT analysis can prove to be handy in making investment decisions. So, if you want to get better at it, there’s only one way - practice, and then practice some more.

A quick recap

• A SWOT analysis is a straightforward yet effective tool that companies can use to assess where they stand in the industry and in the sector they belong to. 
• An acronym for Strengths, Weaknesses, Opportunities and Threats, SWOT analysis has been established as a tried and tested method to appraise a company’s position. 
• Strengths are those areas in which a business does exceptionally well. 
• Weaknesses are the factors that hold back a company and prevent it from being the numero uno in its field. In other words, they are the things that a company doesn’t do very well. 
• Opportunities are positive trends that give a company the chance to grow in the right direction. 
• Threats are clearly the opposite of opportunities. They impact the business negatively, and often, companies have no control over their threats because they arise in the external environment. 
• Just like how you can conduct SWOT analysis for companies, you can also do the same for stocks. As an investor, you’ll find that conducting a SWOT analysis for the stocks you are interested in can help you make smart investment decisions.