50MINUTES - The SWOT Analysis: A key tool for developing your business strategy

The SWOT analysis investigates the current situation of an organisation at a given time, in a forward-looking manner as opposed to a retrospective one. It also analyses the structure, keeping future prospects in mind. At the same time, the SWOT analysis focuses on the internal functionality (strengths and weaknesses) and on the external environment (opportunities and threats) of an organisation.

• Strengths are elements of an organisation that positively influence its development and its competitive position. In general, strengths are considered to be particularly significant as they do not characterise the competition. The SWOT analysis identifies the competitive advantages held by a company over its competitors.
• Weaknesses are also linked to the internal functioning of an organisation, but they generally have a negative impact on its development and its competitive position. The ability to clearly identify the internal weaknesses of an organisation is vital: it allows for the improvement of relevant issues and the re-orientation of work in order to make them less vulnerable.
• Opportunities for an organisation depend on those available in the external environment. They can be exploited to improve progression and competitive position. Once this is done, they can become forces that positively influence the development of an organisation.
• Threats also originate from the external environment of an organisation. Their identification is often the result of traditional strategic work. As long as they are detected in time, threats can be better anticipated and their impact on performance reduced (and vice versa).

Sometimes, threats can become strengths. Likewise, opportunities can become weaknesses. In fact, given that the organisation does not develop in its environment alone, its future also depends on the decisions made by competitors.

In terms of internal functioning, many characteristics need to be taken into account in order to identify the strengths and weaknesses of an organisation, including:

• Cost competitiveness . One of the first aspects that make a business competitive is its ability to keep costs low. In order to manage costs, it must closely monitor the efficiency of production technique (is it possible to produce more using less?) as well as the allocation of resources (should it substitute capital for labour?). A conflict can arise between cost-competitiveness and worker protection. For example, if lower social and environmental standards can reduce costs, that does not mean that it does not have a (negative) impact on workers.
• Network and distribution capacity. Does the company structure have an effective distribution network? In particular, does it guarantee a good delivery service (high rate of products that arrive on time, low rate of breakages, low rate of errors, etc.)? Does it succeed in rationalising distribution costs (sufficiently low global costs of storage and transport of merchandise)? A possible compromise between product quality, delivery time and distribution costs is lower stock levels. This strategy is based on the increasing use of new information technology and communication (NICT). Often referred to as just in time production, it means that a company manufactures a product once it is ordered by the customer and is delivered in a very short time due to its effective distribution network.
• Sales and marketing. The marketing department also plays a crucial role in the success of a company. Is it in a position to anticipate customer needs? Is it capable of launching publicity campaigns in order to attract customers? A good marketing strategy is an undeniable force for any company.
• Financial resources. Sufficient financial stability is a real asset for an organisation. In fact, the ability to raise liquidity plays a major role as this is essential for launching any expansion project.
• Human resources. The management of human resources is an aspect which is often neglected by companies, public administrations and associations. Nevertheless, it is important for every structure to possess certain key skills. It can be preferable for an organisation to spend more time finding a suitable person rather than hurriedly recruiting a candidate that does not match the position. In a more general sense, it is important for companies to establish a system of communication that allows for optimum working relationships between colleagues.