## SWOT Analysis

SWOT Analysis is a strategic evaluation framework that assesses an organisation's internal capabilities and external environment to guide strategic decision-making.

### The Four Components

Component	Nature	Definition
Strengths (S)	Internal	Activities the organisation performs especially well
Weaknesses (W)	Internal	Activities the organisation performs poorly or lacks
Opportunities (O)	External	Favourable conditions in the environment the firm can leverage
Threats (T)	External	Largely uncontrollable activities/conditions outside the organisation that may harm it

> Key Rule: Strengths and Weaknesses = internal. Opportunities and Threats = external.

### Goal of SWOT Analysis

The goal is to:

Exploit opportunities
Neutralise threats
Correct weaknesses

Using the organisation's existing and potential strengths.

### Limitations of SWOT Analysis

1. Organisational strengths may not always lead to competitive advantage

2. Gives a one-shot view of a moving target — the environment keeps changing

3. SWOT's focus on the external environment can be too broad and not sufficiently integrated

4. Overemphasises a single dimension of strategy

> Note: It is not a limitation that SWOT's external focus is 'too integrative' — this is actually stated as a limitation because the external focus is considered too broad, not too integrative.

Worked example

### Example 1

SWOT Classification — ABC Marketing Consultancy (RTP Nov 2021): ABC's corporate analysis identified that three new businesses entered its market and are aggressively targeting ABC's key clients. Classification: These new entrants are external to the organisation and pose a harmful condition → They are a Threat (T) in the SWOT framework.

### Example 2

Sustainability of Competitive Advantage (ICAI Study Material): The sustainability of a firm's competitive advantage and its ability to earn profits depends on four factors: Appropriability (can the firm capture the value?), Durability (how long does the advantage last?), Transferability (can competitors acquire the same resources?), and Imitability (how easily can competitors replicate it?). Correct mnemonic: ADTI.

⚠️ Common exam mistakes

Classifying an external factor (e.g., a new competitor) as a Weakness instead of a Threat — Weaknesses are strictly internal.
Stating the SWOT goal as 'avoid opportunities' or 'exploit weaknesses' — the correct formulation is to exploit opportunities and correct weaknesses.
Thinking SWOT analysis is most important for CEOs and the board — it is a widely used tool at all levels of management, not limited to top management.
Treating the output of SWOT as a final strategy — SWOT is an input to strategy formulation, not the strategy itself.

Reference:

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