Strength, Weaknesses, Opportunities and Threats (SWOT) analysis is the identification of opportunities and threats in the environment.
It is also used to identify strengths and weaknesses in the resources, competences and capabilities of the entity.
An initial SWOT analysis is simply a list of strengths, weaknesses, opportunities and threats.
The significance or potential value/cost of each item is not considered in the initial analysis, and the items are not ranked in any order of importance.
A problem with SWOT analysis is that it can encourage very long lists of strengths, weaknesses, opportunities and threats, without any differentiation between those that are significant and those that are fairly immaterial.
Having prepared an initial SWOT analysis, the next step is to interpret it.
Interpretation involves identifying those strengths, weaknesses, opportunities and threats (SWOTs) that might be significant, and what their implications might be for the future of your business.
The process of interpretation therefore involves ranking the SWOTs in some order of priority or importance.
Another problem with SWOT analysis is that it can be used to identify significant issues, but it cannot be used for evaluation.
It cannot be a substitute for a more rigorous strategic analysis.
Having identified the most significant issues facing the organization or your business, strategic management should then consider:
a. how major strengths (for example, core competencies) and opportunities might be exploited, to obtain competitive advantage.
b. how major weaknesses and threats should be dealt with, in order to reduce the strategic risks for the entity.
Note that strengths and weaknesses should include competences and capabilities as well as resources.
An analysis might be prepared by a team of managers, a think tank, a risk management committee or another group of individuals within the entity.