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What is the purpose of a SWOT analysis?

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Quick Answer

A SWOT analysis is an analytical tool used to evaluate an organization's strengths, weaknesses, opportunities and threats. Identifying these factors helps organizations make decisions that align with their goals. This important part of the strategic planning process is frequently used by for-profit companies, nonprofit organizations, government agencies and individuals.

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Firms examine their internal and external environments in an effort to match their resources and capabilities to their competitive environments. Internal elements are classified as strengths or weaknesses. External elements are classified as opportunities or threats. Examples of strengths include strong brand equity, a superior distribution network, advanced research and development, industry goodwill, and an experienced management team. Examples of weaknesses are small market share, poor public image, unfavorable cost structure and limited distribution network.

Opportunities and threats represent openings to be exploited and challenges to the organization's viability. Examples of opportunities include new market opportunities, promising new technologies and reduced competition. Examples of threats include impending legal action, market entry by superior competitors, dying markets and increased governmental regulation.

Critics of SWOT claim that it hampers performance, with many considering the growth-share matrix a superior analytical tool. Others claim that the findings of a SWOT analysis are difficult to integrate into overall corporate strategy and prefer the TOWS matrix.

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