The “analysis of strengths, weak­ness­es, op­por­tu­ni­ties, and threats” – SWOT for short – is an in­stru­ment of strategic man­age­ment. Companies rely on SWOT to determine their own position among the com­pe­ti­tion and develop a business strategy. This is referred to as po­si­tion­al analysis.

With SWOT analysis, external, market-related op­por­tu­ni­ties and risks are compared with the company’s internal strengths and weak­ness­es. The goal is to provide strategic guidance for the business plan.

A SWOT analysis unfolds in three steps:

  1. Creation of a risk-reward catalog (en­vi­ron­men­tal analysis)
  2. Creation of a strength-weakness profile (company analysis)
  3. Com­bi­na­tion of en­vi­ron­men­tal and company analyses (SWOT matrix)

Each step of the SWOT analysis is based on detailed ex­am­i­na­tions, for which marketing experts have developed various ap­proach­es. In the following, we present the most popular models and methods for internal and external company analysis, and show how to create a SWOT matrix based on the gathered in­for­ma­tion. These serve as the basis for the strategic alignment of your company or in­di­vid­ual areas of business.

Step 1: en­vi­ron­men­tal analysis

In the first step of a SWOT analysis, busi­ness­es perform an en­vi­ron­men­tal analysis: The or­ga­ni­za­tion’s sur­round­ings are examined from a strategic point of view.

Every company is part of a branch. The branch is, in turn, in­te­grat­ed into an en­vi­ron­ment that has a direct impact on the company through political, economic, tech­no­log­i­cal, social, and eco­log­i­cal de­vel­op­ments. The goal of the en­vi­ron­men­tal analysis is to determine all relevant op­por­tu­ni­ties and risks that result from en­vi­ron­men­tal factors and could have an influence on the company’s success.

To make the complex en­vi­ron­ment of a company tangible for an­a­lyt­i­cal purposes, econ­o­mists have developed various models for clas­si­fy­ing en­vi­ron­men­tal con­di­tions into concrete cat­e­gories. Some of the most popular en­vi­ron­men­tal models are the three-en­vi­ron­ment model by Tony Stapleton and Kotler’s four-en­vi­ron­ment levels.

Tony Stapleton divides the en­vi­ron­ment of a company into three areas. The basis of the clas­si­fi­ca­tion is the question of to what extent the en­vi­ron­men­tal factors of a company control or influence it.

Three-en­vi­ron­ment model (by Stapleton)
Internal en­vi­ron­ment The internal en­vi­ron­ment of a company includes all factors that are directly con­trolled by the man­age­ment of the company: for example, employees, resources, buildings, machines, and fa­cil­i­ties.
Near en­vi­ron­ment The near en­vi­ron­ment of a company includes customers, suppliers, and the company’s direct com­pe­ti­tion – as well as factors that are not directly con­trolled, but can be highly in­flu­en­tial.
Far en­vi­ron­ment Factors that are neither con­trolled by the company nor can be in­flu­enced by it are part of the “far en­vi­ron­ment”, according to Stapleton. This includes so­cio­cul­tur­al, tech­no­log­i­cal, eco­nom­i­cal, and political en­vi­ron­men­tal factors.

The model from Philip Kotler is comprised of four levels, and clas­si­fies in­flu­enc­ing factors from a marketing stand­point.

Four-en­vi­ron­ment levels (by Kotler)
Function en­vi­ron­ment The task-based en­vi­ron­ment includes all functions that relate directly to the company’s per­for­mance. Counted among these are the most important company stake­hold­ers such as owners, investors, employees, customers, and suppliers.
Com­pe­ti­tion en­vi­ron­ment The com­pe­ti­tion-based en­vi­ron­ment entraps all factors which relate to the com­pe­ti­tion in pro­cure­ment and sales markets.
Publicity The third en­vi­ron­ment level according to Kotler consists of su­per­vi­so­ry or­ga­ni­za­tions, the press, and the general public.
Macro en­vi­ron­ment Kolter’s macro en­vi­ron­ment cor­re­sponds to the “far en­vi­ron­ment” of the three-en­vi­ron­ment model.

Which model is used for the en­vi­ron­men­tal analysis is left to each analyst to decide according to the need and purpose of the analysis.

Despite dif­fer­ences in structure, both models presented here exhibit sim­i­lar­i­ties in important areas: The initial stages dis­tin­guish en­vi­ron­men­tal factors that are directly related to company ac­tiv­i­ties from external factors that can’t be in­flu­enced by the company. The dif­fer­ence between the micro en­vi­ron­ment and macro en­vi­ron­ment is central to strategic marketing. En­vi­ron­men­tal analyses are thus often limited to these levels.

The micro en­vi­ron­ment consists of a company’s industry, including all stake­hold­ers. It’s different from the macro en­vi­ron­ment mainly in that it can in­flu­enced using re­la­tion­ship man­age­ment with relevant stake­hold­ers, and so can be con­trolled to a certain degree.

Image: Schematic representation of the relevant environment levels
A company’s sur­round­ings can for the most part be separated into a micro en­vi­ron­ment and macro en­vi­ron­ment. Other models of en­vi­ron­men­tal analyses make a finer sub­di­vi­sion

The most important in­stru­ments for analyzing the micro en­vi­ron­ment are:

  • The stake­hold­er analysis and
  • The industry structure analysis

For analyzing a company’s macro en­vi­ron­ment, the PESTEL analysis, which will be discussed in more detail later, has es­tab­lished itself par­tic­u­lar­ly well.

The results of the en­vi­ron­men­tal analysis are generally in­te­grat­ed into the SWOT analysis in the form of a risk-reward catalog.

Note

The following marketing in­stru­ments are merely a selection of relevant analysis schemes. Analysts obtain further input for the SWOT analysis through portfolio analysis, the ex­pe­ri­ence curve concept, GAP analyses, the PIMS program, or a product market matrix.

The stake­hold­er analysis

The stake­hold­er analysis is a form of en­vi­ron­ment analysis that focuses on the micro en­vi­ron­ment of a company, con­cen­trat­ing on the stake­hold­ers and their re­la­tion­ship with the company.

In the first step of the stake­hold­er analysis, all relevant groups are de­ter­mined and their interests described. Dif­fer­en­ti­a­tion is also made between internal and external stake­hold­ers.

The following overview shows a selection of relevant stake­hold­er groups in the SME sector as well as their demands on the company and possible con­tri­bu­tions to its success.

Internal stake­hold­ers: Claims on the company Con­tri­bu­tion to company success
Pro­pri­etor - Ap­pre­ci­a­tion of capital - Pro­pri­etary capital
Manager   - Good com­pen­sa­tion - Prestige - Influence - Planning work
Employee   - Decent com­pen­sa­tion - Com­fort­able working con­di­tions - Job security - Ad­vance­ment op­por­tu­ni­ties - Ac­com­plish­ing work
External stake­hold­ers: Claims on the company Con­tri­bu­tion to company success
Suppliers (vendors) - Purchase security - Reliable payment behavior - Long-term contracts - Supply of raw materials
Customers - Good price-per­for­mance ratio - Sat­is­fac­to­ry service - Purchase of goods
Foreign investors   - Financial standing - Capital service ca­pa­bil­i­ty - Secure financial in­vest­ment - Rea­son­able interest rate - Scheduled repayment of credit - Foreign capital
Com­pe­ti­tion - Com­pli­ance with rules of com­pe­ti­tion - Double-sided profit increase - Co­op­er­a­tion - Exchange of knowledge
Gov­ern­ment and society   - Tax payments - Secure jobs - Social benefits - Com­pli­ance with leg­is­la­tion - En­vi­ron­men­tal en­gage­ment - Legal system - In­fra­struc­ture - Sub­sidiaries

Under certain cir­cum­stances, it may be necessary to subdivide important influence groups into subgroups to identify their re­spec­tive interests, needs, and po­ten­tials. In the “employee” group, for example, “high po­ten­tials” – staff members with par­tic­u­lar value for the company – can be filtered out. The “gov­ern­ment and society” group is usually broken down into in­di­vid­ual interest groups and bodies such as au­thor­i­ties, offices, pro­fes­sion­al as­so­ci­a­tions, trade unions, lobbies, NGOs, the press, and the general public.

Once all relevant influence groups have been iden­ti­fied, it’s necessary to analyze to what extent the iden­ti­fied stake­hold­ers influence or are in­flu­enced by the company. The SWOT analysis focuses mainly on the op­por­tu­ni­ties and risks that stem from these in­flu­ences.

Questions to assess the op­por­tu­ni­ties offered by stake­hold­ers:

  • Which ca­pa­bil­i­ties, con­nec­tions, or in­flu­enc­ing pos­si­bil­i­ties does the stake­hold­er offer?
  • How can these be used to serve the success of the company?

Questions to evaluate the risks of stake­hold­ers:

  • Are the claims of the stake­hold­er in conflict to the company goals?
  • Which risks are as­so­ci­at­ed with conflicts of interest?
  • How can these risks be reduced?

To be able to decide which course of action to take, you also need to assess how strong the re­spec­tive in­flu­ences of the in­di­vid­ual stake­hold­ers are on the company.

The following example shows a highly sim­pli­fied graphic rep­re­sen­ta­tion of a stake­hold­er analysis.

Image: Graphic representation of the stakeholder analysis
The more in­flu­en­tial a stake­hold­er is, the more relevant their needs are when it comes to strategic decisions for the direction of the company

The creation of a stake­hold­er matrix is rec­om­mend­ed. This clarifies the influence and conflict prob­a­bil­i­ties of interest groups using a diagram.

Image: Example of a stakeholder matrix
The stake­hold­er matrix vi­su­al­izes the relevance of stake­hold­ers by taking into con­sid­er­a­tion the factors “influence” and “prob­a­bil­i­ty of conflict”

If the stake­hold­er analysis points out risks and op­por­tu­ni­ties that are related to the relevant groups, these are recorded in a catalog which is then included in the SWOT analysis.

The industry structure analysis

Another in­stru­ment of strategic man­age­ment used for un­der­stand­ing the micro en­vi­ron­ment of a company is the industry structure analysis.

Companies use various an­a­lyt­i­cal models to examine the structure of the industry and examine the com­pe­ti­tion: One popular analysis scheme is the five-force model by Michael E. Porter. The foun­da­tion of the model is the as­sump­tion that the at­trac­tive­ness of a market is primarily de­ter­mined by the market structure, and this has a direct influence on the market success of a company.

According to Porter, the at­trac­tive­ness of an industry can be at­trib­uted to five com­pet­i­tive forces:

  • Com­pe­ti­tion within the industry
  • Threats from new com­peti­tors
  • Ne­go­ti­at­ing power of suppliers
  • Ne­go­ti­at­ing power of consumers
  • Threats from sub­sti­tute products

Each of the five forces of com­pe­ti­tion pose a danger to the company’s interests. The stronger one of these threats becomes, the less at­trac­tive the re­spec­tive market is for the company.

The following graphic shows a schematic rep­re­sen­ta­tion of the five-force model.

Image: Schematic representation of the five-force model by Michael E. Porter
Changes to the macrostruc­ture could represent risks to as well as op­por­tu­ni­ties for the success of the company

If the market structure changes in such a way that the threat posed by one or more com­pet­i­tive forces increases, then this is in­ter­pret­ed as a risk in the context of the en­vi­ron­men­tal analysis. Similarly, changes to the market structure also open up chances for company activity. These should be iden­ti­fied as well, and added to the risk-reward catalog for the en­vi­ron­men­tal analysis.

The PESTEL analysis

If the focus of the analysis shifts to the macro en­vi­ron­ment of a company, then a form of STEP analysis usually serves to identify en­vi­ron­men­tal factors that can’t be directly in­flu­enced by company ac­tiv­i­ties.

The acronym STEP (sometimes in another order: PEST) stands for so­ci­o­log­i­cal, tech­no­log­i­cal, economic, and political change. According to the model, the macro en­vi­ron­ment of a company is mainly in­flu­enced by factors which stem from these four areas:

  • Social factors
  • Tech­no­log­i­cal factors
  • Economic factors
  • Political factors

The concept of STEP was adjusted and expanded in various models. One of the most popular variants is STEEP, a model with extra emphasis on the eco­log­i­cal factors. If legal en­vi­ron­men­tal factors are also taken account, then this is referred to as a PESTEL analysis.

The following table shows a selection of en­vi­ron­men­tal factors that should be examined in the context of the PESTEL analysis. These serve to sys­tem­at­i­cal­ly identify all op­por­tu­ni­ties and risks that could have an impact on the company’s success if there are changes in the macro en­vi­ron­ment (the list isn’t ex­haus­tive).

Political factors Economic factors Social factors Tech­no­log­i­cal factors En­vi­ron­men­tal factors Legal factors
Economic system of the country Economic growth De­mo­graph­ic structure Gov­ern­ment research spending Location General leg­is­la­tion
Foreign policy Pop­u­la­tion Ed­u­ca­tion­al system Tech­no­log­i­cal de­vel­op­ments In­fra­struc­ture Legal con­scious­ness
Stability of the political system Interest rates Language Product life cycles Avail­abil­i­ty of natural resources Com­pe­ti­tion law
Inflation rate Values Emission En­vi­ron­men­tal law
In­vest­ments Attitudes
Exchange rates Religion
Un­em­ploy­ment Role models
Import/export

The PESTEL analysis supports both primary data gathered through surveys, expert in­ter­views, and ob­ser­va­tion, as well as from external secondary sources such as

  • Official sta­tis­tics
  • De­part­men­tal pub­li­ca­tions
  • Pub­li­ca­tions by trade as­so­ci­a­tions
  • Reports from economic search in­sti­tutes
  • Industry reports
  • Pub­li­ca­tions by market research in­sti­tutes
  • Sci­en­tif­ic studies
  • Business reports
  • In­for­ma­tion from in­ter­na­tion­al or­ga­ni­za­tions

Findings gained from a PESTEL analysis are also included in the risk-reward catalog of the en­vi­ron­men­tal analysis, and so are available for eval­u­a­tion within the framework of the SWOT analysis.

Step 2: company analysis

The second step of the SWOT analysis is the company analysis. This helps those re­spon­si­ble to assess the per­for­mance of the or­ga­ni­za­tion. The company analysis takes place in the form of a three-step strengths and weak­ness­es analysis. These include:

  • The creation of a resource profile
  • The analysis of relevant com­pe­ti­tion
  • The drafting of a strengths and weak­ness­es profile

Note

Strengths and weak­ness­es analyses are usually not created for the company as a whole, but instead for in­di­vid­ual planning entities. Products and services are grouped into strategic business areas. Dif­fer­ences in the target group ori­en­ta­tion, com­pe­ti­tion, or pro­duc­tion are decisive for the clas­si­fi­ca­tion.

The resource profile

To evaluate the strengths and weak­ness­es of a company in com­par­i­son to the com­pe­ti­tion, it’s first necessary to determine all relevant company resources. These resources include material assets such as capital, land and property, buildings, fa­cil­i­ties, labor, and raw materials, as well as in­tan­gi­ble assets like tech­no­log­i­cal know-how, qual­i­fi­ca­tions, and brand image.

In general, company resources are divided into four areas:

  • Physical resources (buildings, fa­cil­i­ties, etc.)
  • Human resources (managers, skilled workers, etc.)
  • Or­ga­ni­za­tion­al resources (in­for­ma­tion systems, etc.)
  • Tech­no­log­i­cal resources (research know-how, brand names, etc.)

Detailed in­for­ma­tion about the company resources is usually already available, and needs only to be compiled and prepared for the strengths and weak­ness­es analysis. This is based on the as­sump­tion that for each planning entity (e.g. a product, product line, or the entire company), factors can be iden­ti­fied that de­ci­sive­ly influence the success of the said planning entity (so-called success criteria).

How a company is to be evaluated in regard to the relevant success criteria depends on the available resources. A com­par­i­son of the success criteria with the company resources makes it possible to identify potential and synergies. Com­pe­ti­tion-relevant strengths and weak­ness­es can only be deduced through com­par­isons to said com­pe­ti­tion, however. The company analysis always requires a com­pe­ti­tion analysis as well.

The com­pe­ti­tion analysis

Com­pe­ti­tion analysis is an ex­am­i­na­tion of the most relevant com­peti­tors in a sales market. The analysis is part of the com­pet­i­tive in­tel­li­gence, or the sys­tem­at­ic gathering and ap­prais­ing of in­for­ma­tion about com­peti­tors, competing products, market de­vel­op­ments, in­dus­tries, patents, tech­no­log­i­cal de­vel­op­ments, and customer ex­pec­ta­tions.

The com­pe­ti­tion analysis is usually carried out sep­a­rate­ly for different planning entities as well. After all, a company usually competes with different rivals in different markets. Data about market leaders and their success factors are of central im­por­tance. The analysis of the com­pe­ti­tion examines:

  • Economic con­di­tions
  • Current market position
  • Or­ga­ni­za­tion­al structure
  • As­sort­ment structure
  • Re­la­tion­ships with suppliers and customers

In­for­ma­tion about com­peti­tor companies is not as easy to obtain as data about your own company, and so is almost always available on a smaller scale.

Analysts base the ex­am­i­na­tion on primary sources such as in­ter­views with industry experts, surveys of (former) employees, customers, suppliers, com­peti­tors’ sales as­sis­tants, trade fairs, and con­gress­es. As secondary sources there are annual reports, pub­li­ca­tions of chambers of commerce and market research in­sti­tutes available, as well as industry news­pa­pers, patent ap­pli­ca­tions, and spe­cial­ist databases.

The strengths and weak­ness­es profile

The strengths and weak­ness­es profile rep­re­sents the strengths and weak­ness­es of the company in relation to the com­pe­ti­tion. Such bench­mark­ing makes it possible to identify specific com­pe­ten­cies. The purpose of this is to identify com­pe­ti­tion benefits as well as drawbacks.

The following graphic shows an example of a sim­pli­fied strengths and weak­ness­es profile for a strategic planning entity.

Image: Example of a strengths and weaknesses profile
The strengths and weak­ness­es profile: Eval­u­a­tion of relevant success criteria in com­par­i­son to the com­pe­ti­tion (4 = very good; 1 = bad)

The strengths and weak­ness­es profile of our SWOT analysis example shows that the strengths of the examined company lay in the following areas:

  • Product per­for­mance & quality
  • Service
  • Research & de­vel­op­ment

Compared to the market leader, deficits can also be iden­ti­fied in the following success factors:

  • Market share
  • Price
  • Logistics
  • Pro­duc­tion
  • Costs

This strengths and weak­ness­es profile of the company analysis goes together with the risk-reward catalog of the en­vi­ron­men­tal analysis in the SWOT matrix.

Step 3: com­bi­na­tion of en­vi­ron­men­tal and company analyses

The third step of the SWOT analysis includes a com­par­i­son of external op­por­tu­ni­ties and risks as well as the internal strengths and weak­ness­es. In this step of analysis, com­bi­na­tion pos­si­bil­i­ties that deduce measures for strategic man­age­ment are in the fore­ground. They’re dif­fer­en­ti­at­ed by four di­men­sions.

  • SO (Strengths – Op­por­tu­ni­ties): The com­bi­na­tion of internal strengths with external op­por­tu­ni­ties helps companies calculate external chances with which you can use en­vi­ron­men­tal op­por­tu­ni­ties for corporate success. Matching strate­gies can be developed in the SO dimension that can be used to grow strengths.

  • ST (Strengths – Threats): A com­bi­na­tion of internal strengths with external risks should reveal which pre­vi­ous­ly existing strengths could minimize the risk of en­vi­ron­men­tal threats. The goal of the ST dimension: To develop neu­tral­iza­tion strate­gies for pro­tect­ing the company against risks.

  • WO (Weak­ness­es – Op­por­tu­ni­ties): Using a com­par­i­son of internal weak­ness­es and external op­por­tu­ni­ties, companies try to identify weak­ness­es that can create op­por­tu­ni­ties for the business. The goal of dimension WO: To develop con­ver­sion strate­gies for strength­en­ing the pre­vi­ous­ly weak areas within the company.

  • WT (Weak­ness­es – Threats): Through the com­bi­na­tion of internal weak­ness­es and external risks, companies identify areas in which there’s an acute need for action to protect against possible damage. The goal of the WT dimension: To develop defense strate­gies for min­i­miz­ing risks and avert threats.

The results of the SWOT analysis are usually presented in a SWOT matrix. The following example is based on the pre­vi­ous­ly de­ter­mined strengths and weak­ness­es profile, as well as the as­sump­tion that the strong market growth and untapped product fields were iden­ti­fied as op­por­tu­ni­ties in the en­vi­ron­men­tal analysis, and the new sub­sti­tu­tion tech­nolo­gies and strong com­pe­ti­tion iden­ti­fied as risks.

Image: Example of a SWOT matrix
In the SWOT matrix, companies evaluate the de­ter­mined strengths, weak­ness­es, op­por­tu­ni­ties, and threats to develop strate­gies for the direction of the planning entity under con­sid­er­a­tion

In our SWOT analysis example, de­fi­cien­cies in product pro­duc­tion, logistics, and pricing were iden­ti­fied as part of the company analysis. On the other hand, the en­vi­ron­men­tal analysis has shown that the market for the product will also continue to grow. In addition, pre­vi­ous­ly untapped product fields were iden­ti­fied. A possible strategy iden­ti­fied by the WO com­bi­na­tion of the SWOT matrix is as follows:

The market is promising and ex­pen­di­tures in the areas of pro­duc­tion and logistics are jus­ti­fi­able. The resulting increase in ef­fi­cien­cy makes it possible to lower costs for the consumer and so reduce the price dif­fer­ence between the company’s products and those of the market leader. The goal of this con­ver­sion strategy would be a better po­si­tion­ing of the products on the market.

Similar strate­gies are developed on the basis of the SWOT matrix for all four di­men­sions.

Critical con­sid­er­a­tion of the SWOT analysis

The SWOT analysis is an es­tab­lished in­stru­ment of strategic marketing. Companies should be mindful though that this type of position analysis is a sub­jec­tive approach. Selection of the success criteria as well as their weighting and eval­u­a­tion in the context of internal analysis take place according to a sub­jec­tive viewpoint. The sig­nif­i­cance of the company analysis also depends to a large extent on the ac­ces­si­bil­i­ty and quality of the in­for­ma­tion about customers, com­peti­tors, and market de­vel­op­ments. The same goes for sources that permit as­sump­tions about changes in the company en­vi­ron­ment and the resulting op­por­tu­ni­ties and threats.

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