SWOT is an acronym for strengths, weaknesses, opportunities and threats. A firm needs to analyze its potential as well as the factors in its environment, which might affect its operations. The strengths are the advantages the firm uses to its benefit, while weaknesses are the disadvantages that might adversely affect the normal operations of the firm (Gürel & Tat, 2017). Opportunities are the loopholes or chances, especially those presented by the external environment, which the firm uses to gain an edge in the market, while threats are factors from the external environment, which might cripple the operations of the firm.
A SWOT analysis is important because a firm must analyze its potential in relation to its competitors and other forces in its environment. In strategic planning, a SWOT analysis helps especially the management team to forge a suitable way ahead in consideration of the firm’s capabilities (Tuncay, 2015). Although the firm may experience certain weaknesses and threats, the management team strategizes using the limited resources, strengths and opportunities. Besides, once the team is aware of the weaknesses and threats, it works out a way of eliminating them or improving on the weaker areas gradually. In essence a SWOT analysis presents the internal capabilities of a firm in relation to the various factors in the external environment. Any firm is affected by the external environment; hence it is vital to have a strategic plan to mete the competition.
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One important analysis model that can work with the SWOT analysis is the PESTEL analysis. In particular, the PESTEL analysis examines the external factors that may affect the operations of a firm. Such factors include; environmental, legal, social, political, and economic, among others (Gupta, 2013). A PESTEL analysis evidently gives specific details of the external environment and as such, could help a firm prepare and plan better to tackle issues presented by the external environment.
References
Gupta, A. (2013). Environment & PEST analysis: an approach to the external business environment. International Journal of Modern Social Sciences , 2 (1), 34-43.
Gürel, E., & Tat, M. (2017). SWOT analysis: A theoretical review. Journal of International Social Research , 10 (51).
Tuncay, M. (2015). SWOT Analysis in Strategıc Management and a Sample Applicatıon in Public. Retrieved from https://mpra.ub.uni-muenchen.de/67213/1/MPRA_paper_67213.pdf
