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AQA A-Level Business

7.1.6 The Value of SWOT Analysis

SWOT analysis is a vital tool for assessing a business’s internal capabilities and external environment to support strategic decisions and improve long-term performance.

What Is SWOT Analysis?

SWOT analysis is a strategic planning tool used by businesses to evaluate four critical areas that influence decision making and long-term planning:

  • Strengths (S): Internal capabilities or assets that give the business an advantage over competitors.

  • Weaknesses (W): Internal limitations or areas of underperformance that could hinder success.

  • Opportunities (O): External factors that the business could exploit to improve performance or gain competitive advantage.

  • Threats (T): External factors that could jeopardise the business’s performance or market position.

By examining these areas, businesses can better understand where they currently stand and determine the best path forward. The analysis supports both the development of strategic objectives and the mitigation of potential risks. It provides a balanced view, combining both internal and external factors into a simple and structured framework.

Internal vs External Focus

The SWOT framework separates factors into internal and external categories:

  • Internal factors:

    • Strengths and weaknesses stem from within the organisation.

    • These include resources, human capital, brand image, product quality, operational efficiency, and leadership.

    • Businesses can control or influence internal factors.

  • External factors:

    • Opportunities and threats arise from the environment outside the business.

    • These include market trends, regulatory changes, economic conditions, competitor actions, and technological developments.

    • Businesses cannot directly control these factors but must adapt to them.

This division helps firms clarify what they can change versus what they must respond to strategically.

How SWOT Helps Identify a Firm’s Strategic Position

A business’s strategic position refers to how well it is placed to achieve long-term success in its chosen markets. SWOT analysis supports this understanding by revealing how the business is equipped to respond to current and future challenges.

Strategic Position Defined

A firm’s strategic position is shaped by:

  • Internal competencies (what it is good at or lacking)

  • External conditions (the market, technology, competition, regulation)

  • Alignment of internal strengths with external opportunities while avoiding threats and minimising weaknesses

SWOT helps businesses identify:

  • Core competencies they can build upon

  • Vulnerabilities that may need urgent attention

  • Gaps between market demand and internal capability

  • Unrealised opportunities that align with their vision

Example of Strategic Insight from SWOT

Imagine a UK-based organic skincare company:

  • Strength: strong ethical brand with loyal customer base

  • Weakness: limited marketing budget and online visibility

  • Opportunity: growing demand for cruelty-free skincare products

  • Threat: emergence of low-cost competitors with aggressive pricing

This insight allows the company to strengthen digital marketing efforts (to reduce weakness), capitalise on the opportunity (expand online presence), and plan for the threat (by reinforcing its unique ethical branding).

SWOT’s Role in Strategic Planning and Risk Management

SWOT analysis is not just about reflection—it is a forward-looking tool that directly supports strategic planning and risk management processes.

Informing Strategic Planning

The main objective of strategic planning is to set goals and choose actions that will lead to long-term success. SWOT plays an essential role in this process by ensuring decisions are informed by a realistic view of the business’s context.

How SWOT feeds strategic planning:

  • Defines realistic objectives: Helps set goals that match current strengths and market opportunities.

  • Highlights improvement areas: Encourages the development of strategies to overcome weaknesses.

  • Directs resource allocation: Ensures time, money, and people are focused on high-impact areas.

  • Builds competitive strategies: Supports the development of differentiation or cost leadership approaches.

  • Provides a strategic ‘audit’: Gives a comprehensive picture of the business’s environment before decisions are made.

In essence, it ensures that strategies are not based on assumptions, but on evidence-based assessments of the business’s position.

Supporting Risk Management

In addition to strategic planning, SWOT is an important element in identifying and managing risk:

  • Forecasting potential disruptions: SWOT identifies threats that could impact profitability or continuity.

  • Supporting contingency planning: Businesses can prepare fallback strategies for major risks identified.

  • Minimising internal risks: Weaknesses such as staff shortages, outdated IT systems, or poor supplier relationships can be addressed early.

  • Capitalising on risk-mitigating opportunities: For example, diversifying products to reduce dependency on one revenue stream.

By anticipating both internal and external risks, SWOT becomes a proactive tool for protecting long-term sustainability.

Evaluating the Strengths and Limitations of SWOT

While SWOT analysis is widely used and highly valuable, it is not without its flaws. Understanding its benefits and limitations allows businesses to use it effectively and avoid common pitfalls.

Strengths of SWOT Analysis

  1. Simplicity and Accessibility

    • Easy to understand and requires no specialised training

    • Can be used across departments or levels of management

    • Encourages inclusive discussions in strategic meetings

  2. Structured Framework

    • Forces businesses to categorise and reflect on multiple dimensions of performance

    • Prevents a narrow focus and encourages holistic thinking

  3. Versatility

    • Can be applied to the business as a whole, or to specific projects, departments, or products

    • Adaptable to businesses of all sizes and sectors

  4. Promotes Strategic Thinking

    • Encourages businesses to reflect on current realities and consider future possibilities

    • Serves as a foundation for more advanced strategic tools (e.g. PESTLE, Porter’s Five Forces)

  5. Encourages Collaboration

    • When developed in groups, SWOT fosters collaboration between teams and functions

    • Brings diverse perspectives together for a richer analysis

Limitations of SWOT Analysis

  1. Subjectivity and Bias

    • Results can be influenced by who conducts the analysis

    • Teams may overstate strengths or underplay threats

    • Personal agendas or lack of information can distort results

  2. Oversimplification

    • SWOT assumes that all elements can be neatly divided into four categories

    • It may miss complex interdependencies between factors

    • Important issues may be left out if they don’t fit the framework

  3. Snapshot in Time

    • SWOT is not dynamic—it reflects a situation at a specific moment

    • In fast-moving industries, it can become outdated quickly

    • Frequent updates are required to keep it useful

  4. Lack of Prioritisation

    • SWOT doesn’t automatically indicate which strengths or threats are most important

    • Without further analysis, businesses may treat all factors equally even though some have more strategic weight

  5. Potential for Misuse

    • Some businesses treat SWOT as a tick-box exercise

    • Without follow-up action or deeper analysis, its value is limited

    • It must be used alongside other strategic tools and decision-making processes

Example of SWOT Analysis in Action

Let’s apply SWOT in a more detailed hypothetical example to demonstrate its real-world value.

Business Scenario: Mid-sized British Craft Brewery

The business operates in the UK, focusing on local and sustainable craft beers. It plans to expand into European markets.

Strengths

  • Unique recipes and strong local brand: Appeals to eco-conscious and artisanal market segments

  • High customer retention: Loyal customer base with high repeat purchase rates

  • Efficient production systems: Recently upgraded facilities reduce waste and increase yield

Weaknesses

  • Limited financial reserves: Constrains marketing and expansion plans

  • Small management team: Lacks experience in international logistics

  • Weak online presence: Website lacks functionality and visibility

Opportunities

  • Rising demand for craft beers in European cities: Consumers are moving away from mass-market brands

  • E-commerce growth: More consumers are buying alcohol online post-pandemic

  • Potential export grants: UK government schemes to support post-Brexit trade expansion

Threats

  • Post-Brexit trade barriers: Increased paperwork and tariffs could raise export costs

  • Intense competition: Many European breweries entering the premium beer segment

  • Currency fluctuations: Unstable exchange rates could erode profit margins

Strategic Response Based on SWOT

From this analysis, the craft brewery could consider:

  • Building on strengths:

    • Promote their unique brand story and sustainable processes in marketing campaigns

    • Use their efficient production system to deliver value at competitive prices

  • Addressing weaknesses:

    • Seek external investment or partnership to support financial and logistical gaps

    • Hire or consult export experts to manage European market entry

  • Exploiting opportunities:

    • Apply for available government export support schemes

    • Invest in a high-quality e-commerce platform with multilingual features

  • Mitigating threats:

    • Focus initially on countries with trade agreements that minimise export complexity

    • Lock in favourable currency exchange rates through financial hedging

This example shows how SWOT guides practical decision-making, ensuring that expansion plans are well-informed, realistic, and resilient.

FAQ

Small businesses can adapt SWOT analysis by focusing on areas directly relevant to their operations. Instead of conducting a broad market-wide analysis, they can examine specific strengths like customer relationships or location advantages and weaknesses such as limited cash flow or low brand awareness. Opportunities might include local partnerships or digital marketing channels, while threats may involve new local competitors or supplier issues. This tailored approach allows small firms to remain agile and concentrate efforts on immediate, high-impact decisions, maximising the utility of SWOT despite limited resources.

Stakeholder input can significantly enhance the accuracy of a SWOT analysis by providing varied perspectives. Employees may highlight operational strengths or weaknesses overlooked by management, while customers can reveal brand perceptions or service gaps. Suppliers and investors may also contribute valuable insights about opportunities and threats. Involving key stakeholders ensures the SWOT analysis is comprehensive and reflective of real-world conditions, avoiding internal bias and helping the business make well-rounded, evidence-based strategic decisions that consider all key interests.

Yes, SWOT analysis is highly effective for evaluating new product launches. It helps identify whether a business has the internal strength—such as technical expertise or brand credibility—to develop and market a new product successfully. It also reveals weaknesses like limited R&D or marketing resources. Opportunities might include unmet customer needs or emerging trends, while threats may involve established competitors or regulatory barriers. By examining these factors in advance, firms can assess feasibility, plan risk mitigation, and adjust the product concept for better market fit.

A business should update its SWOT analysis at least annually or whenever there are significant changes in its internal or external environment. For example, a merger, a major new competitor, or changes in government policy would all warrant a fresh analysis. Regular updates ensure that strategic decisions remain aligned with current realities. An outdated SWOT could lead to misinformed strategies, missed opportunities, or overlooked threats. Keeping the analysis current allows the business to remain responsive, competitive, and prepared for emerging challenges.

Over-reliance on SWOT analysis can lead to strategic misjudgements. It may encourage surface-level thinking if used in isolation, ignoring deeper market analysis or financial modelling. There is also the risk of misclassification—confusing internal weaknesses with external threats, or overstating a minor strength. Subjectivity can skew findings, particularly if not supported by data. Moreover, SWOT does not provide solutions or prioritise issues. Without supplementary tools or clear follow-up actions, decisions may be based on incomplete insight, resulting in poor strategic alignment and wasted resources.

Practice Questions

Explain how a business could use SWOT analysis to improve its strategic decision making. (10 marks)

A business can use SWOT analysis to make informed strategic decisions by identifying internal strengths and weaknesses alongside external opportunities and threats. This enables managers to align business capabilities with favourable market conditions while addressing areas of vulnerability. For example, a company may exploit a market opportunity, such as rising eco-consciousness, by leveraging its strength in sustainable production. At the same time, recognising a weakness in digital marketing may prompt investment in e-commerce. By evaluating threats, such as new competitors, the business can adopt defensive strategies. Thus, SWOT analysis supports realistic and focused planning based on current internal and external factors.

Assess the value of SWOT analysis as a tool for business strategy. (12 marks)

SWOT analysis offers value by providing a structured and simple framework to assess a firm’s strategic position. It highlights strengths to build upon, weaknesses to address, and opportunities to exploit, while also preparing the firm for threats. However, its usefulness depends on accurate, objective data; otherwise, results may be misleading. It offers only a snapshot, so its relevance can quickly decline in fast-changing industries. On its own, SWOT lacks depth and prioritisation. Yet, when used alongside other tools and updated regularly, it can guide effective strategic choices. Therefore, its value lies in supporting—not replacing—more comprehensive strategic planning.

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