Understanding SWOT Analysis: A Comprehensive Guide to Internal and External Factors (Full Transcript)

Speaker 1: Hi, and welcome back. We know strategy analysis has two main branches, analysis of a firm's external environment and analysis of a firm's internal environment. In our previous lessons, we learned how to analyze the internal and external environment of a firm. SWOT is a famous framework that allows us to combine the two types of analysis. SWOT is sometimes referred to as an internal-external analysis. The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The first two, strengths and weaknesses, are related to a firm's internal environment, while the last two, opportunities and threats, consider its external environment. We can use a SWOT analysis when analyzing industries, companies, products, new initiatives, policies, or even people. It is a simple and useful framework that allows us to group and visualize strengths and weaknesses, and to identify potential threats and opportunities that exist in the external environment. In addition, the SWOT framework could be useful when you want to understand the areas in which your firm performs well, and the ones that need improvement. The four elements of SWOT analysis are usually placed in a table, which looks something like this. External strengths and external opportunities are vertically paired as helpful elements, while internal weaknesses and external threats are paired as harmful elements. Right, so, if we perform a company analysis under strengths, we would expect to see its core competences, the areas where the business excels, and has a competitive advantage over competitors. An example of a firm's strength could be its strong brand recognition. Weaknesses are areas that need improvement. Such vulnerabilities place a company at a disadvantage when competing against other firms. Usually, the disadvantage results from other companies having a competitive advantage. An example of a weakness is higher cost structure. Opportunities can be seen as favorable factors existing in a company's external environment, in the industry where it operates, and have the potential to improve its current results and competitive positioning. Taking advantage of opportunities depends on how skilled a company's top management team is. To take advantage of an opportunity, the management must be able to recognize opportunities when they arise, and then act accordingly when the time is right. An example of an opportunity is the advent of a new technology the company can exploit to expand its product offering. The last of the four elements of SWOT analysis is threats. Threats arise in a company's external environment and might harm its current business. But if you can identify a threat, you can lessen its impact by taking precautions. An example of a threat is the entry of a strong competitor with access to advanced technology. This is a great overview of the SWOT framework. In our next lesson, we'll conclude the strategy module of the course by applying SWOT in practice. Thanks for watching.