The Strategy volume of Harvard's Business Essentials dedicates the opening two chapters to SWOT analysis. This reading serves as a primer to strategic thinking for business students and leaders. The authors imply that SWOT should be the basis for goal and strategy development within a firm. The first chapter focuses on the external analysis of factors that influence analysis and, ultimately, strategic goals of a company; the second focuses on the analysis of internal factors.
External factors are the threats and opportunities that exist throughout the company's external environment. This portion of the SWOT analysis considers factors such as customers (current and future), competition, supply chains, regulations, potential mergers, pricing, uncertainty, technology, and macroeconomic trends. These factors may be perceived as either threats or opportunities, depending on their level of impact to the company, as evidenced by the analysis. The product here is the ability to evaluate potential strategic options. Additionally, the key to an effective analysis is to be cognizant of the company's relative position in the competitive arena. This chapter reinforces these notions about the external environment with a brief discussion of the importance of incorporating Porter's Five Forces Model in order to gauge one's position in the competitive arena.
The Strengths and Weaknesses component of the SWOT analysis is an internal assessment of the company. Strengths and weaknesses can be identified by evaluating the company's brand power, employee and management culture, financial condition, cost structure, and technical skills, among others.
The book provides a nine-step guide to executing and organizing the collective information:
- Select a well-respected person to head the analysis. He or she should be expected to remain objective.
- Establish a SWOT team of individuals from throughout the company.
- Collectively brainstorm the strengths of the company.
- Record strengths on a flip chart, avoiding duplication.
- Consolidate ideas together on a wall. Combine possible duplicated answers under common headings.
- Define the strengths (remain focused on strengths and not solutions).
- Identify the top 3.
- Summarize on a single flip chart page.
- Repeat steps 2-6 for weaknesses.