In order to evaluate the nature of the business environment and its strategic capability,anorganization may undertake a SWOT analysis which focuses on the Strength, Weakness, Opportunities, and Threats facing the organization. The SWOT analysis provides convenient headings under which to study an organization in its environmental setting and may provide a basifor decision-makinproblem-solving .
- Strengths are those positive aspects or distinctive attributes or competencies which provide a significant market advantage or upon which the organization can build - for example, through the pursuit of diversification. there are characteristics of the organization such as present market position, size , structure, managerial expertise physical or financial resources, staffing, image or reputation. By searching out opportunities that match its strengths the organization can optimize the effects of synergy.
- Weaknesses are those negative aspects or deficiencies in the present competencies or resource of the organization, or its image or reputation, which limit its effectiveness and which need to be corrected or need action taken to minimize their effect. example of weaknesses could be operating within a particular narrow market, limited accommodation or updated technology, a high proportion of fixed costs, a bureaucratic structure, a high level of customer complaints or a shortage of key managerial staff.
- Opportunities are favorable conditions and usually arise from the nature of changes in the external environment. The organization needs to be sensitive to the problem of business strategy and responsive to changes in, for example, new markets, technology advances, improved economic factors, or failure of competitors. Opportunities provide the potential for the organization to offer new or to develop existing, products, facilities or services.
- Threats are the converse of opportunities and refer to unfavorable situations that arise from external developments likely to endanger the operation and effectiveness of the organization. Example could include changes in legislation, the introduction of a radically new product by competitors, political or economic unrest, changing social conditions and the actions of pressure group. Organizations need to responsive to changes that have already occurred and to plan for anticipated significant changes in the environment and to be prepared to meet them.
Although SWOT can offer a number of potential advantages for helping to evaluate corporate performance, care must be taken that the process does not lead to an over-simplified and misleading analysis. There are many way of evaluating organizational performance and effectiveness, and varying criteria for success.
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