Strengths, Weaknesses, Opportunities, Threats (SWOT) is a business term that indicates one of the methods used for making informed business plans. The relationship between SWOT analysis and strategic planning is the fact that SWOT is a tool for planning business strategies. This means that it allows a company to evaluate itself and its environment with the goal of using the information gathered to make strategic decisions.
An illustration of the relationship between SWOT analysis and strategic planning can be seen in the case of a company that produces baby formula. The company has a major distribution outlet located in the state of Virginia and is planning to open another outlet in New Jersey in order to extend its reach. As part of this plan, the company carries out an analysis of its present business structure to find out the strengths, weaknesses, opportunities, and threats that are related to the company. This knowledge will help the company gain a clearer understanding of its business structure and will allow it to make a strategic plan based on the information from the research.
The two can be combined by finding out the strengths and weaknesses of the company. For the business used in the above illustration, the strengths could be the reach of the distribution network, the financial resources, and the ability to use new technology to its advantage. The weaknesses may include an inability to access certain segments of the market, a poor corporate culture, ineffective leadership, and low demand for certain products.
Another way of combining them is to make a list of all of the identified opportunities. Opportunities could be in the form of new or already existing favorable government policies, which the company can convert to its own benefit. Knowing the opportunities can help the company make strategic business plans. If a company knows that it will receive tax cuts for producing certain types of products, for example, this is an opportunity that will allow it to make the strategic plan for producing that particular product so as to take advantage of the tax cut. A car manufacturer may decide to make a certain brand of car a hybrid if it realizes that it may get tax cuts or other types of tax incentives for making the hybrids.
The combination of SWOT analysis and strategic planning also allows a company to identify threats. Some examples of threats to a company include a bad location, stiff competition, and a weak corporate culture. Knowledge of the threats will also be included in the strategic plan with a view to finding ways to avoid or overcome them.