SWOT analysis is used to determine the strategic fit between an organization's internal, distinctive capabilities and external possibilities and to prioritize actions. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
The steps in the common three-phase SWOT analysis process are:
Phase 1: Detect strategic issues
- Identify external issues relevant to the company's strategic position within the industry and the general environment at large, knowing that opportunities and threats are factors that management cannot directly influence.
- Identify internal issues relevant to the company's strategic position.
- Analyze and rank the external issues according to probability and impact.
- List the key strategic issues factors inside or outside the organization that significantly impact the long-term competitive position in the SWOT matrix.
Phase 2: Determine the strategy
- Identify company’s strategic fit given its internal capabilities and external environment.
- Formulate alternative strategies to address key issues.
- Place the alternative strategies in one of the four quadrants in the SWOT matrix. Strategies that combine:
- internal strengths with external opportunities are the most ideal mix, but require understanding how the internal strengths can support weaknesses in other areas;
- internal weaknesses with opportunities must be judged on investment effectiveness to determine if the gain is worth the effort to buy or develop the internal capability,
- internal strengths with external threats demand knowing the worth of adapting the organization to change the threat into opportunity;
- internal weaknesses with threats create an organization's worst-case scenario. Radical changes such as divestment are required.
- Develop additional strategies for any remaining "blind spots" in SWOT matrix. Select an appropriate strategy.
Phase 3: Implement and monitor strategy
- Develop action plan to implement strategy;
- Assign responsibilities and budgets;
- Monitor progress;
- Start review process from beginning.