Video Transcript: SWOT Analysis

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, internal 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