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SWOT Analysis By Stacy Collett (Jul. 19, 1999) In order to swat the competition you need to understand SWOT. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. It's a way to analyze a company's or a department's position in the market in relation to its competitors. The goal is to identify all the major factors affecting competitiveness before crafting a business strategy.

"It comes from an old term from the strategic planning field," says Fred Wiersema, co-author of The Discipline of Market Leaders. Marketing gurus have taken familiar terms from old "situation analysis" principles -- like core competencies (your company's main business), liabilities (weak points that need improvement), customers and competitors -- and simply given them a catchy new acronym, according to Wiersema.

"The purpose of strategy is to be really clear before you take the direction. The point of a SWOT analysis is to have the best shot at a grounded plan," says Rashi Glazer, co-director of the Center for Marketing and Technology at the University of California at Berkeley.

For example, an information technology department needs to determine the strengths and weaknesses of its people and its technology. It also needs to make sure the IT strategy complements the company's business goals. The department head needs to ask: What is each staff member good at? What are they not good at?

Project leaders also must consider opportunities and threats -- or customers and competitors. How attractive is the market or direction they're considering? What's their market share and cost structure?

Delta Air Lines Inc., for example, chose to invest in a multibillion-dollar customer service system that addresses the flight delay problems experienced by 20% of its passengers. Although some companies might think the move was excessive considering 80% of customers have no problems, Delta believed customer service was an important area for increasing market share and that competitors could pose a threat if Delta didn't address the problem.

Another example is Dell Computer Corp., which is a great example of how an IT company can use a SWOT analysis to carve out a strong business strategy, according to Glazer.

Dell recognized that its strength was selling directly to consumers and keeping its costs lower than those of other hardware vendors.

As for weaknesses, the company acknowledged that it lacked solid dealer relationships.

Identifying opportunities was an easier task. Dell looked at the marketplace and saw that customers increasingly valued convenience and one-stop shopping and that they knew what they wanted to purchase. Dell also saw the Internet as a powerful marketing tool.

On the threats side, Dell realized that competitors like IBM and Compaq Computer Corp. had stronger brand names, which put Dell in a weaker position with dealers.

Dell put together a business strategy that included mass customization and just-in-time manufacturing (letting customers design their own computers and custom-building systems). Dell also stuck with its direct sales plan and offered sales on the Internet.

"Clarity in strategy works. Fuzzy strategies fail. Most strategies fail because they don't have a clear direction," Glazer says.

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