THE SWOT & PEST ANALYSIS

The SWOT Concept

SWOT Analysis is one of the tools to undertake the

SITUATION ANALYSIS.
Any

strategy

corporations

formulation
mission,

exercise

objectives,

(evolving

strategies

a
and

policies) starts with the situation analysis.

The Situation Analysis involves assessing the strategic
fit

between

strengths

as

external
also

opportunities

external

threats

and

internal

and

internal

weaknesses.
SWOT analysis is a strategic planning method used to
evaluate the Strengths, Weaknesses, Opportunities,
and Threats involved in a project or in a business
venture.
It involves specifying the objective of the business
venture or project and identifying the internal and

external factors that are favourable and unfavourable

to achieving that objective.
A SWOT analysis must first start with defining a desired
end state or objective. A SWOT analysis may be
incorporated into the strategic planning model.
Strengths: attributes of the person or company those
are helpful to achieving the objective(s).
Weaknesses: attributes of the person or company those
are harmful to achieving the objective(s).
Opportunities: external conditions those are helpful to
achieving the objective(s).
Threats: external conditions which could do damage to
the objective(s).
Identification

of

SWOTs

is

essential

because

subsequent steps in the process of planning for

achievement of the selected objective may be derived
from the SWOTs.

Given below are four strategic choices depending upon

four different combinations of S, W, O and T:
Presence

of

Environmental

both

Internal

Opportunity

Strength

will

support

and
an

Aggressive Strategy
Presence

of

both

Internal

Weakness

and

Environmental Opportunity will support a Turnaround Strategy

Presence

of

both

Internal

Weakness

and

Environmental Threats will support a Defensive

Strategy
Presence

of

Environmental

both

Internal

Threats

will

Strength
support

and
a

Diversification Strategy
Internal and external factors
The aim of any SWOT analysis is to identify the key
internal and external factors that are important to

achieving the objective. These come from within the

company's unique value chain.
SWOT analysis groups key pieces of information into
two main categories:
Internal factors The strengths and weaknesses
internal to the organization.
External
presented

factors
by

The

the

opportunities

external

and

environment

threats
to

the

organization - Use a PEST or PESTLE analysis to help

identify factors
The internal factors may be viewed as strengths or
weaknesses depending upon their impact on the
organization's

objectives.

What

may

represent

strengths with respect to one objective may be

weaknesses for another objective.
The

external

factors

may

include

macroeconomic

matters, technological change, legislation, and sociocultural changes, as well as changes in the marketplace
or competitive position.

The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and
has its own weaknesses. For example, it may tend to
persuade companies to compile lists rather than think
about

what

objectives.

is
It

actually
also

important

presents

the

in

achieving

resulting

lists

uncritically and without clear prioritization so that, for

example, weak opportunities may appear to balance
strong threats.
It is prudent not to eliminate too quickly any candidate
SWOT entry. The importance of individual SWOTs will
be revealed by the value of the strategies it generates.
A SWOT item that produces valuable strategies is
important. A SWOT item that generates no strategies is
not important

Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to

profit-seeking organizations. SWOT analysis may be

used in any decision-making situation when a desired

end-state (objective) has been defined. Examples
include: non-profit organizations, governmental units,
and individuals. SWOT analysis may also be used in
pre-crisis planning and preventive crisis management.
SWOT analysis may also be used in creating a
recommendation during a viability study.
PEST Analysis
PEST analysis stands for "Political, Economic, Social,
and Technological analysis" and describes a framework
of

macro-environmental

environmental

scanning

factors

used

component

of

in

the

strategic

management.
Some analysts added Legal and Environmental factors
and expanded it to PESTEL or PESTLE, which is popular
in the UK. The model has recently been further
extended to STEEPLE and STEEPLED, adding education
and demographic factors. It is a part of the external
analysis when conducting a strategic analysis or doing
market research, and gives an overview of the different

macro environmental factors that the company has to

take into consideration.
It is a useful strategic tool for understanding market
growth or decline, business position, potential and
direction for operations.
The growing importance of environmental or ecological
factors in the first decade of the 21st century have
given rise to green business and encouraged wide
spread

use

of

an updated

version

of the

PEST

framework.
STEER analysis systematically considers Socio-cultural,
Technological, Economic, Ecological, and Regulatory
factors.
The Model's Factors
Political factors are how and to what degree a
government intervenes in the economy. Specifically,
political factors include areas such as tax policy, labour
law, environmental law, trade restrictions, tariffs, and
political stability. Furthermore, governments have great

influence on the health, education, and infrastructure of

a nation.
Economic factors include economic growth, interest
rates, exchange rates and the inflation rate. These
factors have major impacts on how businesses operate
and make decisions. For example, interest rates affect
a firm's cost of capital and therefore to what extent a
business grows and expands. Exchange rates affect the
costs of exporting goods and the supply and price of
imported goods in an economy
Social factors include the cultural aspects and include
health consciousness, population growth rate, age
distribution, career attitudes and emphasis on safety.
Trends in social factors affect the demand for a
company's products and how that company operates.
For example, an aging population may imply a smaller
and less-willing workforce (thus increasing the cost of
labour).
Technological

factors

include

environmental

aspects,

such

ecological
as

R&D

and

activity,

automation, technology incentives and the rate of

technological change. They can determine barriers to

entry, minimum efficient production level and influence
outsourcing decisions. Furthermore, technological shifts
can affect costs, quality, and lead to innovation.
Environmental factors include weather, climate, and
climate change, which may especially affect industries
like tourism, farming, and insurance. Furthermore,
growing awareness to climate change is affecting how
companies operate and the products they offer (both
creating new markets and diminishing or destroying
existing ones).
Legal factors include discrimination law, consumer law,
antitrust law, employment law, and health and safety
law. These factors can affect how a company operates,
its costs, and the demand for its products.
Applicability of the Factors
The factors will vary in importance to a given company
based on its industry and the goods it produces. For
example, consumer and B2B companies tend to be
more affected by the social factors, while a global

defence contractor would tend to be more affected by

political factors.
Additionally, factors that are more likely to change in
the future or more relevant to a given company will
carry greater importance. For example, a company who
has borrowed heavily will need to focus more on the
economic factors (especially interest rates).
Furthermore, conglomerate companies who produce a
wide range of products (such as Sony, Disney, or BP)
may find it more useful to analyse one department of
its company at a time with the PESTEL model, thus
focusing on the specific factors relevant to that one
department. A company may also wish to divide factors
into geographical relevance, such as local, national,
and global (also known as LoNGPESTEL).