SWOT: Developing Business Strategies

Image:  "Successful Business Strategy" by Stuart Miles

SWOT is the acronym of Strengths, Weaknesses, Opportunities and Threats -- a technique used by decision makers for problem solving and business planning. Strengths and weaknesses generally account for internal capabilities and resources. Opportunities and threats typically address external factors. An organization can identify skills, knowledge and capabilities it is lacking through SWOT analysis.

Organizational Strategies

SWOT analysis can be used to assess an organization, department, individual or task. It is used to develop organizational strategies, including strategic business goals, objectives, strategies and tactics. There are various types of formal organizational strategies used as a basis of business analysis. This includes cost-leadership strategy, focused cost-leadership strategy, differentiation strategy and focused differentiation strategy.

Cost-Leadership Strategy

SWOT analysis is frequently used to assess operational costs and is frequently used in the cost-leadership strategy. Cost-leadership strategy aims to attract customers with lower prices by cutting operational costs. WalMart's founder Sam Walton actively pursued this strategy by identifying inexpensive rural lands that allowed him to reduce product prices below those of urban competitors like K-Mart and Sears. Walton also aggressively pursued goods produced at low costs in global markets.

Differentiation Strategy

A SWOT analysis can be applied to a particular product or service to increase its quality, creativity, responsiveness or innovation. Exclusive clothing designers, such as Christian Dior, pursue what is described as a focused differentiation strategy by producing distinctive clothing for very rich customers. The differentiation strategy seeks to attract customers with unique services and goods -- sometimes described as non-price competition.

SWOT Assessments

A performance of a simple SWOT assessment of online retainer Amazon.com's online book brand strategy shows clear strengths, weaknesses, opportunities and threats. As a strength, it has cornered the online book market by acquiring former competitors Bookfinder.com and AbeBooks.com. As a weakness, when competition is reduced customers may associate the Amazon.com brand more closely with books and not a diverse online marketplace. Opportunities exist as the number of specialty book dealers join as sellers. Regulations become an external threat to business operations, such as when growing into foreign markets as Amazon.com seeks to do by entering India.