SWOT Analysis | What is SWOT Analysis?

| Examples of SWOT Analysis

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SWOT analysis was originally conceived and developed in the 1960s and its basic
organising principles have remained largely unchanged in the field of strategic
management since that time (Kotler et al., 2013). It is, as Ghazinoory, Abdi and
Azadegan-Mehr (2011) comment, a systematic framework which helps managers to
develop their business strategies by appraising the internal and external
determinants of their organisations performance. Internal environmental factors
include leadership talent, human resource capabilities, the companys culture as well
as the effectiveness of its policies and procedures. In contrast, external factors
include competition, government legislation, changing trends, and social
expectations (Johnson, Scholes and Whittington, 2008).
The SWOT analysis framework involves analysing the strengths (S) and weaknesses
(W) of the businesss internal factors, and the opportunities (O) and threats (T) of its
external factors of performance (Ghazinoory, Abdi and Azadegan-Mehr, 2011).
Through this analysis, the weaknesses and strengths within a company can
correspond to the opportunities and threats in the business environment so that
effective strategies can be developed (Helms and Nixon, 2010). It follows from this,
therefore, that an organisation can derive an effective strategy by taking advantage of
its opportunities by using its strengths and neutralise its threats by minimising the
impact of its weaknesses. Moreover, SWOT analysis can be applied to both a whole
company as well as a specific project within a company in order to identify new
company strategies and appraise project feasibility.

Hollensen (2010) asserts that the strengths and weaknesses of a company relate to
its internal elements such as resources, operational programmes and departments
such as sales, marketing and distribution. More specifically, a strength is an
advantageous or even unique skill, competency, product, or service that a
business or project possesses that allows it to create competitive advantages. This
may include abstract concepts, such as its possession of strong research and
development capabilities. A weakness on the other hand is a strategic disadvantage,

such as a skill that the business or project lacks which limits it and creates potential
risks in negative economic conditions. Achieving a balance between such positives
and negatives is therefore a necessary pre-requisite for any company and it is also
imperative that a company continues to review its strengths and weaknesses to take
account for changes in its internal environment (Kotler et al., 2013).
An opportunity is, as Henry (2011) comments, a desirable condition which can be
exploited to consolidate and strengthen a strategic position. Examples of this
phenomenon would include growing demand for a trendy new product which it could
consider selling, such as that announced by Burger King relating to the introduction
of a black cheeseburger (Molloy, 2014). A threat on the other hand, is a condition
that creates uncertainties which could potentially damage an organisations
performance or market share (Henry, 2011). Threats include the introduction of new
competing products or services, foreign competition, technological advancements,
and new regulations. Examples of the fear of such external factors can be noted in the
comments of companies planning to relocate their headquarters and registration
bases from Scotland to England in the event of a yes vote in the Scottish referendum
in September 2014 (Wright, Titcombe and Spence, 2014). Therefore, a company
needs to develop strategies to overcome these threats in order to prevent the loss of
its market share, reputation, or profit. It must be noted, however, that opportunities
and threats exist in the environment and therefore are often beyond the control of
the organisation but they do offer suggestions for strategic direction. SWOT
analysis, as a result, demands a great deal of research into an organisations present
and future position (Johnson, Scholes and Whittington, 2008). The results of SWOT
analysis provide a useful source of information from which an organisation can go on
to develop policies and practices which allow it to build upon its strengths, diminish
its weaknesses, seize its opportunities, and make contingency plans or measures to
eradicate or curtail threats, as Kotler et al. (2013) observe.
SWOT analysis is widely used by managers because of its simplicity (Hollensen,
2010). It is used as a planning tool that can be adapted to a range of situations and
projects. Whilst it is not the only technique available to managers, it can often be the
most effective if used properly (Henry, 2011). The basis for a SWOT analysis is
usually drawn from an audit review as well as from independently carried out
interviews with staff and customers. Data is then analysed to arrive at a list of issues
which can be categorised into strengths, weaknesses, opportunities, and threats. The
key issues and company activities are then reassessed through protracted discussions
between managers and reduced further to identify the most important issues and the
potential impact that they could have on the organisation. If too many issues are

included in the analysis, there will be a lack of focus in the development of a new
company strategy and thus it is important to ensure that such discussions focus on a
limited number of factors (Ghazinoory, Abdi and Azadegan-Mehr, 2011).
Additionally, the issues considered should be made in view of customer opinions and
perceptions, which would therefore require objectivity. Ideally, a company should
carry out a SWOT analysis on a regular basis in order to assess its situation against
its competitors in a constantly evolving market environment (Fernie and Moore,
2013). According to Stalk, Evans and Schulman (1992, p. 62), the essence of strategy
is not the structure of a companys products and markets but the dynamics of its
behaviour.
It is also recommended that an organisation should develop and undertake SWOT
analysis on its competitors so that it is able to take into account consumer
perceptions and determinants of their buying behaviour. This is particularly the case
with issues such as quality, in which perceptions may be more powerful than reality
(Kaplan and Norton, 2008). In todays highly competitive and fast changing market
environment, managers may make a grave error when evaluating their companys
resources; that is, not to assess them relative to the competition (Kotler et al., 2013).
A competitive analysis as part of the SWOT framework is always necessary in order
to determine an organisations position in the wider market. Thus, for example, if a
project or business strength is the amount of capital it has to invest in improved IT
functionality, this may not be the case if its competitor is investing double this
amount to improve its own IT functionality. Thus, it is no longer a strength but
rather a weakness for the company. The same competitive analysis should also be
taken into account when assessing opportunities and threats, as it depends on the
relative situation of the competing businesses (Johnson, Scholes and Whittington,
2008).
McDonald (1989, p. 16) states that the SWOT device whilst potentially a very
powerful, analytical device, is rarely used effectively, and recommends using a
summary from a marketing audit to arrive at a sound SWOT analysis; the analysis
must be conducted rigorously so that it prioritises the issues of paramount
importance. Further, McDonald suggests keeping it focused on critical factors only
and to maintain a list of differential strengths and weaknesses in comparison to
competitors, concentrating mainly on competitive advantages. Additionally, only
critical external opportunities and threats should be listed with a focus on the real
issues. Finally, according to McDonald (1989), the reader of the SWOT analysis
should be left with the main issues encompassing the business to the extent that they
are able to derive and develop marketing objectives from them. At the end of the

analysis, the organisation is left with reasons behind their choices as well as their
potential impacts, which provides them with a stronger basis from which to form
future strategic decisions.

Example of a SWOT analysis of the McDonalds

Corporation
Strengths

Open door policy to the press

Ceres guidance and coordination and active CSR

Inflexible to changes in
market trends

Difficult to find and retain

employees

Selective supply chain

strategy

Weaknesses

Drive for achieving

shareholder value may
counter CSR

Rigorous food safety

standards

Affordable prices and high

quality products

Nutritional information on

Promote unhealthy food

Promoted CSR meat imports

in error

packaging

Decentralised yet connected

system

Innovative excellence
programme

Promoting ethical conduct

Profitable

Opportunities

Threats

Attractive and flexible

employment

Positive environmental
commitments

quality of chicken

Unhealthy foods for children

Health concerns surrounding

Higher standards demanded

from suppliers

Fabricated stories about the

beef, poultry, and fish

Labour exploitation in China

committee

CSR at the risk of profit loss

Honest and real brand image

Contributor to global warming

Local fast food restaurants

Political instability (e.g.

Corporate responsibility

Russia)

Strengths
Open door policy to the press
At times of wider national food scandals, for instance those related to BSE,
McDonalds operated an open door policy, allowing the press into a limited number
its restaurants and suppliers (Vrontis and Pavlou, 2008). This was done as a
deliberate measure to reassure the public of the safety of McDonalds.
Ceres guidance and co-ordination, and active CSR
McDonalds, as Valax (2012) notes, co-ordinates with employees, investors,
environmental and corporate social responsibility (CSR) organisations, such as
Ceres, to improve its social and environmental programmes. As a result of such
policies, McDonalds can be seen to be continually updating its profile to take
account of changes in consumer preferences keeping the firm relevant and allied to
the desires of its customers.
Selective supply chain strategy

McDonalds works to ensure that its suppliers meet or exceed safety and quality
standards as well as complying with best practice with reference to a sustainable food
supply and animal welfare (Deng, 2009). Indeed, its recent advertisement campaigns
have laid a premium on the traceability of products used.
Rigorous food safety standards
McDonalds, as Vrontis and Pavlou (2008) observe, works hard to ensure that high
food safety standards are met through training, food, safety and quality and menu
development in each restaurant. This filters through to its partners, ensuring that
they operate ethically and meet social responsibility standards. The high training
required can also be noted by reference to its endorsement of specific qualifications
and training for staff thereby adding value to its workforce (Valax, 2012).
Affordable prices and high quality products
McDonalds is an efficient provider of high quality foodstuffs and always seeks to
offer the best value to its customers, as noted by its 99p value range (Harnack et al.,
2008).
Nutritional information available on packaging
McDonalds was one of the first fast food restaurants to disclose nutritional
information on its packaging and continues to seek new ways in which it can provide
nutrition and balanced active lifestyles for its customers (Harnack et al., 2008).
Indeed, there are sections of the corporate website specifically tailored to this data.

Decentralised yet connected system

McDonalds provides a core system of values, principles and standards which
managers adhere to in combination with its Freedom within the Framework
programme, which provides them with the flexibility to respond to the diversity of its
customers and local markets (McDonalds Corporation, 2013).
Innovative excellence programme
McDonalds employs an array of mystery shoppers who visit premises pretending to
be customers. They inspect the premises as customers and rate them accordingly.
Many restaurants provide customer comment contact numbers and employee

satisfaction surveys. It may also be noted, though anecdotally, that the firm responds
quickly to mistakes and problems raised with area managers.
Promoting ethical conduct
McDonalds works hard to maintain its integrity with its shareholders through open
channels of communication (McDonalds, 2013).
Profitable
McDonalds is profitable, as Wallop (2014) comments, with sufficient capital. This
allows it to grow and realise gains on its investments. Thus, McDonalds is able to
offer help to charities as well as itself when in need.

Weaknesses
Inflexible to changes in market trends
If customer trends move towards eating in a more eco-friendly or organicallyoriented manner, McDonalds would be unable to follow this trend without changing
suppliers and incurring significant financial losses (Wallop, 2014). McDonalds could
consider the introduction of new products with the aid of market research, in coming
years, to prepare them for such potential change.
Difficult to find and retain employees
McDonalds has had hostile relationships with unions and, although this has been
controlled, the company does find it difficult to find and retain good employees
(Valax, 2012). The company can build on its reputation for developing top level
managers by further increasing its graduate recruitment portfolio.
Drive for achieving shareholder value may counter CSR
When McDonalds profits fall, its stock price often falls as well; as a consequence, it is
often forced to take drastic action to resolve the problem. (Wallop, 2014) This often
relates to issues of social and environmental responsibility. McDonalds could be
more proactive in finding more long-term CSR suppliers and processes that provide
lower costs and higher profit margins, rather than being reactive.
Promotion of unhealthy food

Despite providing healthier product varieties, McDonalds continues to sell burgers

that have 850 calories in them. . This could continue to harm its reputation as an
unhealthy fast food provider. McDonalds could research ways to reduce the calories
in its products whilst still maintaining their taste, or at the least provide low calorie
burger options. Much progress has been made in this arena but it is suggested that
more needs to be done (Harnack et al., 2008).
Promoted CSR meat imports in error
McDonalds claimed to provide meat from socially and environmentally responsible
sources, but a court case found that meat had been imported from Latin America,
where rainforests were cleared to create green fields for cattle (Deng, 2009). Where
McDonalds carries out CSR processes or investments, it may wish to consider
carrying out random checks to ensure their standards are continually met, to
minimise embarrassing press.

Opportunities
Attractive and flexible employment
McDonalds offers a variety of job opportunities and is proud to say that 42% of its
top managers first started by serving customers (McDonalds, 2013). That the
company offers a selection of different shift patterns as well as employee benefits can
be seen as further reasons as to why McDonalds attracts employees.
Positive environmental commitments
McDonalds incorporates environmental commitments in its daily operations, from
the use of environmentally friendly products in maintaining daily drive-thru
cleaning, to providing sustainable fish sources, to using recycled packaging
(McDonalds, 2013). It was also a pioneer of using bio-diesel and recycling fat from
its fryers into a form of fuel.
Higher standards demanded from suppliers
McDonalds sets the standards it demands from suppliers for low cost high quality,
socially responsible supplies, in return for a long-term business commitment (Yuece,
2012).
Corporate Responsibility Committee

McDonalds has a standing Corporate Responsibility Committee that acts as an

advisor to its Board of Directors (McDonalds, 2013).
Honest and real brand image
McDonalds has built and maintains a trusting relationship with its shareholders and
customers through truthful marketing and communications (Harnack et al., 2008).

Threats
Fabricated stories about the quality of chicken
Emails and websites have published fabricated information that McDonalds is using
monster-chickens in its products. McDonalds could build on its open door policy
with the press and apply it to the web, to combat false distribution of information
(Kaplan and Norton, 2008).
Unhealthy foods for children
If competitors begin to offer premium healthy alternatives for children with small
gifts to encourage them to eat healthy, this would be a significant threat to
McDonalds (Kotler et al., 2013). McDonalds positive strategy to provide a range of
healthy products could include further healthy products for children in addition to its
present offering of carrot sticks.
Health concerns surrounding beef, poultry, and fish
There are various initiatives working against hormone induced cows and other issues
such as bird flu epidemics and heavy metal levels in fish that could reduce
McDonalds sales and cause profits and its share price to fall (Johnson, Scholes and
Whittington, 2008). McDonalds could use its purchasing power to its advantage to
source supplies that have proven health benefits. McDonalds greater work with local
farmers in the UK with regard to the sourcing of beef and eggs can be seen as a step
in the right direction in this regard.
Labour exploitation in China
Chinese manufacturers exploit labour in their production of Happy Meal toys
(Valax, 2012). McDonalds could use its purchasing power to its advantage to
demand that manufacturers provide toys without exploiting labour.

CSR at the risk of profit loss

If share prices and profitability are under pressure, managers will inevitably seek to
resolve it at the risk of a CSR issue (Ceres, n.d.).
Contributor to global warming
McDonalds is the largest consumer of beef in the world. Greenfields used to supply
this beef comes at the expense of rainforests, heavy use of chemicals, fertilisers and
pesticides (Ceres, n.d.). McDonalds could use its purchasing power to its advantage
to source CSR suppliers.
Local fast food restaurants
Local restaurants which are less environmentally threatening than McDonalds and
have less purchasing power may have better reputations with local suppliers and
customers (Wallop, 2014).
Political instability
Political instability can be a threat to the secure and continued operation of a
business. Even if local staff are employed, a tense political situation can cause areas
of operation to be closed, in the short- or long-term. An example of this relates to
McDonalds in the Crimea and in Russia; for the foreseeable future, McDonalds
restaurants are closed in the Crimea as a result of the Russian invasion. In
retaliation, Russia has temporarily closed a number of McDonalds restaurants in
Russia (Wallop, 2014).
From the above SWOT of McDonalds and the summary that follows it, it can be seen
how, by highlighting its position, an organisation can identify areas that could be
strengthened, seize opportunities, minimise threats and diminish or eliminate
weaknesses.
In summary, a SWOT analysis provides a systematic framework for appraising an
organisations internal and external position. It is a useful tool but it must be
constantly updated to enable the company to keep abreast of developments and
change its strategies accordingly. Whilst it may be difficult for management to
resolve all of the weaknesses and threats highlighted, the company is at least made
aware of them through the conducting of a SWOT analysis and can refer to them
when implementing future strategies. The McDonalds SWOT analysis case study

highlighted several CSR threats and weaknesses whilst simultaneously highlighting

strengths, such as its strong purchasing power which could potentially be used to
demand more socially responsible production techniques from its Chinese
manufacturers and meat suppliers. It also showed how a more proactive and longerterm approach to its strategies can help it to anticipate changing consumer tastes and
demands (Yuece, 2012).

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