Examples of Threats in SWOT Analysis

SWOT Analysis

SWOT analysis is the process of conducting research into the resources and environment of a business to assess its current position and to develop distinctive strategic planning. The term SWOT stands for strengths, weaknesses, opportunities, and threats, which are the four components of SWOT analysis. This analysis is planned to enable a fact-based, realistic, data-focused analysis on the strengths and weaknesses of an organisation along with the external opportunities and threats present in the environment.

Understanding SWOT Analysis

SWOT analysis is done as the part of strategic analysis, which in turn is the part of strategic management, the process of setting long-term goals and making corporate strategies to achieve those goals. Strategic management has the following three parts:

Strategic Analysis

This is the process of doing research within the business and into its external environment in order to assess the competitive position of the business in terms of its competitors, market, and environment. SWOT analysis is a strategic analysis tool. Other tools are PESTEL analysis, core competencies, and five forces analysis.

Strategic Choice

This part of strategic management is involved in evaluating and selecting a suitable strategy or strategies to achieve the long-term goals of the business.

Strategic Implementation

This is involved in putting the chosen strategy into effect.

The whole process of strategic management is based on the quality of information, which is collected through SWOT analysis and other techniques of strategic analysis. 

Components of SWOT Analysis

Every SWOT analysis is comprised of four components, but the discoveries and elements within these components differ from company to company. Strengths and weaknesses are internal factors, while opportunities and threats are external factors. A SWOT analysis is not complete without these following components:

Strengths

The strengths in SWOT analysis are the internal resources at which the company is good. These internal strengths explain what a company is skilled in and differentiate it from its competition. Some other examples of a company's strengths can be a loyal customer base, unique assets, a strong brand, advanced technology, distinctive capabilities, skilled and experienced human resources, and a strong balance sheet. 

A business might have a young, energetic, motivated, skilled, and loyal workforce as its strength. This strength can be used in achieving competitive advantage. 

Weaknesses

The weaknesses in SWOT analysis restrict a business or organisation from performing at its ideal level. A company’s weaknesses are those areas where this business needs to refine to stay competitive, like a weak brand, cumulative large debts, higher-than-average turnover, lack of capital, poor cash flows, and supply chain disruptions.

Opportunities

In SWOT analysis, opportunities are some favourable external factors that can provide the competitive advantage to a business.

For example, if a particular country reduces tariffs, then a car manufacturer can export its car products into a new market, generate adequate sales, and capture a significant market share.

Threats in SWOT Analysis

Threats in the SWOT analysis are those factors that have the significant potential to cause harm to the business in the future. Threats can be referred to as negative external factors that do not provide any advantage to a company. They can be anything and cause harm to a company’s profitability. It is important to understand the potential threats and how to overcome them when they come up. A company can overcome its threats by identifying its strengths.

For example, a drought can be a threat for a wheat-producing company. Because drought can reduce or completely destroy the crop yield. Other threats are continuously increasing competition, regulatory changes, poor economic conditions, increasing material costs, compact labour supply, etc.

Examples of Threats

The following points explain some examples of a company's threats.

Customers

Customers can be loyal to your brand or interested in trying new things. A change in the taste of customers can be a threat for a business.

Sometimes, customer needs or preferences may change, like a customer wants a fragrance-free shampoo while another customer’s need is the pure organic shampoo. The customer’s preference changes every second.

Consumer’s perception may also change, like a customer losing interest in your brand and preferring your competitor’s stand on animal-free product testing.

Issues of customer service can also lead your client to shift to your competitors, like a customer who had a bad experience buying or returning a product, and then destroy the image of your company by giving a bad review on social media.

Competition

It is a common type of threat for a business. A new competitor may enter the market and try to take the customers and profits away from the business. Competitors may introduce a new product or similar product with reduced prices, improved quality, and a nearby location, or may start selling through e-commerce. For example, a recently opened coffee shop in a nearby location can attract more customers by offering lower prices and offering promotions.

Costs

A change in the market price or product supply costs can also be a major threat to a company. For example, if the material cost of steel increases, companies cannot increase their prices without risking sales.

Quality

If the quality of product offerings decreases, the company would eventually lose its customers. For example, a manufacturing mishap could produce defective products that affect the company’s market reach.

Financial Conditions

Some potential financial threats can be higher interest rates, recessions or economic downturns, and stock market conditions. For example, a luxury car business can experience reduced sales because of a high interest rate. This is due to the fact that many customers buy cars through the bank lease option, and a higher interest rate means that the cars will be expensive for customers who may delay or cancel their purchase of cars.

Supply

The limited availability of materials to produce a product and then sell it in the market can be a potential threat to a company. For example, a restaurant cannot make its famous recipe if there is a shortage of some main ingredients. Some stores also cannot stock their shelves if the imported products are not shipped on time.

Regulations

Some changing or new regulations can also affect the profitability, productivity, or services of a company. For example, new civil codes may restrict a construction company to having necessary construction warrants.

Weather Conditions and Natural Disasters

These are some major threats that a company faces in its life cycle. Natural disasters and weather conditions are severe external factors or threats that can never be prevented, but a company can prepare itself in order to reduce the risk associated with them. For example, a travel agency can guide its clients about cancellation policies made particularly for bad weather. Another example is that if a storm or hurricane arises, a cruise ship can also plan an alternative route. 

Steps to Perform a SWOT Analysis

There are many ways to perform a SWOT analysis; however, some main steps are:

Deciding Core Objective

A SWOT analysis can be done correctly if the analysis is done according to the core objective. For example, the main purpose of a SWOT analysis is whether or not to introduce a new product or enter a new market.

Collecting Information

The next step is to collect information. A company may need to collect different data to support different SWOT analysis tables. Companies can start by understanding what type of information is accessible, what type of data restrictions they may face, and how reliable these external data sources are.

Organising Ideas

Companies perform this step as a sticky notes session or whiteboarding session. In this, there is no concept of a right or wrong answer. All participants are encouraged to share what their opinions and thoughts are. These can later be removed; the purpose of this step is to come up with as many items as possible to plead creativity and innovation in others.

Filtering Findings

The list made in the third step has multiple ideas within each category; these ideas are filtered in this step. Everyone’s thoughts are refined in this step, and then the company can only focus on the best ideas or largest risks for them. At this stage, there is a fundamental debate among participants of the analysis, along with upper management helping rank priorities.

Developing the Strategy

In the last step, the SWOT analysis then turned into a strategic plan. The members of the analysis team take the list of items within each category and make a unified plan that provides guidance and information about the original core objective.

Conclusion

In conclusion, SWOT analysis is a technique or framework for evaluating the performance, risk, competition, and potential for a company as well as a part of that company, like a division or product line, an entity, or other industries. Threats in SWOT analysis help companies prepare for potential risks associated with market conditions. By knowing these threats, businesses can make strategic plans to remain in the market. Companies can also overcome their threats and weaknesses by knowing their key strengths and opportunities.