Currently, every manager has many analytical methods at hand to identify the advantages and drawbacks of an organization and explore opportunities for further development. However, due to relative simplicity and sufficient effectiveness, lately, a SWOT analysis has become one of the most frequently used approaches. The primary aim of this paper is to describe the history, purpose, and parameters of a SWOT analysis and compare it with other prominent tools such as financial audit, performance review, and Lean Sigma Six.
Before undertaking any business or analyzing the current course of an enterprise, every manager utilizes various financial, exploratory, and prognostic methods, such as SWOT or SVOR analysis, financial audit, or PEST analysis, among others. They help entrepreneurs to reveal threats and risks, opportunities and perspectives, vulnerable points, and new ways for economic and technological progress. Thus, this paper aims to describe the main aspects of SWOT analysis, namely, its history, purpose, and mechanism, as well as compare it with other tools, including financial audit, performance review, and Lean Sigma Six.
Description of SWOT Analysis
It is worth noting that the origin of the acronym SWOT remains obscure, and there are many assumptions about its development. Primarily, this method was attributed to Albert Humphrey, a management consultant from Stanford Research Institute, who worked on its development of SOFT analysis that was transformed into a SWOT analysis in the 1960s and 1970s (Friesner, 2011). However, some authors credit this tool to two professors from Harvard Business School Policy Unit, namely, George Albert Smith and Roland Christiensen, who were engaged in its design in the early 1950s (Friesner, 2011). Finally, the most reliable fact is that a professor from HBS Policy Unit, Kenneth Andrews, developed a SWOT analysis application in the late 1950s and its form that is known today.
The central goal of SWOT analysis is to evaluate the current state of an organization and its preliminary potential before implementing a particular strategy or business venture. In other words, SWOT analysis is a strategic planning method that deals with identifying factors of the internal and external environment of the organization, which contribute to attaining specific objectives both favorably and adversely (Grant, 2020). Specifically, the tool helps an organization examine its strengths, weaknesses, opportunities, and threats. By exploring and reflecting on these four parameters, an entrepreneur tries to gather and produce valuable information to determine the company’s competitive advantage.
While analyzing the strengths, a manager should think about what the company’s characteristics distinguish it from rivals and give it a competitive advantage over them. In particular, such features include the unique technology of production, loyal customer base, famous brand, and image, or even considerable material resources. Regarding weaknesses, a manager should identify problematic areas that hinder an organization from running at an optimal level and inhibit its progress. A high employee turnover rate, poor brand image, weak consumer awareness, a need for capital, or a high amount of debt may be among the problems (Grant, 2020). It is also worth noting that any businessmen should take a close look at this stage since it is critical for the success of a project planned to be realized.
When determining opportunities, a manager focuses on investigating conducive external factors that can be exploited to the company’s competitive advantage to increase sales and market share. In particular, these factors can comprise reducing the tax burden in certain regions, growth of the population well-being, favorable changes in demands or tastes, government programs for development, and interest-free or low-interest loans. On the contrary, threats are elements in the business environment, which show the potential to cause damage to an organization or project. Adverse climatic conditions, such as incessant rains or prolonged drought, as well as wars, unstable economic situations, crises, natural disasters, are only a few factors that can harm business activity. Overall, considering opportunities and threats, an entrepreneur gains a holistic picture regarding the chances of a planned venture to be realized.
Comparison of SWOT Analysis
In the general sense, a financial audit is the verification of financial statements and the expression of opinion on their reliability by established criteria and standards. This is a precautionary measure that allows for optimizing many business processes and assessing the market value of the acquired business. Besides, it facilitates identifying hidden investment-related risks and checking the performance of the accounting department (American Institute of Certified Public Accountants, 2016). Overall, a financial audit enables a company to take control of the cash flow system and avoid unnecessary expenses.
While comparing a SWOT analysis with a financial audit, it should be indicated that the former also implies investigating the organization’s financial position by considering the opportunities for capital access. However, this investigation is superficial without an in-depth analysis of financial statements and their subsequent verification. Moreover, SWOT analysis examines the commercial potential of a company based on the information derived from a financial audit.
A performance review is a formal assessment in which the employer discusses the results of work performed by an employee for a particular period. During this meeting, the manager expresses his opinion about the employee’s performance, emphasizes the positive and negative points, thanks for the excellent work, or gives constructive criticism if the results are lower than expected. In this respect, SWOT analysis also considers managerial resources and the impact of the employees’ performance on the organization’s development while exploring its advantages and weakness. Nevertheless, performance appraisal is not the primary task of SWOT analysis; it can only be of significant help for a more accurate examination of the company’s opportunities.
Lean Sigma Six
Lean Sigma Six is an integrated methodology based on American and Japanese methods, namely, Lean manufacturing and Six Sigma. In particular, the first concept is aimed at reducing losses and production wastes and accelerating the production of finished products, while the second focuses on improving the quality of products and customer loyalty. This time-tested approach primarily relies on the appropriate corporate culture and shared efforts of a team that should be genuinely involved in all production processes to minimize defects, waste, and non-utilized talent. In this context, Lean Sigma Six has many similarities with SWOT analysis since they are both directed at identifying weak areas and opportunities for growth. Nonetheless, Lean Sigma Six implies more significant transformation processes and decisions and, in many cases, uses the information obtained in SWOT analysis.
In summary, the paper has given a detailed description of a SWOT analysis by indicating the key facts of the development, its purpose, and main parameters, that is, strengths, weaknesses, opportunities, and threats. Notably, the approach aims to evaluate the current state and potential of an organization before applying a specific strategy or business project. In addition, the paper has conducted a comparison of a SWOT analysis with other methods usually used while developing a particular plan, including a financial audit, performance review, and Lean Sigma Six. It is worth noting that SWOT analysis is most similar to Lean Sigma Six since they are both intended to reveal the opportunities and weaknesses of an organization.
American Institute of Certified Public Accountants. (2016). Assessing and responding to audit risk in a financial statement audit. AICPA.
Grant, M. (2026). Strength, weakness, opportunity, and threat (SWOT) analysis. Investopedia. Web.
Friesner, Tim. (2011). History of SWOT analysis. Marketing Teacher.