SWOT approach takes its name from initial letters of four factors a firm need to examine, understand and deal for its effective management. These four factors are Strengths, Weaknesse, Opportunities and Threats.
Strenghts and weaknesses are factors that relate to the internal nature of a company, while opportunities and threats concern the nature of external environment faced by the company. These four factors have major impact on the strategic choices available of the company, and proper understanding of these is essential to achieve long term performance of the company.
Strengths of a company refer to the resources and skill available within the company that enable it to perform some of the business tasks better than others. A company needs to identify these strengths and find out ways of making best use of these strengths, including ways of improving in the areas of strengths.
The weaknesses are the opposite of strengths. These refers to the resources and skills that are important for the business but which are not available in the company in adequate measures. A company must find ways of minimising the negative impact of its weaknesses.
The strengths and weaknesses of the company influence the ability of a company to deal effectively with its environment. Examination of this environments in terms of opportunities that are offered by the environment, which can be used by the company for its benefit, and the likely threats faced by the company in future. helps the company identify decide on the future course of action that the company may take in coming times. Usually the opportunities available to a company are much more than a company can handle by itself. Therefor the company mus select the opportunities that it can best use in view of its strengths and weaknesses. Similarly the company mus take decisions on handling the likely threats in environment taking in consideration its strengths and weaknesses.