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Analysing Strategic Position
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Teaching Business
SWOT Analysis
A clear guide to SWOT analysis, covering how strengths, weaknesses, opportunities and threats help businesses assess their strategic position and make better decisions.
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Created by an experienced Head of Business and examiner
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KEY POINTS
SWOT analysis is a strategic tool used to assess a business’s current position.
Strengths are internal factors that give a business an advantage.
Weaknesses are internal factors that may limit performance or competitiveness.
Opportunities are external factors that a business could exploit.
Threats are external factors that could damage performance or increase risk.
SWOT analysis can help managers make decisions about growth, competition, investment and change.
The usefulness of SWOT depends on the quality of the evidence used.
Strong exam answers explain how a business could use SWOT to make better strategic decisions.
KEY DEFINITION
SWOT Analysis
SWOT analysis is a strategic planning tool that assesses a business’s internal strengths and weaknesses and its external opportunities and threats.
Main Explanation
SWOT analysis is a strategic tool used to help a business assess its current position. It considers four areas: strengths, weaknesses, opportunities and threats. Strengths and weaknesses are internal factors, while opportunities and threats are external factors.
Strengths are internal features that give a business an advantage. These might include a strong brand, loyal customers, skilled employees, efficient operations, good cash flow, high-quality products or unique expertise. A business can use its strengths to compete more effectively or support future growth.
Weaknesses are internal factors that may limit performance. These might include poor customer service, weak cash flow, outdated technology, limited production capacity, high staff turnover or a narrow product range. Identifying weaknesses is important because managers can decide whether they need to improve them before pursuing a new strategy.
Opportunities are external factors that a business could exploit. These might include market growth, changes in customer tastes, new technology, overseas expansion, competitor weakness, economic growth or new distribution channels. Opportunities can help a business increase sales, develop new products or enter new markets.
Threats are external factors that could damage the business. These might include new competitors, rising costs, economic downturns, changing laws, supply problems, new substitutes or changes in customer behaviour. Threats may reduce sales, increase costs or make a strategy more risky.
SWOT analysis is useful because it brings together internal and external information. This helps managers think more carefully before making strategic decisions. For example, a business may identify an opportunity to expand online, but SWOT may also reveal that its weakness is poor digital capability. This could affect whether expansion is realistic.
SWOT can also help a business match strengths to opportunities. A business with a strong brand and loyal customers may be well placed to launch a new product. A business with efficient operations may be able to respond to a competitor’s price cuts more effectively. This makes SWOT useful when considering strategic options such as growth, diversification or repositioning.
However, SWOT analysis has limitations. It can become a simple list if managers do not prioritise the most important factors. A long SWOT table is not useful unless it helps the business make decisions. Some factors may also be subjective, meaning managers may overestimate strengths or underestimate threats.
SWOT analysis is also only as good as the evidence behind it. A business should support its SWOT with market research, financial data, competitor analysis and external environment analysis. Without reliable evidence, SWOT may create false confidence or lead to poor strategic decisions.
Overall, SWOT analysis is most useful when it is applied to a specific decision. Strong exam answers should not simply list strengths, weaknesses, opportunities and threats. They should explain how these factors affect the business’s strategic options and judge which factors are most important.
✎ EXAMINER TIP
When using SWOT analysis in an exam answer, do not just produce a list. Explain which factors matter most, how they affect the decision and whether the business has the resources to respond.
KEY FORMULAS(s)
Profit and Profitability Formulas
These key formulas help you calculate different profit measures and profitability ratios used in business.
Gross Profit
Gross profit = Revenue − Cost of sales
The profit made after deducting direct costs.
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Remember: profit shows how much money has been made, while profitability shows how efficiently revenue is being turned into profit.
DATA TABLE
Income Statement for North Coast Coffee Ltd
This statement shows how revenue is converted into gross profit, operating profit and net profit.
Revenue
£250,000
Output
Fixed Costs
Variable Costs
Total Costs
Revenue
Profit / Loss
0 candles £1,200 £0 £1,200 £0 -£1,200
Net profit is the final profit remaining after all costs and expenses have been deducted from revenue.
Using SWOT to Make Strategic Decisions
This chart shows how managers can connect strengths, weaknesses, opportunities and threats to possible strategic actions.
WORKED EXAMPLE
Worked Example: North Coast Coffee
How many coffees must be sold to break even?
Fixed Costs
£1,800
equity + long-term debt
Break-even output = Fixed costs ÷ Contribution per unit
Contribution per unit = Selling price − Variable cost
£3.50 − £1.10 = £2.40
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Step 1: Calculate contribution
£3.50 − £1.10 = £2.40
Contribution per unit is the amount each coffee contributes towards fixed costs.
BREAK-EVEN OUTPUT:
750 coffees per month
EXAM TIP
Always explain what the number means for the business. Do not just calculate the break-even point.
SWOT Analysis: Internal and External Factors
This diagram shows how SWOT analysis separates internal factors, such as strengths and weaknesses, from external factors, such as opportunities and threats.
APPLICATION
Willow & Finch Homeware
Willow & Finch Homeware sells candles, cushions, storage baskets and small decorative items through its website and a small city-centre shop. The business has built a loyal local customer base, but online competition has increased and customers are becoming more careful with spending.
One strength is the business’s reputation for distinctive handmade-style products and friendly customer service. This helps Willow & Finch build loyalty and gives customers a reason to choose it instead of a larger online retailer.
One weakness is its limited marketing budget. The business relies heavily on social media posts and repeat customers, which may make it harder to reach new customers outside the local area. It also has limited storage space, so it cannot always buy stock in large quantities.
One opportunity is the growth of online shopping for homeware and gifts. Willow & Finch could improve its website, offer gift bundles or use email marketing to encourage repeat purchases. It could also target customers looking for more personal and carefully selected products.
One threat is competition from larger retailers that can offer lower prices, faster delivery and wider product ranges. If customers become more price conscious, Willow & Finch may find it harder to maintain sales without discounting.
SWOT analysis could help the owners decide whether to invest in online growth. However, the decision would need more than a list of factors. The owners would need to judge whether their strengths, such as customer loyalty and product style, are strong enough to overcome weaknesses such as limited finance and storage capacity.
This independent educational case study is not affiliated with, endorsed by or sponsored by Greggs plc. Any financial figures used alongside this example should be treated as simplified or hypothetical estimates created for teaching purposes.
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ANALYSIS
EXAM FOCUS
Analysis questions require you to examine a business concept or issue in detail, breaking it down into its component parts. You should explain how and why something happens and consider its impact on the business.
How to Approach Analysis Questions
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Identify the key issue or concept
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Break it down
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Explain how and why
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Reach a reasoned conclusion
Read the question carefully and highlight the focus of the analysis.
Consider the different factors, causes or impacts related to the issue.
Provide clear explanations using business terms and links points to context.
Evaluate the overall implications for the business.
Example Analysis Question
North Coast Coffee is considering using break-even analysis before opening a second café.
Advantages
• Sales forecasts may be inaccurate.
• Assumes costs and revenue remain constant.
• External factors may reduce reliability.
• Ignores qualitative business factors.
Disadvantages
• Sales forecasts may be inaccurate.
• Assumes costs and revenue remain constant.
• External factors may reduce reliability.
• Ignores qualitative business factors.
Key Exam Tip
If you find it difficult to expand your answer and show the type of depth that an examiner is looking for in a top response, consider using the 'so what' approach.
Tesco carry out market research - so what? - this allows them to better understand customer needs - so what? as a result Tesco can provide goods more likely to sell - so what? - this will increase Tesco profit and ensure higher levels of customer satisfaction - so what? this means that customers are likely to become more loyal to Tesco.
Avoid These Exam Traps
Students often lose marks on calculation and analysis questions by making these mistakes. Watch out for them in your exam!
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Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Tip:
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
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Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Tip:
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
3
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Tip:
Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.
Be precise. Read the question carefully. Show your working.
Small mistakes can cost big marks.
EXAM PRACTICE
Practice Question
Apply your knowledge of profit and profitability to answer this exam-style question.
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MINI CASE STUDY
North Coast Coffee Ltd is a premium coffee business which sells freshly roasted coffee beans through its online store and a small chain of independent cafés. The business has experienced strong sales growth due to increasing demand for high-quality speciality coffee products.
The business generates annual revenue of £250,000. Its cost of sales, including coffee beans, packaging and direct production costs, totals £100,000. North Coast Coffee Ltd also faces operating expenses of £80,000, including marketing, employee wages, rent and administration costs. In addition, the business pays £20,000 in interest and taxation each year.
The owner, Mia Thompson, is reviewing the company’s profitability because rising wage costs and increased competition in the premium coffee market have started to place pressure on operating profit margins. She is considering increasing prices slightly in order to protect profitability while still maintaining customer demand.
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EXAM QUESTION
Analyse the possible reasons for BrightBite’s falling profit margins and evaluate strategies it could use to improve profitability.
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HOW TO ANSWER
P
Point
E
Explain
A
Apply
C
Consequence
H
However...
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MODEL ANSWER
P
Point
Increasing prices could improve the profitability of North Coast Coffee Ltd because each sale would generate a larger amount of revenue and potentially increase profit margins.
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EXAMINER TIP
For full marks, make sure you analyse causes rather than just listing them, and evaluate realistic strategies with clear judgement. THINK: Which strategy would have the biggest impact and why?
CALCULATOR
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