The environment in which a firm works may be useful or harmful. This is known only when the environment is analyzed by using analytical models, and the SWOT model is the best to describe the same. SWOT is an acronym used to describe strengths, weaknesses, opportunities, and threats, which represents characters of the environmental parameter.
This means each of the parameters of the microenvironment can be a strength or weakness, while each of the parameters of the macro environment can be an opportunity or threat. SWOT analysis is an important analytical technique used in strategic management to identify core competencies as well as the lack of appropriate resources. The basis of SWOT analysis is the essence of strategy is the opportunity decided by capacity. An opportunity itself has no real value unless a firm has the capacity to take advantage of the opportunity. But weaknesses in other resources can also prevent a strategy from being successful.
Therefore, SA = O ÷ S – W or SA = O ÷ S – T,
where SA – strategic alternative, O – opportunity, S – strength, T – threat.
Thus, analytical models like SWOT offer simplistic explanations through strategic factors analysis summary to know and identify all feasible strategic alternatives in a given macro or microenvironment.