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  • Strategic Decision-Making: When to Use a SWOT Analysis or Porter's 5 Forces

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    Planning and Decision-Making: these are startup objectives that are easy to conceptualize, yet hard to implement. Having a solid framework for planning your strategy can make the whole process run smoothly, but sometimes it can be difficult to choose the right framework for your business. Methods, frameworks, strategies often have fancy names and sound very impressive, but you need to dive deep and understand what each of these frameworks brings to the table—including their advantages and disadvantages. The SWOT Analysis and Porter’s Five Forces are two options for strategic models or frameworks that can be good options for determining you company’s next move. But what do they involve, and what are the advantages and disadvantage of these frameworks?

     

    Advantages and Disadvantages of Each Framework

     

    Both the SWOT Analysis and Porter’s Five Forces are intended to help companies determine their position in the market, for better goal-setting and strategic planning. However, they are used in very different contexts, and companies need to choose their focus carefully.

     

    Porter’s Five Forces

     

    Porter’s Five Forces is a good option for companies who want to get a better idea of what to expect from their competitors and the external market. It’s used to analyze opportunity in an industry’s external market to help predict sales, growth, and other factors. It was designed to help businesses determine whether entering an industry is a good idea or not. The five factors include the potential for new competitors, bargaining power on both the buyer and seller sides, potential substitutions, and current competition intensity.

     

    Advantages of this method are that it can give executives a good idea of the potential viability of a business concept that can inform initial decisions. The disadvantages are that it doesn’t offer much by way of internal reflection, and doesn’t indicate the viability of the business itself—only the industry.

     

    SWOT Analysis

     

    SWOT is an acronym that refers to Strengths, Weaknesses, Opportunities, and Threats. This method offers businesses insights on their potential and possibilities for failure. A SWOT analysis can offer some comparison to the external market, but it is focused more on the internal potential of the business.

     

    Advantages of the SWOT model are that it can be useful all different stages of the company’s growth, uncovering different opportunities as the company becomes larger and more established. This can lead to better goal-setting and long-term planning. It’s also simple, cheap, and can identify both problems and potential. However, the analysis can be one-dimensional, and doesn’t take into account the complexity of each factor in employee engagement or overall business success.

     

    Why Are They Used?

     

    Porter’s Five Forces can be a good option for a company about to enter a new market—possibly inter-state or international. Understanding the market before diving in is essential for a successful launch and implementation.

     

    The SWOT Analysis is typically used when there have been changes to a business that need to be evaluated. Especially when an organization goes through rapid growth, there are new challenges and opportunities that crop up, and SWOT can be a good way to structure the evaluation of these changes, and the new strategy they require.

     

    Which Model is Right for Your Company?

     

    Using the right tool for the right purpose is essential to success. Now that you know what the differences are between the SWOT Analysis and Porter’s Five Forces, you’re in a better position to assess which option is better for your business. Remember, a framework alone won’t determine your success, but it will help you stay organized and on track while helping you reach your goals. Whether you’re a health care startup on the cusp of explosive growth, or an established company looking for new opportunities, it pays to adopt the right framework for your needs.

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