SWOT is the heart of Strategic Analysis. SWOT analysis is the process of carefully inspecting the business and its environment through the various dimensions of Strengths, Weaknesses, opportunities, and Threats. Strengths are the companies core competencies, and include proprietary technology, skills, resources, market position, patents, and others. Weaknesses are conditions within the company that can lead to poor performance, and can include obsolete equipment, heavy debt burden, poor product or market image, weak management, and others. Opportunities are outside conditions or circumstances that the company could turn to its advantage, and could include a specialty niche skill or technology that suddenly realizes a growth in broad market interest. Threats are current or future conditions in the outside environment that may harm the company, and might include population shifts, purchasing preferences, new technologies, or an increase in competition. As with most of the concepts presented in COMMON SENSE, SWOT in of itself will not give specific answers. Instead, it is a way to organize information and assign probabilities to potential events - both good and bad - as the basis for developing business strategy and operational plans.

Strategic analysis is presented here as a five step methodical process that will help to organize information and aid in planning. The key planning tools of SWOT include MBO and MBE. Management by Objectives (MBO) requires that each group or area of activity establish specific goals and objectives, which the group then commits to achieving. As long as the group has the required resources, then it is reasonable to expect them to achieve the goals. Management by Exception (MBE) works with MBO and comes into play when outcomes start to differ from expectations. At that time, the differences are brought to the attention of top management, and new strategies are evolved to deal with the change. Together, and through the process of strategic analysis, they help to form the strategic plan.