One of the first things you learn in business school is the SWOT analysis. It's an incredibly simple, yet still powerful, tool to help you develop your business strategy. It is surprisingly effective whether you're building a startup or guiding an existing company. And one of the things about a SWOT analysis, is how straightforward it is.
As it's a framework, rather than a staged methodology, even a mini-SWOT (perhaps done on the back of a napkin while waiting for your barista to whip up your morning latte) can be useful. Then again, if you want to go deep, the SWOT approach can also serve to guide days worth of discussions.
So, if you need a refresher or you skipped SWOT class in first-year in business school, read on for a rundown on what's involved.
What is a SWOT Analysis?
First up, SWOT stands for: Strengths, Weaknesses, Opportunities and Threats. These are then typically split into the pairs of SW and OT - why this is done will become clear.
The first half, Strengths and Weaknesses, are both internal to your company. They are things you can control and change directly. Examples include:
- Who is on your team
- Your patents and intellectual property
- Your location.
The second half, Opportunities and Threats, represents external forces, events and other things that are going on outside your company's sphere of influence. They might be taking place in the market, in the economy, at a political level or even on a global scale (such as COVID-19).
These phenomena form the context within which your business operates. While you can't influence these factors, you can categorise them as either things to take advantage of (Opportunities) or things to protect against (Threats). Examples include:
- Prices of raw materials
- Customer shopping trends.
Usually taking the form of a box grid or four lists side-by-side, the SWOT analysis brings clarity on the major aspects of your trading environment that can help guide your company through highs and lows.
How to conduct a SWOT analysis
While there are various ways to conduct a SWOT, we have found that a straightforward 8-step approach serves well.
1. Decide on the objective of your SWOT analysis
To get the most out of your SWOT analysis, you should have a question or objective in mind from the start. For example, you could use a SWOT analysis to help you decide if you should introduce a new product or service.
2. Research your business, industry and market
Before you begin the SWOT analysis you need to do some research to update your understanding of your business, industry and market. Get a range of perspectives by talking to your staff, business partners and clients. Also, conduct some market research and find out about your competitors.
3. List your business's strengths
Getting into the meat of the SWOT analysis, you should next identify and list what you think are your business's strengths. Examples could include your employees, financial resources, business location, cost advantages or competitiveness.
At this stage of the SWOT analysis, your strengths list does not need to be definitive. Any ideas and thoughts are welcome. Braindumps are encouraged. (The refining process occurs in Step 7.)
4. List your business's weaknesses
List things in your business that you consider to be weaknesses (i.e. that put your business at a disadvantage). Weaknesses could include an absence of new products or clients, staff absenteeism, a lack of intellectual property, declining market share, throughput difficulties or distance to market.
5. List potential opportunities for your business
Think big about the possible external opportunities for your business. If the strengths list identified what you have got, then the opportunities list covers what you can do with it.
What you write for this stage will not be necessarily definite. Further, an opportunity for one aspect of your business could be a threat to another. For example, you may consider introducing a new product to keep up with consumer trends but have a production line that's already overstretched. While you should keep this sort of scenario in mind, for the purposes of a SWOT analysis the same item shouldn't be listed as both Opportunity and Threat.
Examples of opportunities could include new technology, training programs, partnerships, a diverse marketplace and a change of government.
6. List potential threats to your business
In the last list, set down the external factors that could be a threat or cause a problem for your business. There's no set "degree of risk" that qualifies whether a factor should be included here - write it all down. Even small threats, if left unresolved, can snowball into disasters later on.
Examples of threats include unemployment rates, industrial action, increasing competition, interest rate fluctuations, commodity prices and the uncertainty of global markets.
7. Establishing priorities from the SWOT
When you have completed the steps above, you will have four separate lists. We prefer the side-by-side approach as it doesn't constrain how long each list can be. Viewed as a whole, these four lists illustrate the overall picture of the salient factors upon which your business depends and within which it operates.
From this view, you can then work out what issues are the most pressing and what can be dealt with later. By prioritising the items in your lists according to their criticality, you can ensure you're putting out the fires before starting the renovations, so to speak.
8. Develop a strategy to address issues in the SWOT
The basic approach to reviewing your prioritised lists begins with asking a series of questions that play one factor off against another:
- How can we use our Strengths to take advantage of the Opportunities identified?
- How can we use these Strengths to overcome the Threats?
- What do we need to do to overcome the identified Weaknesses in order to take advantage of the Opportunities?
- How will we minimise Weaknesses to mitigate the Threats?
Think hard and write your answers down. Once you have answered, you can now use the SWOT analysis to develop strategies for achieving your business goals. It's good practice to revisit your SWOT annually. In this review, pay special attention to changes in the Weakness list: this is often a good yardstick for the pace and form of your business's evolution. Also, as old entries on the Weakness list are resolved, unexpected new ones tend to emerge.
Harness the power of SWOT analysis
Like any tool, a SWOT analysis is only as good as how it is used. To get the most from the exercise, it might be useful to sit down with a "sounding board" person - someone who knows your business well, but is not necessarily part of it. Or, you can just start your SWOT on a napkin at a cafe.
The important point is that conducting a SWOT works for your business and helps you pursue your professional goals. After all, isn't that why you're in business anyway?
Need help conducting a SWOT analysis? Get in touch today to see how we can help you kick a goal.