An important responsibility of any entrepreneurial business leader is to conduct a periodic analysis of their company's operations and performance in the marketplace. This investigation is typically conducted on a semi-annual or quarterly basis and is meant to illuminate company strengths and weaknesses.
Among the many analytical techniques employed for such a task, the S.W.O.T. Analysis is a popular, and simple to understand methodology.
S.W.O.T. is a common technique used in strategic business planning. The acronym stands for Strengths, Weaknesses, Opportunities and Threats.
S.W.O.T. is analytically diagnostic in nature, which offers the added value, in theory, of being strictly factual. The exercise involves defining a specific objective for the business, and then identifying the internal and external factors that either benefit or harm the process of achieving the company’s objective.
Another added benefit to S.W.O.T. is the methodology’s flexibility.
The analysis can be effectively applied to a whole company, a product, service, market, industry, or even an individual.
Here, we examine the S.W.O.T. methodology and how it can benefit a business's quest to improve their processes and enhance their growth.
The Elements of SWOT
The following chart illustrates the S.W.O.T. analysis in simple terms, which can effectively guide the effort to strategically and analytically review a business.
Strengths represents the aspects of your business that have allowed, or will probably allow, your company to achieve and sustain success. Strengths can be interpreted as the competitive advantages of your business compared to the existing competition. Strengths should be identified with as much specificity as possible.
Here are some valuable questions to ask to discover your business strengths:
Questions To Ask:
What are the company’s advantages ?
What are your company’s assets ? (People, Knowledge, I.P., Network, Distribution, Clients. Etc...)
What do you do better than the competition ?
What are your unique resources ?
What are your perceived market strengths ?
What determines your sales ?
What is your unique selling proposition ?
Weaknesses represent the aspects of your company that place the business at a disadvantage relative to the existing competition. Weaknesses are usually found in the areas of your business that are least valued or enjoyed by management.
Overtime, specific weaknesses can be addressed a business grows. However, depending on your business, some weaknesses must be addressed before any growth is possible. Strengths can sometimes overcome weaknesses, but as a company matures entrepreneurs must effectively address the weaknesses before they become constraints to growth.
Here are some valuable questions to ask to discover your business weaknesses:
Questions To Ask:
What could be improved ?
What should be avoided ?
What limitations exist preventing growth ?
What do competitors think your weakness is ?
What factors lead to the loss of sales ?
What is your business lacking ?
Opportunities represents specific elements in the environment your company operates in that the business could exploit to it’s advantage. Opportunities can be interpreted as the actions you can perform today that can transform into the company strengths of tomorrow. Entrepreneurs should examine every possible component of their business from sales, marketing, and operations to bookkeeping, to discover opportunities that can improve their bottom line.
Here are some valuable questions to ask to discover your business opportunities:
Questions To Ask:
What opportunities exist ?
What opportunities can we seize ?
What trends are impactful ?
What competitor weakness can we exploit ?
What is the perception of our business ? Positive or Negative ?
Threats represent specific elements in the environment your company operates in that could harm the performance of the business. Threats can emerge from either within or outside a business.
Threats from within include; poor relations with suppliers, neglecting or losing customers, and or losing a key employee, investor or advisor. Outside threats include; new or growing competition, new regulations, and evolving customer habits.
Here are some valuable questions to ask to discover your business threats:
Questions To Ask:
What obstacles face the company ?
What is the competition doing ? Working on ?
What technology threatens our company ?
What industry standards are changing ?
What risks is your company taking ?
What shifts in customer behavior are apparent ?
What legislation could impact our company ?
What is our financial health ? Are there debt or cash flow problems ?
What internal weakness threatens the company’s success ?
For any SWOT analysis, entrepreneurs should practicing adopting both an internal and external perspective of their company, and always consider the point of view of the customer. Customers and other relevant market participants are a great source of objective evaluation and will clearly identify the core competencies of your business.
To further simplify these terms and guide your analytical efforts, a good S.W.O.T analysis groups these 4 elements; strengths, weaknesses, opportunities and threats, into two main categories; internal & external factors.
Strengths and weakness are often internal factors of your business, while opportunities and threats are typically considered external factors that might affect your business.
Represents the strengths and weakness within your business that impact your operations. Strengths should be leveraged to maximize positive returns, while weaknesses should be identified and mitigated wherever possible.
Represent the opportunities and threats that exist outside of the business that could impact your operations. Opportunities represent the external situations that bring a competitive advantage if properly seized. Threats represent external situations that can damage your company and should be avoided.
Entrepreneurs who implement a S.W.O.T analysis should be conscious of the events that happen outside of their company because changes in the market can significantly alter the operating conditions of your business, creating both new threats and new opportunities.
Examples of external factors beyond the control of any individual company include; macroeconomic conditions, industry trends, technological evolution, new and transformative legislation, as well as socio-economic and cultural changes.
Always consider the new trends and closely follow the technologies that can impact your business in favorable or disastrous ways. Closely watch your direct and indirect competitors, and pay particular close attention to the market leaders of your industry because they can serve as valuable guides of what direction you should lead your business.
Relationships Within SWOT
The information gathered within each area of a SWOT analysis, when corroborated together, can reveal interesting insights about your business and it's potential to maximize the future.
For instance, close parallels or correlations between the strengths and opportunities of a business can indicate conditions that can allow for an aggressive growth strategy.
Similarly, strong correlations between weaknesses and threats of a business can indicate conditions that should be interpreted as a warning, and a call for a defensive or conservative strategy growth strategy.
Moreover, entrepreneurs should be aware that interpreting the results of their SWOT analysis as strengths or weaknesses will depend on how they affect the objective of the business. What may be considered a strength for a particular objective could be determined a weakness for a different objective.
Therefore, it is important to clearly identify the goal the business is working towards and objectively relate the strengths and weakness that impact achieving the objective.
The relationships between the strengths, weaknesses, opportunities and threats of a business will determine the form of strategy that should be implemented to improve the operations of a company and strategically prepare for growth.
When To Use SWOT
Broadly speaking, a SWOT analysis can be employed for a variety of objectives. Central to the system is discovering specific and valuable pieces of information that impact the performance of your business.
The SWOT methodology is best leveraged when entrepreneurs attempt to:
Solve Existing Problems.
Explore New Solutions.
Decide On Strategy.
In each case, the purpose of SWOT is to reveal key insights that can then be leveraged to improve the efficiencies of your business and produce better economic results.
Areas of SWOT
During any SWOT analysis, entrepreneurs should be aware that some strengths or weaknesses can be recognized instantly, and without a deep examination of their business. However, discovering every strength and weakness of your business is a challenge, and requires more than one set of eyes to accomplish.
Illuminating strengths and weakness is typically a process that requires business leaders to closely examine the following elements of their business.
- Brand Equity
2. Core Competencies:
- Unique differentiation
- Proprietary technology
- Intellectual Property
- Resources on Hand/Easily Acquired
- Human Capital
4. Functional Areas:
- Human Resources
5. Organizational Culture:
6. Value Chain Activities:
- Research & Development
- Public Relations
All of these business elements are valuable areas to examine your business. The can be broadly grouped within the 3 Ps; Product, People and Processes. The deeper you examine each area of your business the greater clarity you will discover about the specific strengths and weaknesses of your company.
Entrepreneurs should be encouraged that applying significant effort to produce a detailed analysis will yield impactful insights on how your business operates, and how it’s resources can be better leveraged to improve the performance of the company.
To conduct an effective SWOT analysis, consider the following guideline:
A. Identify factors relative to competitors.
B. List only between 3 – 5 items for each category.
C. Clearly define items as specifically as possible.
D. Rely on facts, not opinions.
E. Factors should be action orientated.
The value of a SWOT analysis rests in the objectivity of the individuals conducting the analysis.
The key to a good SWOT analysis is be realistic and rigorous, and individuals within your company who are not directly responsible for the subject of the SWOT analysis, are the best positioned to provide objective results.
The SWOT methodology is also an effective way for entrepreneurs to better understand competitors, evolving market trends, and the resources your company should tap to succeed over the long term.
Moreover, SWOT analyses are equally useful for brainstorming, objective formulation, as well as a more sophisticated strategic planning purposes.
The SWOT analyses represents a very effective way to begin any strategic planning process because it demands that business leaders clearly identify specific company strengths and weakness, from which steps can be created to achieve a strategic objective.
SWOT forces entrepreneurs to ask hard and specific questions about their business to generate meaningful information within each of the above listed categories. With a good S.W.O.T analysis, entrepreneurs can more easily determine what is objectively attainable given the resources available to their business.
The areas where SWOT can positively impact how a business develops it's strategic planning include:
SWOT helps clearly identify what the business intends to accomplish, and how it can accomplish the objective. Examining the strengths and weaknesses of a business can illuminate realistic objectives the business can achieve.
SWOT can facilitate how a company analyzes it’s portfolio of products and/or services in relation to their position in the marketplace. Objectively reviewing threats and opportunities can reveal where a company is positioned and where it can improve. This includes reviewing the product’s or service’s life-cycle and how it compares to competitor solutions.
SWOT can meaningfully simplify assessing how a current strategy is being executed by comparing the current results to the expected results. The methodology can also examine in simple terms how effectively resources were deployed to achieve the current status.
The diagnostic nature of SWOT lends it to be an effective tool to help the creation of new strategies. Understanding the strengths and weaknesses of your business allows for an objective perspective of the company’s capabilities and trajectory.
Clearly understanding the opportunities and threats of a business allows for establishing realistic objectives with clearly quantifiable critical success factors. This produces accountability, which improves the implementation of any strategy aligned towards a corporate objective. Results can be compared to expectations, corrective action can be efficiently taken, and strategies can be amended where necessary.
Objectively analyzing a companies strengths and weaknesses also reveal what resources are needed to achieve a certain strategic objective.
Benefits & Limitations of SWOT
Benefits of SWOT
Entrepreneurs who employ SWOT stand to gain or benefit from the methodology in the the following ways:
A. Simple to do and practical to use.
B. Clear to understand.
C. Focuses on the key internal and external factors affecting a company.
D. Helps to identify future goals.
E. Initiates further analysis.
Above all, SWOT promotes the objective discover of factors which either help or harm your business. With the right objective mindset, impactful strategies to improve your business can be easily identified.
Limitations of SWOT
Business leaders should be aware that the SWOT methodology also has a few limitations:
A. Excessive lists of strengths, weaknesses, opportunities and threats.
B. No prioritization of specific factors.
C. Factors are described too broadly.
D. Factors are often opinions not facts.
E. No recognized method to distinguish between strengths and weaknesses, opportunities and threats.
The main weakness of SWOT rests in how effectively the analysis is applied. Without enough detail and discipline, the insights a SWOT analysis yields will be insufficient and have little impact on your strategy.
A collaboratively executed SWOT analysis, with a high degree of objectivity and attention to prioritizing company factors that clearly align towards company goals, will generate valuable strategies. Once the results of a SWOT analysis are prioritized they can be leveraged to develop short and long-term strategies.
Specific SWOT items or factors that do not add value, or reveal insights to a specific strategy, should be disregarded. Only include or keep SWOT items that produces value. The purpose of the exercise is to illuminate the positive and negative influences on your business.
Entrepreneurs should also avoid the habit of using a SWOT analysis to defend or legitimize previously decided goals or strategies. Such an approach will lack objectivity, limit how real barriers are identified, and reveal the interests of management over the wellbeing of the company. Generally speaking, SWOT should be applied to forward thinking analysis that seek to clarify specific unknowns for the purpose of formulating an adaptive strategy.
To facilitate formulating your strategy consider examining how the strengths, weakness, opportunities and threats overlap one another.
For instance, identify your company strengths and then discover ways to leverage the strengths to maximize a specific opportunity. This approach will reveal strength-opportunity strategies.
Then you can leverage your company strengths to minimize the specific threats you SWOT analysis revealed. This approach discovers strength-threats strategies.
Similarly, overlapping the opportunities a SWOT analysis reveals against your company weaknesses will reveal weakness-opportunity strategies. These indicate the actions you can take to minimize company weaknesses based on an identified opportunity. Pairing weaknesses against threats reveals weakness-threats strategies, which reveals how you can minimize your company weaknesses to avoid identified threats.
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