People are often afraid of the idea of SWOT analysis, not knowing that this can be an enjoyable and highly productive exercise. This process is almost always fast, and it allows you to have a whole new perspective on the original vision of the business.
SWOT analysis definition
SWOT analysis is an advanced strategic planning model that helps companies maximize the use of available resources to achieve their goals. An acronym, the term stands for strengths, weaknesses, opportunities, and threats. In short, SWOT analysis examines the company’s stable and vulnerable areas, as well as the options and risks on the road to success, and ultimately becomes the basis for formulating its core strategy.
How to perform SWOT analysis
The first thing to remember when conducting a SWOT analysis is to include people with different views and interests in your company. You want everyone — from top management to sales representatives and human resources managers — to have a say. In this way, you will develop a comprehensive strategy.
The analysis is usually done on a template with four squares, but it can also be in the form of a list with four categories. Finally, the important thing is the content.
In any case, this is where brainstorming can have a significant impact. No need to go into details at first. In fact, it is best to start with points that represent the points of each idea presented in all four quadrants. After brainstorming, you can sort out all the insights and list them by priority under the following headings:
Advantage
This is where all the positive attributes of an enterprise lie, including tangible and intangible. Examples of tangible assets include capital, existing customers, and technology. Intangible assets may include reputation, skills and education. In short, this part focuses on the company’s advantages and potential advantages over competitors.
weakness
Obviously contrary to the advantages, this part is dedicated to the areas that need work in the business. For example, lack of expertise or technology, poor location, low process efficiency, etc. The idea is to write down which areas are driving down the business so that appropriate corrective measures can be taken and the business can become more competitive.
opportunity
Opportunities are the conditions and resources that help companies prosper, such as cheap labor and recent market growth. It is also important to consider whether these opportunities already exist or whether you need to actively seek them out. If this is the case, timing is crucial.
threat
A threat can be anything that harms business strategy or itself. Some examples are negative market growth or new technologies that obsolete the company’s existing equipment. Threats should be outlined and brought to the attention of decision makers to contain them. Even if they are beyond the company’s control, the contingency plan developed will help the company survive when they occur.
Sample SWOT analysis
It is easier to understand SWOT analysis and its working principle by using actual samples. Take, for example, Thei’s Pasta, a gourmet pasta maker and cafe in downtown Seattle. They make fresh and authentic pasta in a variety of flavors, such as vegetarian, keto and zero sugar. They are considering opening a second branch in the city center. The following is an example of their SWOT analysis:
Advantage
- Experienced chef
- Places with a lot of people
- Effective marketing strategy
- Known for innovation
weakness
- Understaffed
- Increase rent
- Cash flow problem
- Inefficient record keeping
opportunity
- Known as the best noodles in the first branch area
- Avid customer
- High market growth
- The second branch has only one direct competitor
weakness
- Competitors serve food faster because they use packaged pasta
- The new spaghetti cafe is about to open
What’s next
SWOT analysis is useful, but it is not an end in itself. When you gain insight from the contrast between strengths and weaknesses, opportunities and risks, you turn it into a dynamic strategy. Finally, you should create a list of actual steps and goals based on their level of importance to ensure that you maximize the use of resources in the most critical areas.
When you assign priorities, you must check each item in the list carefully. And you should use specific, verifiable statements, not vague, unquantifiable concepts. For example, “cost savings of $15 per kilogram” is more maneuverable than “higher return on investment”.
Any corrective steps should be applied at the level of special needs. For example, if the product does not perform well, these measures must be taken at the product level instead of throwing it aimlessly at the entire company.
Before you take any action, it is important to determine the range through the cross-connections between the four quadrants of the SWOT matrix. This may mean using existing strengths or addressing current weaknesses to discover new opportunities. Although SWOT analysis is essential for formulating business strategy, it is best to use it in conjunction with other tools such as USP analysis and core competence analysis.
When to perform SWOT analysis
Companies (or sometimes individuals) usually conduct a SWOT analysis before making major decisions (such as adding a new location or opening a franchise business). After the first round, you will test your outcome strategy and then review it side-by-side with the SWOT analysis. The frequency of this activity will depend on the industry and the changes it experiences.
Let us take the technology industry as an example. Compared with the steel industry, it is developing faster and therefore requires more frequent SWOT reviews. Because the analysis relies mainly on environmental data, companies can review them at any time, especially when dealing with key political or economic movements that may affect their organization.
Face the facts
SWOT analysis is not complicated, but it can be disturbing for leaders who are forced to see the true state of their business, including vulnerabilities. But this is not a reason to look away. It can even be seen as an opportunity to improve the business. When you know what you have achieved so far, you can continue to build and develop.
