SWOT (Strengths, weaknesses, opportunities, and threats) analysis is a standard framework for evaluating a competitive status of a company and its development of strategic planning. It examines the external and internal factors, as well as the existing and future potential. Thus, it is created to give a pragmatic, fact-based, data-driven perspective at the strengths and weaknesses of a company, initiatives, or within its industry. The company needs to keep the analysis updated by refraining from preconceived beliefs or gray areas rather than concentrating on real-life aspects. Companies are required to use it as a guide and not as a prescription.
Why Do A SWOT Analysis And Who Should Do It?
SWOT analysis is a specialized technique for examining the competition, performance, risks, and opportunities of a company and part of a company like product line or section, or other entities along these lines. By using the external and internal data, the SWOT analysis can direct businesses towards planning and strategies more likely to be successful and away from the ones in which they have been or are expected to be less successful. In addition, independent SWOT analysis, competitors, or investors can help guide them on whether the company, product or service might be weak or strong and why.
A Visual Outlook
Analysts show SWOT analysis as a square box divided into four quadrants, each devoted to a component of SWOT. The visual representation offers a quick overview of the organization’s position. Although all the details under each section may not be of equal significance, they should give important insights into the balance of threats and opportunities, advantages and disadvantages, and so on.
- Strengths
Strengths explain what a company excels at and what distinguishes it from the competition, a strong brand name, loyal customer base, a great balance sheet, innovative technology, etc. For instance, a hedge fund might have formed a proprietary trading strategy that returns ground-breaking outcomes. It should then be decided how to use the results to bring new investors.
- Weaknesses
It stops a company from performing at an optimal level. These include the areas where companies need to improve to stay competitive, a weak brand, high turnover, increased debt levels, an insufficient supply chain, or lack of finances.
- Opportunities
Opportunities describe favorable external factors which give a company a competitive advantage. For instance, if a country deducts tariffs, an automobile manufacturer can export its vehicles into a new market, boosting its sales and market shares.
- Threats
Threats explain the factors that present the potential harm or damage to the company. For instance, a drought is a threat to the agricultural company since it can reduce or destroy the crop yield. Additional threats include high costs for materials, short labor supply, or miscellaneous threats.
SWOT Factors
| StrengthsWhat is our company’s competitive advantage?What resources does our company have?Which of our products is performing well? | WeaknessesWhich areas in our company can be improved?Which of our products is not performing up to the mark?Where is our company lacking resources? |
| ThreatsWhich of the new regulations are threatening operations?Which competitors are performing well, and in what areas are they doing better than us?What consumer trends threaten our business? | OpportunitiesWhich technology can improve the operations in our company?Are we in a position to expand our core operations?Which new market segments can be explored by our company? |
How Is the SWOT Analysis Used?
Internal
The internal operations serve as a valuable source of information for evaluating the strengths and weaknesses of the SWOT analysis. Some internal factors include human resources, financial resources, operational efficiencies, and performances.
Some of the potential questions to highlight the internal factors are:
- What are we doing well? (Strengths)
- What are some of our strongest suits? (Strengths)
- What are some of our detractors? (Weaknesses)
- What are some of our low-performing products? (Weaknesses)
External
Things and issues outside the company are also significant to the success and performance of a company, and they are known as external factors. Some of the potential questions to highlight the external factors are:
- What trends are visible in the marketplace? (opportunity)
- What demographics are we not focusing on? (opportunity)
- How many competitors are there in the market, and what is the market share? (Threat)
- Are there new regulations and standards that could potentially harm our operations or products? (Threat)
How is The SWOT Analysis Performed?
SWOT analysis is performed by a group of experts and can be easily done in a few hours. Some of the key factors in doing SWOT analysis are described below:
- Include The Right Professionals:
Gather people from various sections of your company and ensure that you have representatives from each team and department. You’ll include various teams within your organization who will have different views that will be essential in making your SWOT analysis successful.
- Brainstorm Ideas with Everybody on The Team
Performing a SWOT analysis is synonymous with brainstorming meetings, and there certainly are some wrong and right ways to operate them. Having sticky notes at the desk during these meetings can come in handy. You can ask everybody to generate personal ideas to take things off the ground. It avoids groupthink and guarantees that everybody is being heard.
After a few moments of private thinking and reflections, stick up all the notes on the wall and arrange similar ideas together. Encourage everyone to add further notes at this stage if someone’s idea stands out and is innovative.
- Sort the Ideas
When all the ideas are arranged, you need to sort them. A voting system can be used for this purpose. Sticky dots in various colors are beneficial for getting consensus on such drills. Based on the voting activity, you need to have a priority list of ideas. When the list is confirmed, you are up for debate or discussion, and the leader needs to make the final call on the priority. It is typically the CEO; however, it can be designated to someone else in charge of the strategy.
This process generates ideas for all the four quadrants of your SWOT analysis: strengths, weaknesses, opportunities, and threats.
SWOT Analysis Example – Starbucks
Strengths
- It is a profitable business, earning abundantly over $600 million in 2004.
- The company has strong ethical values and a mission statement.
- It is one of the Fortune Top 100 Companies to work in the business for in 2005. It’s a respected employer that values its workforce.
- It is a global coffee brand created on regulation for the products and services.
Weaknesses
- Starbucks has a reputation for innovation. Nonetheless, they are vulnerable to the chance that their innovation may weaken over time.
- The company is reliant on a main competitive advantage, the retail of coffee. So it can make them slow to diversity in their sectors when the need comes.
Opportunities
- Starbucks is taking good advantage of the opportunities that are given to them.
- In 2004, they designed a CD-burning service in California, USA, with HP, where the customers created their CD.
- New services and products can be retailed in the cafes like Fair Trade products.
- Co-branding with the food manufacturers and drink manufacturers and brand franchising to manufacturers of goods and services have immense potential.
Threats
- Starbucks is vulnerable to high-priced coffee and dairy products.
- Since its launch in Pike Place Market, Seattle, in 1971, its success has alarmed various competitors, and copycat brands pose serious potential threats.
Conclusion
SWOT (Strengths, weaknesses, opportunities, and threats) analysis is a standardized method for identifying and analyzing internal strengths, weaknesses, and external opportunities and threats that morph existing and future operations and help develop strategic goals. SWOT analysis is not restricted to companies. Individuals can utilize the SWOT analysis to commit to design personal improvement goals. Strengths like high-rated customer service and efficient supply chain management help companies maintain and improve their competitive advantage. Weaknesses can stop a company from performing optimally. Weaknesses of a company may include areas that need to be improved to stay competitive, a weak brand, high turnover, an insufficient supply chain, or lack of finances. Opportunities describe favorable external factors which give a company a competitive advantage. Finally, threats are the external factors that can adversely impact the success of the company. Some threats can be competitive advantages of rivals, unforeseen circumstances like government policies, natural disasters, etc. Identifying threats can help to expose the vulnerabilities and position companies to create strategies to overcome them. In short, SWOT analysis is an effective and extremely beneficial tool to improve and position your company in the market. Although SWOT analysis is an advantageous planning tool, it has some limitations. It should not be used alone as it cannot account for differences in weights. Hence, a deeper analysis is required along with the planning method.