SWOT analysis has been used for decades and gives you a systematic way of analysing the market, and when combined with other analysis tools such as PESTLE (see below), can be a great way to reduce the risk of missing something important. There are just so many things out there that it’s easy to miss crucial things if you are not careful. So what the heck is SWOT Analysis? Why should you do it? And how on earth do you do it? Let me tell you how – it’s actually quite fun ;)
What Is SWOT Analysis?
SWOT analysis is an evaluation tool. It can be used to evaluate a business venture or other kind of project, and lately SWOT is being applied in various other situations, such as personal development. For our intents and purposes, we can use it to evaluate our business, our products and/or services and the marketing of our business, products or services.
The analysis has four parts (S – W – O – T) which examine internal and external factors and their potential influence on the project in question. Let’s look at them in turn:
S = Strengths
W = Weaknesses
This refers to strengths and weaknesses within the business or project team. These are internal things – the sort of things that are up to us. If the project is marketing, we may have strengths such as a good knowledge of SEO or a great graphic designer on board, but we can also have weaknesses, such as a limited budget or lack of knowledge of Facebook advertising (if that is something that matters to our marketing). These need to be things that don’t apply to other players in our market. If all of them are great at SEO and can afford to hire a great graphic designer, then it’s not a strength of ours. If the other players in the market also have a limited budget and don’t know how to do Facebook advertising, then it is not a particular weakness of ours – it’s actually a potential opportunity to get ahead of them.
O = Opportunities
T = Threats
Opportunities and Threats refer to things in the outside environment that may impact our project and we can essentially not do anything about as such. We can only react and adapt, but not change the facts. These can be things like the weather, the economy, demographic developments and such and they can be good for us (hence providing opportunities) or bad (hence threats).
Why Do SWOT Analysis?
It’s really quite simple. You want to be aware of your strengths, so that you can best use them in your business; your weaknesses, so that you can find a way to improve upon them and neutralise their impact; the opportunities in the marketplace so that you can take advantage of them and the threats out there, so that you can be prepared and minimise their negative impact on your business.
How Do I Do SWOT Analysis?
Go through each of the four parts of the analysis one by one and note down anything that is relevant in each of them. Start with what comes to mind, and what comes up when you brainstorm with your team, but you will more likely than not need to do some research as well:
What are the strengths of your business, your team and yourself?
What are the weaknesses of your business, your team and yourself?
Consider all sides of the business, such as:
- Staffing – knowledge, experience etc.
- Finance – your financial situation, financial management etc.
- Your product or service – R&D facilities, supplies, quality etc.
- Product or service range – too large, too small etc.
- Customer service – speed, reliability, guarantees etc.
- Production – suppliers, raw material quality and availability, stock management etc.
- Competitive advantages – yours, others etc.
- Marketing – target group, skills etc.
- Distribution – costs, ease etc.
- Access to market – easy, hard, complicated etc.
- Financing – available, lacking etc.
- Technology – skills, knowhow, software, hardware, online capabilities etc.
- etc, etc. etc.
What outside opportunities are presenting or may present themselves which you could take advantage of?
What threats are there out there that may impact your business?
A useful checklist, if you will, to examine these outside forces is PESTLE analysis. Consider what is going on with regards to the following areas, and I’ve given some general examples of how they might impact someone’s business, to give you an idea:
P = Political – what is happening in the political world? How may it impact your business, positively or negatively? Are the political winds blowing to the left, opening up more potential for government contracts for your business, or is it perhaps blowing right, lessening your tax burden?
E = Economic – what’s going on in the economic environment. Is there a recession? Upswing? How is your local currency doing in global trade? Is that good for you or bad? Why?
S = Sociological – what sociological developments may affect your business? Does the ageing population present opportunities for more business or perhaps people are not having as many babies meaning less business for your diaper delivery business in the future?
T = Technological – does online shopping pose a threat to your brick and mortar business or are you perhaps able to improve your customer services due to new technological developments allowing you to use software solutions that previously were out of your price range? What are you going to do about it?
L = Legal – is there a law being passed that means costly changes for your business or perhaps regulations being imposed that means your competitors are in trouble, thereby giving you an advantage while they catch up? How are you going to use that advantage to its fullest?
E = Environmental – does increased environmental awareness open up opportunities for your higher priced eco products, or drive away customers from your non-eco friendly products? Perhaps they mix with legal issues, with new regulation regarding disposing of waste, thereby increasing your operations costs?
The above is not a checklist in the sense that there will always be things in all of these categories that affect you, good or bad. There may be nothing of any major importance affecting your business in some of these areas. However, it provides a thought process for you to go through to decrease the likelihood of you missing anything out there in this complicated world.
When doing your SWOT analysis, I cannot emphasise enough that you need to do the research! Sorry to be the one to tell you, but you don’t know everything ;) Get your team together and work on this, and then do the research to find out what is going on. The more diverse the group working on the analysis, people coming from different angles and viewpoints, the better. It is easy to fall into the trap of just seeing what you want to see and ignoring the rest, overestimating positive things and underestimating the negatives.
Listing these things is also not enough – a list of strengths, weaknesses, opportunities and threats is not an analysis – it’s just a list. You have to take things a step further. What do these things mean to your business? Why do they matter? What are the implications? How do you know that?
If you have a particular strength within your business, what does that mean? How does that help you? How do you plan to take advantage of it? How to do you plan to maintain it?
If you have a weakness, what are you going to do about it? How are you going to fix it or ensure that it does not pose a problem?
If you spot an opportunity out there, how are you going to take advantage of it? What are you going to do so that it brings benefit to your business? An opportunity means nothing if not grabbed and how are you going to exploit it?
And if there is a threat out there, don’t just stand there and watch it coming. Figure out a way to do something about it. If you know it is there already, figure out a way to neutralise it or at least reduce its impact as much as possible, and have a plan: “If X happens, then I am going to do a, b, c…” or “Because Y is like that, we need to do a, b, c…”.
Awareness without it informing action is useless. “I knew that the piano was about to fall on my head, but I didn’t move” – boom, you’re dead!
Pros and Cons of SWOT Analysis
- It gives us a systematic way to analyse a complicated situation
- It prompts us to find ways to build on our strengths, deal with our weaknesses, take advantages of opportunities and prepare for threats
- It’s fairly simple to understand and use
- Tendency to just list things off without taking the analysis further – you MUST take it further. “This is like this, which means that …” – what does it mean? What are you going to do about it?
- It’s fairly simple to use – but that opens it up to the risk of people using it without much thought, in which case it is useless
- Analysis paralysis is a real risk – don’t get bogged down with it – the trick is finding a balance between what you need to know and what you don’t
- We may have a tendency to overemphasise our strengths. Critical thinking is therefore crucial, and always remembering that strengths are not strengths unless they can make a genuine difference to your business’ competitiveness and are not something that the other players in the market have – we need to be stronger than they on those points.
Have you done SWOT Analysis for your business? What did it uncover for you? If you haven’t, will you be doing so now? ;)