When examining the potential for a new business or product, a SWOT analysis can help determine the likely risks and rewards. SWOT, which stands for Strengths, Weaknesses, Opportunities and Threats, is an analytical framework that can help your company face its greatest challenges and find its most promising new markets.
SWOT analysis was created in the 1960s by business gurus Edmund P. Learned, C. Roland Christensen, Kenneth Andrews and William D. Book in their book "Business Policy, Text and Cases" (R.D. Irwin, 1969). While the tool was originally intended for business use, it has since been adopted to aid personal development.
Dwain Schenck, author of "Reset: How to Beat the Job Loss Blues and Get Ready for your Next Act" (De Capo Lifelong Books, 2013), and Kim Giangrande, principal at Intuitive HR, say SWOT analysis gives businesses a unique way of re-evaluating their positions. "The ideal outcome of a SWOT is accurate data that can be utilized to create a solid action plan for addressing a weakness and threats, and highlighting or positively exploiting your strengths and opportunities," Schenck and Giangrande told Business News Daily.
"This analysis leads to business awareness and is the cornerstone of any successful strategic plan," said Bonnie Taylor, vice president of strategic marketing at CCS Innovations. "It is impossible to accurately map out a small business's future without first evaluating it from all angles, which includes an exhaustive look at all internal and external resources and threats. A SWOT accomplishes this in four straight-forward steps that even rookie business owners can understand and embrace."
Niki Pfeiffer, founder of Niki Pfeiffer Designs, noted that many small business owners don't know how to properly use a SWOT analysis to guide their businesses.
"It is about leveraging your strengths, outsourcing and partnering where you are weak, focusing on opportunities, and being aware of threats," she said.
The purpose of a SWOT analysis
In a business context, the SWOT analysis enables organizations to identify both internal and external influences. Outside of business, other organizations have found much use in the method's guiding principles. Community health and development, education, and other groups have used the analysis. SWOT's primary objective is to help organizations develop a full awareness of all the factors, positive and negative, that may affect strategic planning and decision-making. This goal can be applied to almost any aspect of industry.
Though SWOT is meant to act primarily as an assessment technique, its lengthy record of success makes it an invaluable tool in project management.
"A good SWOT analysis serves as a dashboard to your product or services, and when done correctly, can help you to navigate and implement a sound strategy for your business regardless of company size or sector," said Vipe Desai, founder and CEO of HDX Hydration Mix. "We continue to revisit ours every year to keep it updated due to constant shifts in market trends. It's a crisp and simple way to communicate the most important aspects of our brand."
When to use SWOT
SWOT is meant to be used during the proposal stage of strategic planning. It acts as a precursor to any sort of company action, which makes it appropriate for the following moments:
- Exploring avenues for new initiatives
- Making decisions about execution strategies for a new policy
- Identifying possible areas for change in a program
- Refining and redirecting efforts midplan
The SWOT analysis is an excellent tool for organizing information, presenting solutions, identifying roadblocks and emphasizing opportunities.
"Performing a SWOT analysis is a great way to improve business operations and decision-making," said Andrew Schrage, founder and CEO of Money Crashers. "It allowed me to identify the key areas where my organization was performing at a high level, as well as areas that needed work. Some small business owners make the mistake of thinking about these sorts of things informally, but by taking the time to put together a formalized SWOT analysis, you can come up with ways to better capitalize on your company's strengths and improve or eliminate weaknesses."
While the business owner should certainly be involved in creating a SWOT analysis, it could be much more helpful to include other team members in the process.
"Our management team does a SWOT analysis quarterly," said Shawn Walsh, president and CEO of Paradigm Computer Consulting. "The collective knowledge removes blind spots that, if left undiscovered, could be detrimental to our business or our relationship with our clients."
Brandon Dudley, director of marketing and operations at The BusBank, said that collaborative SWOT analyses also give employees a greater sense of understanding and involvement in the company.
Businesses should not consider the SWOT analysis a cure-all however. "Like any self-analysis tool, it can be used incorrectly if we allow our ego or insecurities to drive the content. It is imperative to be as honest with yourself [as possible] and be prepared to provide input that truly reflects your competencies, accomplishments and abilities," Schenck and Giangrande said.
The elements of a SWOT analysis
A SWOT analysis focuses entirely on the four elements included in the acronym, allowing companies to identify the forces influencing a strategy, action or initiative. Knowing these positive and negative elements can help companies more effectively communicate what parts of a plan need to be recognized.
When drafting a SWOT analysis, individuals typically create a table split up into four columns to list each impacting element side-by-side for comparison. Strengths and weaknesses won't typically match listed opportunities and threats, though they should correlate somewhat since they're tied together in some way.
Royce Leather Gifts Marketing Director Billy Bauer noted that pairing external threats with internal weaknesses can highlight the most serious issues faced by a company.
"Once you've identified your risks, you can then decide whether it is most appropriate to eliminate the internal weakness by assigning company resources to fix the problems, or reduce the external threat by abandoning the threatened area of business and meeting it after strengthening your business," Bauer said.
The first two letters in the acronym, S (Strengths) and W (Weaknesses), refer to internal factors, which means the resources and experience readily available to you. Examples of areas typically considered include:
- Financial resources, such as funding, sources of income and investment opportunities
- Physical resources, such as your company's location, facilities and equipment
- Human resources, such as employees, volunteers and target audiences
- Access to natural resources, trademarks, patents and copyrights
- Current processes, such as employee programs, department hierarchies and software systems
Businesses should also consider "softer" elements such as company culture and image, operational efficiency and potential, and the role of key staff.
When listing strengths and weaknesses, individuals shouldn't try to sugarcoat or glaze over inherent weaknesses or strengths. Identifying factors both good and bad is important in creating a thorough SWOT analysis.
"Using the SWOT analysis has, more than once, saved me from myself, keeping me from taking on projects that would likely have been too much for my small company," said Tom Atkins, founder of Quarry House.
Mitchell Weiss, business professor at the University of Hartford, recommended fully analyzing your strengths and weaknesses first.
"Companies can't hope to take advantage of or control the external factors until the internals have been objectively assessed," he said.
External forces influence and affect every company, organization and individual. Whether these factors are connected directly or indirectly to an opportunity or threat, it is important to take note of and document each one. External factors typically reference things you or your company do not control, such as:
- Market trends, like new products and technology or shifts in audience needs
- Economic trends, such as local, national and international financial trends
- Funding, such as donations, legislature and other sources
- Demographics, such as a target audience's age, race, gender and culture
- Relationships with suppliers and partners
- Political, environmental and economic regulations
Using SWOT to identify external factors benefited Supreme Graphics, a commercial print manufacturer, which was struggling to compete with the digital industry in retaining larger advertising and marketing clients.
"We used a SWOT analysis to identify a new market opportunity in small manufacturers that needed ink-on-paper projects," said Michael Frishberg, Supreme Graphics' vice president of sales and marketing. "This provided organic, nondisruptive growth."
On the other hand, Lynn Sheehan, co-founder and CEO of CPAreviewforFREE, noted that a SWOT analysis helped her company fully analyze its pricing structure, which would have been a threat to the company's success if left unchanged.
SWOT analysis template
Here is a SWOT Analysis template with some examples filled in:
The SWOT analysis is a simple, albeit comprehensive strategy for identifying not only the weaknesses and threats of a plan, but also the strengths and opportunities it makes possible. While an excellent brainstorming tool, the four-cornered analysis also prompts entities to examine and execute strategies in a more balanced way. However, it is not the only factor in developing a good business strategy.
"A SWOT analysis is helpful in broadly addressing questions to develop a business plan, but it doesn't go far enough," said Worthworm and SkyMall co-founder Alan Lobock. "The exercise alone won't identify your key value drivers of your business. Planning without first knowing your goals and the metrics by which you will measure your progress toward achieving those goals is inefficient and misguided."
Similarly, Sempurna Restoration Clinic founder Cleighton DePetro noted that a SWOT analysis is just one tool in the strategy toolbox.
"When SWOT is used in conjunction with other analysis models, these frameworks for strategic thinking are well worth your time and should guide your decision making," DePetro said.
Additional analytic tools to consider include PEST (Political, Economic, Social and Technological), MOST (Mission, Objective, Strategies and Tactics), or SCRS (Strategy, Current state, Requirements and Solution) analyses.
Schenck and Giangrande added that undertaking additional individual analysis in conjunction with a tool like SWOT may also help business leaders identify how they can improve their personal responses. "I am an advocate of service-assessment tools, specifically the Mayer-Salovey-Caruso Emotional Intelligence Test (MSCEIT), which measures a respondent's abilities related to the four branches of emotional intelligence: perceiving emotions, facilitating thought, understanding emotions and managing emotions. DISC assessments are also valuable in that they provide further insight into your work styles, specifically around Dominance, Influence, Steadiness and Conscientiousness," Giangrande said.
"This information helps to determine what your motivators and triggers are, and how you handle those. By knowing these things about yourself, you can work toward an action plan of self-improvement or minimally ensure you select jobs, organizations and leaders that are an appropriate fit for you to improve your chances for success," Schenck said.
The following online resources can help you conduct a thorough SWOT analysis of your own business:
- MindTools SWOT Analysis
- What Is a SWOT Analysis
- NetMBA SWOT Analysis
- Marketing Teacher
- QuickMBA SWOT Analysis
Updated Jan. 1, 2015. Additional reporting by Katherine Arline and Nicole Fallon.