A SWOT analysis identifies Strengths, Weaknesses, Opportunities and Threats.
A SWOT analysis is commonly used in marketing and business in general as a method of identifying opposition for a new venture or strategy. Short for Strengths, Weaknesses, Opportunities and Threats, this allows professionals to identify all of the positive and negative elements that may affect any new proposed actions.
"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 Pfieffer, founder of Niki Pfieffer Designs, noted that many small business owners don't know how to properly use a SWOT analysis to guide their business.
"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
The SWOT analysis enables companies to identify the positive and negative influencing factors inside and outside of a company or organization. Besides businesses, other organizations, in areas such as community health and development and education have found much use in its guiding principles. The key role of SWOT is to help develop a full awareness of all factors that may affect strategic planning and decision making, a goal that can be applied to most any aspect of industry.
SWOT is meant to act primarily as an assessment technique, though its lengthy record of success among many businesses 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 mid-plan
The SWOT analysis is an excellent tool in organizing information and 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 of our relationship with our clients."
Brandon Dudley, director of marketing and operations at The BusBank, also said that collaborative SWOT analyses give employees a greater sense of understanding and involvement in the company.
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 impacting elements can help companies more effectively communicate what elements of a plan need to be recognized.
When drafting a SWOT analysis, individuals typically create a table split up into four columns so as to list each impacting element side-by-side for comparison. Strengths and weaknesses won’t typically match listed opportunities and threats, though some correlation should exist 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, Strengths and 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.
- Current processes, such as employee programs, department hierarchies and software systems.
When it comes to 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.
Every company, organization and individual is influenced and affected by external forces. Whether connected directly or indirectly to an opportunity or threat, each of these factors is important to take note of and document. External factors typically reference things you or your company does not control, such as:
- Market trends, such as 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 foundations.
- Demographics, such as a target audience’s age, race, gender and culture.
Supreme Graphics, a commercial print manufacturer, was struggling to compete with the digital industry in retaining its 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, non-disruptive 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 its success.
SWOT Analysis Template
Here is a SWOT Analysis template with some examples filled in:
The SWOT analysis is a simple, albeit comprehensive strategy in identifying not only the weaknesses and threats of a plan, but also the strengths and opportunities available through it. While an excellent brainstorming tool, the four-cornered analysis prompts entities to examine and execute strategies in a more balanced way. However, it is not the only factor in developing a business strategy.
"A SWOT analysis is helpful in broadly addresses 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 reporting by Nicole Fallon, BusinessNewsDaily Staff Writer.
Originally published on BusinessNewsDaily.