How to do a SWOT Analysis
A SWOT Analysis is a strategic business tool to assess an organization’s current strengths, weaknesses, opportunities, and threats. The end product of a SWOT analysis will guide goal setting and strategic planning. In essence, it helps you build on what you do well, address your deficiencies, take advantage of opportunities as they arise, and minimize risks. So don’t put off understanding how to do a SWOT analysis, your business will highly benefit from this thought-out guide.
An organization can use a SWOT analysis as a basis for overall business strategy for the organization as a whole or for different divisions within the organization. When Albert Humphrey first developed the SWOT Analysis approach in the 1960s, it was used exclusively to analyze businesses. These days, governments, nonprofits, entrepreneurs, and investors also draw on the technique.
What is a SWOT analysis?
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal factors within the company that you can do something about, like what products you manufacture and who plays what role in the process. They are factors about the business itself.
Opportunities and threats are external. They exist outside the business and you have no control over them. Obvious examples include climate conditions, competitors, the availability of raw materials, and a pandemic.
A SWOT analysis is usually presented in a four-grid square as follows:
Why do a SWOT Analysis?
A SWOT analysis is a handy data-driven tool that can paint a clear picture of what the business should do next and what it should stop doing. Going through an exercise like this crystalizes vague concerns and can spark innovative ideas, because different people are contributing their thoughts and experiences to the process.
A SWOT analysis has the potential to steer an organization onto a new, more profitable trajectory. Business leaders will gain a new perspective on their organization’s strengths and weaknesses and the opportunities and threats in the marketplace.
The SWOT analysis can be about something other than your business – a perspective on a specific undertaking, a product, a method, a proposition, and so on.
How often should a SWOT analysis be undertaken?
In slower times, once a year might have sufficed, but in our fast moving world, threats and opportunities can change suddenly and often. It’s essential to go through this exercise every couple of months to be sure that your business is keeping up with changes in the marketplace.
Gather the right people to conduct the SWOT analysis
Experts advise that companies gather the thoughts and experience of different people throughout the organization for the exercise. This will ensure diverse insights and result in a broad perspective. Needless to say, the lead should be taken by the company founders and leaders.
How to do a SWOT analysis
- Once you’ve gotten everyone together in a room, hand out a piece of blank paper to every person, with the headlines strengths, weaknesses, opportunities, and threats. Let everyone brainstorm their own ideas for a while. Collect their answers and quickly go over them.
- Now that everyone has had time to think about the issue, hand out a SWOT template with questions about each section to get people to think more deeply about each factor.
- For this purpose, you can use a SWOT template that poses questions to stimulate innovative thinking and thoughtful responses.
- After about 10 minutes, put all the papers on a wall so everyone can see them and add any additional ideas that might come to them.
- As a group, organize the ideas and prioritize them. This will involve a discussion and possibly voting. You should end up with a prioritized list of ideas for each of the four factors.
Questions to guide your analysis
Here are some suggestions for questions you might consider. Of course, every situation is different, and you’ll come up with questions applicable to your specific circumstances.
Strengths describe what your company excels at and what gives it a competitive advantage: a recognizable brand, an ardent customer base, innovative technology, and so on. These aspects are integral to your organization, which you can control.
Questions to consider:
- What do we excel at?
- What is our unique selling proposition?
- What expertise do we have?
- What competitive advantage do we have over our competitors?
- Do we have access to suppliers that others don’t?
- Do we have a loyal customer base?
Weaknesses prevent an organization from reaching its full potential. These are aspects that a business needs to resolve to improve competitiveness: an unreliable supply chain, poor customer service, or failing marketing campaigns.
Questions to consider:
- Are any of our business processes failing?
- Is our supply chain intact?
- Are our suppliers reliable?
- Is there a lack of resources that’s holding us back?
- Do we have all the expertise we need?
- What caused our last failure?
Opportunities are those external factors that could put you ahead of your competitors: close proximity to a supplier, a politically stable environment, a skilled employee base, superior internal technical expertise, etc.
Questions to consider:
- What developments in the market benefit us?
- What market trends can we exploit?
- Does the pandemic open opportunities for our current or new offerings?
- Can we take advantage of new policy or tariff changes?
Threats are circumstances that can hamper an organization’s ability to flourish: increasing competition, inflation, rising operating costs, political instability, new government regulations, etc.
Questions to consider:
- Are there any threats to our supply chain?
- Are new competitors entering the market?
- Could automation affect the business negatively in any way? (Or could it create a competitive advantage?)
- Are there signs of any market trends that could affect us negatively?
- Are raw material prices going to increase significantly?
Turn your SWOT results into strategies
The purpose of a SWOT analysis is to identify your company’s internal strengths and weaknesses as well as the external opportunities and threats it faces. You can use this information to come up with both short-term and long-term strategies for your business. Your aim should be to maximize strengths and opportunities and minimize weaknesses and threats.
But how do you use what you have learned to develop strategies? It is actually not difficult to see that there’s a relationship between the four elements in the table, which could have you move on to a so-called TOWS analysis.
Turn SWOT into TOWS to come up with strategies.
SWOT helps you to identify strengths, weaknesses, opportunities and threats while TOWS helps you to come up with strategies by leveraging the relationship between the different aspects.
This is how it looks:
Strengths → Opportunities: This relationship answers how you can exploit your strengths to take advantage of the opportunities in the marketplace.
Strengths →Threats: This relationship answers how you can use your strengths to overcome threats and if it is possible to transform threats into opportunities.
Weaknesses →Opportunities: This relationship explores how you can use your opportunities to overcome your weaknesses.
Weaknesses →Threats: This relationship explores how you can reduce your weaknesses to minimize threats and how your weaknesses can exacerbate threats.
It’s advisable to do a TOWS analysis as it is relatively straightforward and easy to understand. In many cases, a TOWS analysis makes the next steps to take quite obvious to see.
Pitfalls to avoid when doing a SWOT analysis
If you don’t plan for your SWOT analysis you can run into all sorts of problems. It’s common to either think too big or focus too much on details, both of which will be a waste of time. To avoid this, take these two steps:
- Decide on an overall goal or objective that you want to achieve with your SWOT analysis. Answer the question: why are we doing this?
- Take time to consider your SWOT questions carefully.
Here is a list of common mistakes to avoid
1. Avoid long lists
It’s good to be creative and enthusiastic, but a long list of suggestions under each of the categories will only serve to weaken the team’s focus. Spend some time discussing each suggestion before including them in the final list.
2. Vague suggestions
To say that something is not going well does not help. Why is it not going well? Try to get group members to be clear when they write their lists. When you finalize your lists, as a group make sure that all the statements and suggestions are specific.
3. Skipping over weaknesses
It’s common to spend a long time on strengths and then run out of steam when the group comes to discussing weaknesses. To help the group come up with issues the company can work on, consult beforehand with customers on what you can do better and consult their comments on social media. If the company is facing a challenge that no one knows how to handle, there’s a weakness hiding there somewhere.
4. Being too optimistic about opportunities
It’s common to get excited about opportunities and have many ideas to exploit them. However, opportunities may only be realized in the future and in the meantime you have to run a profitable business. Best to focus on current opportunities that you can leverage now or soon.
When discussing new opportunities, keep in mind that those opportunities will be applicable to your competition as well.
5. Making light of threats
Sometimes it’s hard to look threats to the company squarely in the eye, but if you don’t, you won’t be able to develop a plan to eliminate or weaken them. Don’t ignore them because you don’t want to look at them.
6. Not having a clear goal with the SWOT analysis
If you don’t have a clear goal for your SWOT analysis, it will be too easy to go off track. For instance, if your SWOT analysis is about plans to increase sales, it’s no use getting all excited about moving to new premises and spending time discussing whether the move will be good or bad for the company. That’s a discussion for another day.
A SWOT analysis is a valuable tool to understand the current state of your business. If you go about it with a clear goal in mind, the exercise will help you to come up with strategies to take advantage of your strengths, address weaknesses, deter threats, and capitalize on opportunities to help you reach your business goals. Lastly, if you are looking to start your own business, a perfect starting point is Entrepreneur Rx or listening to this podcast.