Business executives and middle managers make difficult decisions every day, and their choices either pay off or become costly mistakes. If you want to make better decisions for your business, performing a SWOT analysis can help you achieve that.
Lecturers from the University of California illustrated how a SWOT analysis can help organizations and employees maximize potential, improve performance, minimize operational risks, and manage the competition. Whether you’re running a multi-national, international, or a small business, this methodological tool will help you determine the efficacy of potential decisions. In this post, we will share everything you need to know about the technique, including a SWOT analysis definition, its applications, and its advantages and disadvantages.
What Is a SWOT Analysis?
You can use a SWOT analysis as a framework for evaluating your company’s competitive position and developing a strategic plan to address areas for improvement. It is mostly used by companies and organizations. However, individuals can also perform a personal SWOT analysis to improve their decision-making skills.
By now, you might be wondering, “What does a SWOT analysis stand for?” Well, SWOT is an abbreviation for the terms Strengths, Weaknesses, Opportunities, and Threats. When you look into the history of a SWOT analysis, you’ll see that it has always been credited to Albert Humphrey. Humphrey was a management consultant who led a research project on Fortune 500 companies in the 60s and 70s, using the methodology.
When conducting a SWOT analysis, budgets, ratios, and sales reports can play a crucial part in identifying areas and opportunities for improvement. Of course, the data and factors depend on the field or industry. To this day, organizations use the SWOT analysis methodology to test their processes, strategies, product launches, and new ventures. It can be a crucial tool for planning and decision-making, especially since it allows uncovering potential threats and opportunities. It lets you discover important details in your plan that would have otherwise gone unnoticed.
What Is the Purpose of a SWOT Analysis?
If you want to get an unbiased, comprehensive overview of your entire business or a specific aspect of it, then using a SWOT analysis can help you achieve this. What’s more, it trains your brain to evaluate every factor that can potentially impact your decision or project. If you want data to back up your decision or you’re uncertain of your current strategy, a SWOT analysis will help you look into the specifics. This way, you can create an actionable plan based on every answer you get from the four quadrants.
Analyzing a business opening a new branch in a different location can make a good SWOT analysis example. By identifying the strengths, weaknesses, opportunities, and threats of the plan, you can determine if it is a viable decision. A SWOT analysis will also help you identify the external factors that you, as a business owner, should prepare for. In a way, it lets you prepare for issues and opportunities that may come up along the way. It prevents you from being caught off guard. What’s more, if you do it on a regular basis, it helps you keep abreast of the competition.
How to Conduct a SWOT Analysis
There are plenty of SWOT analysis tips online, but the most basic method you should learn is creating the grid for the methodology. Label the upper-left quadrant Strengths, the upper-right quadrant Weaknesses, the bottom-left quadrant Opportunities, and the bottom-right quadrant Threats. Here’s a SWOT analysis template:
Once you’ve created the grid, you need to fill in every quadrant. The quadrants should answer the following questions:
- What are you good at?
- Which of your services and skills do you consider unique?
- What past experiences can bring you towards your goals?
- What is your edge against your competitors?
As you can see from the questions, this quadrant highlights the things that your teamor company does especially well. You can list something intangible, such as your brand attributes. You can also mention easily defined qualities like your product’s unique selling points. Meanwhile, you can always highlight your workforce as your strength. For instance, if your team tends to perform excellently, you can list its performance in this quadrant. You can also attribute it to strong leadership.
- What are the factors that will hinder your plan’s progress?
- What necessary resources or skills do you lack?
- What are the areas that are costing you money?
- What are the aspects that you think you’re failing at?
After identifying your strengths, youneed to open your awareness to your weaknesses. Think of the things that are hampering or slowing down your progress. For example, this quadrant can contain issues like your financial limitations or the shortage of qualified people.
- What are the things you can improve?
- What are the external factors that can help you move towards your goals?
- What are the audiences you can reach?
- What are the tools and technologies that can improve your business operations?
- What more can you do for your current customers?
- How and where can you expand your business?
What’s great about this quadrant is it also turns some of your weaknesses into areas for growth. For instance, you might find that your company cannot keep up with the continuous flow of leads from your marketing team. Well, you can list that as an opportunity. You can look into expanding your operations to meet this demand. Perhaps, you see your company cooking up an innovative idea that will let you reach new markets. You can also list that as an opportunity. Basically, this quadrant highlights anything you can do to move your business to greater heights.
- What are the external factors that may harm your performance or progress?
- What are your competitors’ strengths?
- What are the efficient practices of your competitors?
- What are the latest happenings in the industry?
- Who are the emerging names in the market?
- Is your audience getting saturated?
The final quadrant deals with any issue that may pose a risk to your company. It can be anything that may become a roadblock for your business’ success. You can list anything you deem a threat—from financial risks and emerging competitors to changes in regulatory laws. Basically, it can be anything that may negatively affect your project’s or company’s future.
Applying a SWOT Analysis to a Business Model
Let’s imagine a scenario where a start-up digital marketing company is strategizing for future growth. Let’s say the CEO, Louis, wants to get an insight into the business’ current situation. He also wants to learn what his team can do to expand their operations. He gathers his team to draw up a SWOT analysis:
This is a simple SWOT analysis example for a start-up business. Indeed, you can conduct a SWOT analysis in various industries. In another blog post, we featured how you can use a SWOT analysis for remote work. You will even find out how you can use collaboration and monitoring tools like Traqq to improve your business operations.
What Are the Pros and Cons of a SWOT Analysis?
One of the great things about a SWOT analysis is you can use it for an entire organization, a department, a team, or an individual. What’s more, the evaluation can support several objectives you want for your project. For instance, you can use this methodology to assess a new venture, plan an acquisition, launch a product, or hire a remote team.
Since a SWOT analysis is forcing you to look at your strengths and weaknesses, you’re seeing your decisions from different perspectives. This methodology also encourages collaboration and brainstorming. Whether you’re creating a business development plan or conducting a competitive analysis, the approach remains the same.
In general, you don’t need technical skills or extensive training to perform a SWOT analysis. Anyone with knowledge about the business or the industry can conduct it. Moreover, it can be carried out during a brainstorming session, allowing the participants to aggregate their collective judgements.
Because you don’t need to train anyone or use sophisticated tools to perform a SWOT analysis, the methodology is essentially a cost-effective solution. You can select capable members of your team instead of hiring a consultant externally. What’s more, you can complete the evaluation in a fairly short time.
Con: No Opportunity for Weighing Factors
This methodology can indeed help you identify your plan’s strengths, weaknesses, opportunities, and threats. However, a SWOT analysis does not have a specific system for evaluating the significance of a factor against the other items. So, there are instances wherein it can be challenging to determine the true impact of a factor on the goals.
Some critics say that a SWOT analysis creates a one-dimensional model. The methodology puts problems into different categories. Consequently, it will seem like one attribute will only have a single effect on the issue being analyzed. The truth is, there are factors that can be considered both as a strength and a weakness. Let’s say you’re planning to put up a store in an area frequented by people. There may be easy access to customers, but since you’re in a prime location, the operational costs may overshadow the sales volume.
Reliable and accurate data is important in business analytics. However, a SWOT analysis is only as good as the insights of the individuals conducting it. By design, this methodology involves a subjective process.
A SWOT analysis is a simple and cost-effective way to make better business decisions. What’s more, it can be used by organizations, teams, departments, and even individuals. However, it still has its disadvantages, depending on the industry you are in. So, it’s important that you assess whether this methodology will work well for your business goals and needs.