Many successful businesses use strategic planning to grow revenue, reach new customers and develop new products and services. Once of the most popular techniques used to assess performance is SWOT analysis – a review of a company’s or project’s Strengths, Weaknesses, Opportunities and Threats.
What is SWOT analysis?
A SWOT analysis is a process that encourages critical thinking by businesses. It is used to identify external and internal influences on a business. The process isn’t limited to a business, either. A SWOT analysis can be used to assess competing businesses in a market in order to unearth opportunities your business can exploit. It can also be used by divisions or departments within a business.
No matter how a SWOT analysis is used, it has the same purpose: to evaluate the strengths and weaknesses of a business and identify any external opportunities and threats that exist. SWOT is an acronym for the four parameters of the technique, standing for Strengths, Weaknesses, Opportunities and Threats.
- Strengths – SWOT analysis helps you to identify areas of your business that work well, or the strength of your product or service in the market. Strengths are internal aspects of your business that give it an advantage, such as an established brand or more competitive pricing.
- Weaknesses – The opposite of strengths, these are internal aspects of your business that put you at a disadvantage to competitors. Using a SWOT analysis, you can highlight areas where your business or products are relatively weak. You can then use this to tackle problems and improve operations.
- Opportunities – This focuses on the external factors that affect your business helping you identify opportunities that you can exploit to grow your business and make more profit.
- Threats – External factors that could cause trouble for your business, such as changes in the market, new legislation and new competitors or innovations coming to market. Understanding existing and potential threats can help your business put plans in place to counter these.
Together, each quadrant of a SWOT analysis can be used to paint a picture of potential problems and opportunities for your business, as well as areas to improve or existing strengths to build up.
What is a SWOT analysis used for?
A SWOT analysis is used to help a business understand where it is today and plan for the future. The result enables better business decisions and planning, as well as identifying threats or opportunities that can get overlooked in the day-to-day pressures of running a business.
A SWOT analysis is best used with specific objectives in mind, such as taking advantage of a new business idea, implementing a new technology, or entering a new market. New product development teams and people planning to launch a business can benefit from using a SWOT analysis. It can be used for overall business strategy or for individual activities such as marketing, production or sales. It can also address specific issues such as staffing, financial planning and operations helping to determine strategies that are likely to be successful.
How to create a SWOT analysis
You can create a SWOT analysis either as a group or on your own. Simply create a large square or rectangle – using a sheet of paper or on a computer – and divide into four quadrants. Each quadrant makes up one of the four parameters: strengths, weaknesses, opportunities and threats.
Start filling in the quadrants, keeping each point brief. The aim is for the SWOT analysis to prompt further investigation into threats or opportunities, so limit entries to a single sheet for the SWOT analysis.
It’s important to understand that a SWOT analysis examines both the internal and external factors that can affect your business. Strengths and weaknesses are internal factors, while opportunities and threats relate to external factors.
- SWOT analysis internal factors (strengths and weaknesses) – These are internal aspects of your business, which are generally under your control. Examples of internal factors are business location, financial resources, types and skills of employees, software systems used and business processes.
Strength example: a coffee shop with a good retail location near offices with high footfall.
Weakness example: the coffee-making equipment is old and the menu doesn’t include food items.
- SWOT analysis external factors (opportunities and threats) – These are external factors and can include market conditions, demographic and economic trends, new legislation and technology, relationships with suppliers and business partners./li>
Opportunity example: New retail shops are opening nearby which means potentially more customers at the weekend.
Threat example: A new catering business has started operating nearby that delivers sandwiches and hot drinks directly to the desks of office workers.
It’s important to understand the two factors are different, and what you can control and what you can’t. Threats, for example, can be monitored and allow you to change direction, but you generally have no control over external factors – you can only respond to them or anticipate them.
SWOT analysis example
You can conduct SWOT analysis for all manner of problems, and businesses large and small use SWOT techniques to help them make business decisions.
In this example, a real estate business needs to conduct a SWOT analysis as it is experiencing a reduction in long-term leasing for its office space. Increased demands for lower rent and an increase in businesses moving out of the city centre means the company needs to evaluate what is happening and what action it should take.
- Prime location of office space for the town centre.
- Lots of secure car parking space for staff.
- Long-established business with a reputation for security.
- Office décor is dated with aging desks and facilities.
- Inflexible layouts that cater only for larger, more traditional businesses.
- Inflexible leasing agreements that have a minimum of 12 months.
- Lots of new start up businesses are opening in the local area.
- A new bus station is planned to open nearby, increasing links to public transport.
- Recent tax allowances have been introduced for new businesses looking to lease office space.
- Smaller, cheaper business units are opening up tailored to new businesses.
- The economy is looking weak which may affect business confidence in leasing more space.
- Office workers are increasingly working remotely and at home, reducing the need for lots of space.
The analysis would allow the company to investigate how it could change its business offering, such as offering co-working space and hot desking for freelancers and small businesses – moving away from its previous, under-threat business model – and taking advantage of the rise of small businesses.
What are the benefits of a SWOT analysis?
A SWOT analysis is it is simple to do and costs nothing apart from time. You don’t need a specialist adviser to create it for you. You can spend as little or as long as you need on it, and it provides a framework that can help you think through issues and problems. Often it can unearth previously unknown threats or identify new opportunities that you didn’t realise existed.
What are the limitations of a SWOT analysis?
A SWOT analysis won’t provide all the answers and nor does it go into much detail. It should be used primarily as an identification tool, and you’ll need more in-depth research and analysis when dealing with more complex issues. A SWOT analysis shows a snapshot of your business and the challenge it’s facing today. It won’t help you to prioritise the issues or opportunities, and it’s also worth bearing in mind that entries can be opinions rather than evidence-based facts, which can lead to bias.
Questions to ask during a SWOT analysis
The key to a successful SWOT analysis is to ask challenging, probing questions that help you think through each strength, weakness, opportunity and threat.
Look at what your company excels at and what differentiates it from the competition. To work out what these are ask yourself the following questions:
- What are your unique selling points and how is your business different?
- What do your customers value and like about your business?
- What is different about your business compared to competitors?
- What internal processes, staff, culture or operations help your business and why?
Next, examine all the parts of your business that could be improved, asking questions such as:
- What complaints do you hear from customers?
- What complaints and concerns do you hear from staff? What problems are there?
- What aspects of the business could be improved?
- What do your competitors do better than your business?
- What causes you to lose customer or fail to retain customers?
Next, focus on the potential growth of your business. You need to look at the external factors related to the environment, industry, market or competitors’ actions. This may include technological developments, market changes, new government policies, changes within the target customers, new suppliers or new legal requirements.
Finally, examine external factors that have the potential to harm your business. This can cover similar ground to opportunities, such as new legal requirements, but these are factors that are likely to have a negative impact on your business if you do nothing about them.