SWOT analysis is one of the most popular and widely used management tools. Creation of the framework is credited to Albert Humphrey (1926-2005). His goal was to assess all of a business’ strengths and weaknesses, as well as the potential opportunities and pitfalls to help develop a robust business strategy.
It’s easy to implement and understand and as your business grows you’ll need a way to observe the bigger picture and develop strategies for your management teams to carry out.
SWOT analysis (or variations of the framework) seem to be the cornerstone of lots of strategy workshops and senior management away-days. It’s worth learning how it works, it’s limitations and how it can be used in business.
What is SWOT Analysis?
A SWOT analysis is often depicted as 4 squares, 2 at the top and 2 at the bottom. This is referred to as a ‘2 by 2’ (2×2). The headings Strengths and Weaknesses are on the top with Opportunities and Threats underneath, the capitals of these 4 words are where the acronym SWOT comes from.
For any company to thrive they need to understand the activities which they perform best at and maximize their affect to achieve a superior return on capital. At the same time they need an understanding of what can harm them and put in place risk mitigations to lessen their impact.
SWOT analysis is used across all industries and in all sizes of businesses. I’ve been involved with providing SWOT analysis for many different types of enterprise including non-profit organisations, governmental units, and even individuals. It seems to work fine no matter what we throw at it.
It can be used to cover a wide range of topics including analysis for marketing plans, business plans, risk analysis, corporate planning, strategic planning, product launches and many many others.
Also add to all these an element in your analysis to take full advantage of where you are in relation to your competitors. This can be included in the SWOT and for extra insight look at the strengths, weaknesses, opportunities and threat that they have given your planned strategy.
A Stupid Waste of Time
In lots of the lectures I’ve given I’ve joked that sometimes SWOT can stand for a Stupid Waste of Time. What I’ve seen happen time and time again is everything goes in every box because its simultaneously a strength, weakness, opportunity and threat. This is of very little help to anyone.
This is nearly always down to not defining what aspect of your business (or the context) you’ll be analysing before you start the process. A clear piece of advice is to carefully define the issue your looking at and if you find that ideas start appearing all over the model then revisit the issue you’re asking the SWOT analysis to solve.
It’s not surprising that if you SWOT the whole universe everything goes in every box, you go round in circles and get nothing but frustrated. Particularly true if you’ve paid a facilitator and your senior team to participate.
How to do a SWOT Analysis
The methodology we’ll follow to produce a SWOT analysis is as follows.
Give the SWOT its Boundaries
Decide on the objective of your SWOT analysis. This is by far the most important step and worth spending time on to get right. Avoiding the ‘stupid waste of time’ problem we talked about above to make sure the reason you’re doing a SWOT analysis is well understood by the team and easily understandable to all who work on it.
If you have the problem of putting all ideas in all quadrants and the team can’t agree with anything then revisit the question you’re trying to solve.
Do Some Research
Research your business, industry and/or market. Get to know what’s happening.
A good source of research that is often overlooked is talking to people. Try to talk to as many people/stakeholders as possible to get different perspectives on the same topic. If you’re researching a large company or industry they’ll be a wealth of information online or at your local business school. Go to your customers and give them a really good listening to.
Depending on the vertical you work in and the size of the companies you might be researching investor relations might be able to help. All businesses who are listed on international stock markets have to publish detailed information about their financial standing and strategy. These can be found at places such as Yahoo Finance, Bloomberg, London Stock Exchange and Gartner.
Identify the Strengths
Identify and list out all of the strengths you can think of. At this point there’s no need to prioritise as this comes later. Think about what your company does well and how it stands out from its competitors. Think about how other people would describe your company, what would they say is unique about your firm?
There are tangible and intangible strengths to consider. Examples of strengths for your business could be; your brand, having great customers, a strong balance sheet, unique technology, exclusive contracts, diverse customers, R&D capability, the list will be specific to your business.
Identify the Weaknesses
These are things that stop a company from performing at its optimum level, think of them as items that put your business at a disadvantage to others. They are the opposite of your strengths and often directly relate to them. Examples might include; being limited to one supplier, poor access to capital, geographic location, inefficient processes, poor talent, logistical issues and company culture.
Worth noting that as the picture of your company changes it is highly probable that this part of the SWOT is the first to change as these will be the first items you address following a SWOT Analysis.
Both the strengths and the weaknesses look at and catalogue the internal parts of your business. The external is captured by looking at the opportunities and threats.
List the Opportunities for Your Business
Think about what opportunities exist for you to capture new market share or revenue/margin. Opportunities can come from all sorts of places (often from chaos) so there really are no bad ideas here. These are different to the internal strengths of your business and are not necessarily easy to define. Be aware that an opportunity for one aspect of your business could be a threat to another, avoid the temptation to put items in both the opportunity and threat box.
Opportunities are diverse by nature but could include new technology, social change, training programs, partnerships, new legal frameworks, trade deals, a diverse marketplace and a change of government policy.
List the Threats to Your Business
List external factors that could be a threat or cause a problem for your business. Examples of threats could include rising unemployment, threat of recession, forward integration of suppliers, new entrants, increasing competition, higher cost of capital and the uncertainty of global markets.
Worth considering what your competitors are doing that you should be worried about and what threats do your weaknesses exposure you to.
Without action nothing changes.
Establish priorities from the SWOT
When you have completed the steps above, you will have 4 separate lists. Ideally, these lists can be displayed side-by-side so you can have an overall picture of how your business is running and what issues you need to address. You can then work out what issues are the most important and what can be dealt with later (i.e. develop 4 prioritised lists).
You’ll be able to build on your strengths (keep doing whatever is working), develop your weaker areas, build defences early against threats, and make the best of every opportunity.
Create Time Bound Action Lists
A great way to make sure progress is being made is by adding in time. These can be done using the SMART Framework or one I like to use is the 3-12-6 plan. This works by thinking what we want to have achieved within 3 years (sometimes called a BHAG – I’ll let you work out the acronym) and then working back. So considering the BHAG (3 year goal) and working back think where do we need to be in 12 months and therefore what do we need to have completed within the next 6 weeks.