A successful business is founded on a series of sound decisions, so the way you analyze situations and choose to react is essential. When trying to assess the lay of the land, few tools are more useful than the SWOT analysis. It stands for strengths, weaknesses, opportunities, and threats; the SWOT analysis is a planning process that allows your company to overcome challenges and determine what new leads to pursue.
The primary objective of a SWOT analysis is to help organizations develop a full awareness of all the factors involved in a decision.
“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,” said Bonnie Taylor, chief marketing strategist at CCS Innovations. “A SWOT accomplishes this in four straightforward steps that even rookie business owners can understand and embrace.”
When should you use SWOT?
You could employ SWOT before you commit to any sort of company action, whether you’re exploring new initiatives, revamping internal policies, considering opportunities to pivot, or altering a plan midway through its execution. Sometimes it’s wise to perform a general SWOT analysis just to check on the current landscape in which your business finds itself. Performing a SWOT analysis is also a great way to improve business operations, said Andrew Schrage, partner and editor-in-chief 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,” said Schrage, who expanded on his thoughts about business decision making in a blog post. “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. Shawn Walsh, founder and CEO of Paradigm Computer Consulting, said his management team conducts a quarterly SWOT analysis together.
“The collective knowledge removes blind spots that, if left undiscovered, could be detrimental to our business or our relationship with our clients,” Walsh said.
The elements of a SWOT analysis
A SWOT analysis focuses on the four elements comprising the acronym, allowing companies to identify the forces influencing a strategy, action or initiative. Knowing these positive and negative elements can help companies more effectively communicate what parts of a plan need to be recognized.
When drafting a SWOT analysis, individuals typically create a table split into four columns to list each impacting element side-by-side for comparison. Strengths and weaknesses won’t typically match listed opportunities and threats, though they should correlate somewhat since they’re tied together in some way. Billy Bauer, managing director of Royce Leather, 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, S (strengths) and W (weaknesses), refer to internal factors, which means the resources and experience readily available to you. Examples of areas typically considered include:
- Financial resources (funding, sources of income, investment opportunities)
- Physical resources (location, facilities, equipment)
- Human resources (employees, volunteers, target audiences)
- Access to natural resources, trademarks, patents and copyrights
- Current processes (employee programs, department hierarchies, software systems)
External forces influence and affect every company, organization and individual. Whether these factors are connected directly or indirectly to an opportunity or threat, it is important to take note of and document each one. External factors typically reference things you or your company do not control, such as:
- Market trends (new products and technology, shifts in audience needs)
- Economic trends (local, national and international financial trends)
- Funding (donations, legislature and other sources)
- Relationships with suppliers and partners
- Political, environmental and economic regulations
The SWOT analysis is a simple, albeit comprehensive strategy for identifying not only the weaknesses and threats of a plan but also the strengths and opportunities it makes possible. However, a SWOT analysis is just one tool in the strategy toolbox. Additional analytic tools to consider include PEST (political, economic, social and technological), MOST (mission, objective, strategies and tactics) and SCRS (strategy, current state, requirements and solution) analyses.
SWOT can also prompt businesses to examine and execute strategies in a more balanced, in-depth way.