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A SWOT analysis is a strategic planning exercise that allows small and medium enterprises (SMEs) to identify their strengths, weaknesses, opportunities, and threats – the four primary elements that you need to analyze before making decisions in any business situation.
Although SWOT analysis can be used for any personal or professional assessment, it is most commonly used by businesses to accelerate their growth strategies by acting as a take-off point in any team discussion.
If done sincerely, a SWOT analysis can reveal multiple insights, deficiencies, and points of action. In this article, we will explore the easiest method of conducting an effective SWOT analysis and decode how the data retrieved from it can be applied for direction and course correction.
A SWOT analysis is most commonly represented as a four-quadrant matrix, with each quadrant depicting one of its four elements: Strengths, Weaknesses, Opportunities, and Threats.
Strengths and Weaknesses are considered as internal factors as they are in direct control of your company and are affected by internal policy decisions, assets, liabilities, and improvements.
For example, a slow output time for your manufacturing unit is a weakness because, with good monitoring and stringent operating procedures, it can be improved internally.
On the contrary, Opportunities and Threats are considered external factors since they lie outside the purview of your organization.
For example, a company may find a new customer segment in an overseas market; this opportune discovery is not in control of the company, and hence is external.
Benefits of Doing a SWOT Analysis
The primary benefit of doing a SWOT analysis over other analytical procedures is that it’s easy to conduct and virtually inexpensive; no need for an expensive consultant to improve your plan. It’s also a great tool to understand a complicated situation in a short time. With a good SWOT analysis, you can –
- Discover weaknesses
- Mitigate threats
- Act on opportunities
- Capitalize on strengths
For example, an IT company might note strengths such as remote-working and wide availability of human resources and weaknesses such as poor service definitions. It may also analyze opportunities in global markets and threats from increasing competition. Basing its future activities on this SWOT analysis, the company can push forward advertising, remote hiring, and better service development to improve its market performance and maximize its bottom-line.
The first quadrant consists of all the things you and your company are good at. It’s a list of all your tangible and intangible capabilities that set you apart and give you an edge in the market.
Examples of your strengths may include your branding, unique selling propositions, product portfolio, assets like intellectual property/registered technology, and the expertise of your leadership and team members.
This quadrant highlights the cavities in your business model or planning that can hold back your growth, a key marker of self-awareness.
Some common examples of weaknesses are limited human resources, lack of clarity in vision, a competitor’s growing market size, or strapped working capital.
The third quadrant consists of every potent field of progress that must be utilized to further your company’s mission and bottom line.
Examples of opportunities include innovations in products and technology, untapped markets, dearth of competition, and newly discovered utilities of your products that are emerging with changing needs of the time.
The final quadrant stresses every possible risk or unexpected hazard that can jeopardize the growth, or even existence, of your company.
Examples of threats include new regulations and compliances, new competitors, negative media attention/scandals, and inflexibility of your business model in adapting to new environments.
To conduct a SWOT analysis effectively, list all the factors about each of the four elements in their respective quadrants. To investigate further, answer the following list of questions, whichever applies to your business, for each quadrant.
- What do my customers love about me?
- What do I have that my competitors don’t?
- How much experience/expertise/knowledge does my team have?
- What part of my business contributes to my bottom line the most?
- What is the most unprofitable part of my business?
- What technology, resource, or knowledge do I lack?
- What part of my business do I need to study more to understand?
- What are the most common complaints of my customers?
- What part of my brand message resonates the most with my customers?
- How can I optimize my current capabilities/network/customer base to yield maximum returns?
- Can I use new technology/IP to streamline my operations?
- Do I have the potential to access and grow in new markets?
- What does my competitor do that I can’t?
- How are the macro-economic changes affecting my industry?
- Is there a possibility of negative publicity with my new product/service?
- What challenges lie ahead of me in the coming future?
Analyzing the Results
Now that you have listed factors in every quadrant, the goal must be to use this data to conceptualize business strategies that are robust, well-informed, and effective in achieving the goals of your organization. With this new understanding of the state of affairs, you may
- Maximize your strengths by focusing on them more
- Neutralize your weaknesses with new investments, strategies, and redefined procedures
- Revisit your goals to accommodate the opportunities discovered
- Minimize the threats with re-routed plans of action
You may also analyze these elements in any number of combinations. For example, you may investigate your strengths to find solutions for the possible threats or club your weaknesses and opportunities to find specific areas that need improvement. The end goal of this exercise is to formulate the most effective strategies and plans that can help your company survive, thrive, and expand beyond its visible horizons.
Once you master the humble tool of SWOT analysis, you can use it any number of times and in any number of situations to better explore your business environment and improve your company’s performance in it.