When I first considered writing a blog post on SWOT analysis, the general reception was that “everyone knows how to do SWOT analysis,” and “I feel like this subject has been covered sufficiently already.” Although every business student is intimately familiar with SWOT analysis by the time they graduate, it is important to realize that the majority of small and medium business owners did not attend business school. This is the case with many of the small and medium businesses that Absolute works with on a daily basis.
As SOSTAC certified planners, every marketing plan we help develop begins with Situational Analysis. SWOT analysis is one of the most valuable assessment tools we use during this part of our plans. SWOT analysis is commonly viewed as an instrument for identifying an organization’s Strengths and Weaknesses, two internal attributes, and Opportunities and Threats, two external factors. However, SWOT analysis’s utility goes far beyond an identification tool, which we will explain in this blog.
When Should You Use SWOT Analysis?
- To increase the value of your product or services, to overcome competitor threats, or to use as a decision-making tool.
- To explore possibilities for new efforts or solutions to problems.
- To make decisions about the best path for your initiative. Identifying your opportunities for success in the context of threats to success can clarify directions and choices.
- To determine where change is possible. If you are at a juncture or turning point, an inventory of your strengths and weaknesses can reveal priorities as well as possibilities.
- To adjust and refine plans mid-course. A new opportunity might open wider avenues, while a new threat could close a path that once existed.
- SWOT can also serve as a communication tool quickly putting a new initiative into perspective.
What are the Elements of a SWOT Analysis?
A SWOT analysis is made up of two internal and two external factors. These are Strengths, Weaknesses (Internal), Opportunities, and Threats (External).
We find it useful to examine an organization’s Strengths and Weaknesses within the context of these following areas:
Challenges of Discovering Strengths and Weaknesses
There are some challenges that are faced when attempting to document your organization’s strengths and weaknesses.
One of these is that you are invariably viewing your organization with an insider’s perspective. This can lead to overlooking strengths and weaknesses that are apparent to outsiders. You can overcome this challenge by including outsiders such as your customers and other people in your market.
Another difficulty is presented when we view our organizations with rose colored glasses. It is very common to exaggerate your strengths and dismiss your weaknesses. Although some SWOT analysis can be aspirational, we feel it is important to concentrate on the current state of your organization and use SWOT as the tool to achieve your aspirations.
The external factors, Opportunities and Threats, are often more challenging to determine as they require examining forces outside your control. We recommend using a framework for considering these effects and eliciting the opportunities and threats that they may present to your organization.
The structure is called PESTEL which is an acronym for its components. These components are:
Political: These factors determine the extent to which a government may influence the economy or a certain industry. [For example] a government may impose a new tax or duty due to which entire revenue generating structures of organizations might change. Political factors include tax policies, Fiscal policy, trade tariffs, etc. that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent.
Economical: These factors are determinants of an economy’s performance that directly impacts a company and have resonating long term effects. [For example] a rise in the inflation rate of any economy would affect the way businesses price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns, etc. It also accounts for the FDI (foreign direct investment) depending on certain specific industries who are undergoing this analysis.
Societal: These factors scrutinize the social environment of the market, and gauge determinants like cultural trends, demographics, population analytics, etc. An example for this can be buying trends for Western countries like the US where there is high demand during the Holiday season.
Technological: These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to automation, research and development and the amount of technological awareness that a market possesses.
Environmental: These factors include all those that influence or are determined by the surrounding environment. This aspect of the PESTEL is crucial for certain industries particularly for example tourism, farming, agriculture, etc. Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets, etc.
Legal: These factors have both external and internal sides. Certain laws affect the business environment in a particular country while there are certain policies that companies maintain for themselves. The legal analysis takes into account both of these angles and then charts out the strategies in light of these legislations. For example, consumer laws, safety standards, labor laws, etc.
Challenges of Discovering Opportunities and Threats
Because most people who operate small and medium businesses spend their time focusing ON their businesses, examining opportunities and threats can be a challenging exercise as it requires refocusing attention externally. Some of the challenges include:
The more information you have on external forces, the more likely external opportunities and threats can be recognized. However, deeper market analysis requires more time and costs.
Analyzing external forces often requires skills that are underdeveloped when primarily focused on internal factors. This can lead to overlooking opportunities and threats.
Who develops the SWOT?
SWOT analysis can and should be used by anyone responsible for decision making. Typically, the more people included in a SWOT analysis, the more comprehensive it will be. Depending on the objectives of the review, you should select the appropriate number of individuals required. This could range from a single individual to a team comprising different departments/roles as well as customers and focus groups.
Do we need a professional facilitator to perform a SWOT analysis?
It is common for us to see SWOT developed with the help of an outside facilitator. Sometimes this leads to a belief that a SWOT analysis can only be done with the support of a trained and experienced facilitator. In my opinion, this leads to an underutilization of this valuable tool.