How to Perform SWOT Analysis

by Tim Berry
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The SWOT analysis is a valuable step in your situational analysis. Assessing your firms strengths, weaknesses, market opportunities, and threats through a SWOT analysis is a very simple process that can offer powerful insight into the potential and critical issues affecting a venture.

The SWOT analysis begins by conducting an inventory of internal strengths and weaknesses in your organization. You will then note the external opportunities and threats that may affect the organization, based on your market and the overall environment. Dont be concerned about elaborating on these topics at this stage; bullet points may be the best way to begin. Capture the factors you believe are relevant in each of the four areas. You will want to review what you have noted here as you work through your marketing plan. The primary purpose of the SWOT analysis is to identify and assign each significant factor, positive and negative, to one of the four categories, allowing you to take an objective look at your business. The SWOT analysis will be a useful tool in developing and confirming your goals and your marketing strategy. Some experts suggest that you first consider outlining the external opportunities and threats before the strengths and weaknesses. Business Plan Pro, LivePlan, and Sales and Marketing Pro will allow you to complete your SWOT analysis in whatever order works best for you, but you will want to review all four areas in detail. Strengths Strengths describe the positive attributes, tangible and intangible, internal to your organization. They are within your control. What do you do well? What resources do you have? What advantages do you have over your competition? You may want to evaluate your strengths by area, such as marketing, finance, manufacturing, and organizational structure. Strengths include the positive attributes of the people involved in the business, including their knowledge, backgrounds, education, credentials, contacts, reputations, or the skills they bring. Strengths also include tangible assets such as available capital, equipment, credit, established customers, existing channels of distribution, copyrighted materials, patents, information and processing systems, and other valuable resources within the business. Strengths capture the positive aspects internal to your business that add value or offer you a competitive advantage. This is your opportunity to remind yourself of the value existing within your business. Weaknesses Note the weaknesses within your business. Weaknesses are factors that are within your control that detract from your ability to obtain or maintain a competitive edge. Which areas might you improve? Weaknesses might include lack of expertise, limited resources, lack of access to skills or technology, inferior service offerings, or the poor location of your business. These are factors that are under your control, but for a variety of reasons, are in need of improvement to effectively accomplish your marketing objectives. Weaknesses capture the negative aspects internal to your business that detract from the value you offer, or place you at a competitive disadvantage. These are areas you need to enhance in order to compete with your best competitor. The more accurately you identify your weaknesses, the more valuable the SWOT will be for your assessment. Opportunities Opportunities assess the external attractive factors that represent the reason for your business to exist and prosper. These are external to your business. What opportunities exist in your market, or in the environment, from which you hope to benefit? These opportunities reflect the potential you can realize through implementing your marketing strategies. Opportunities may be the result of market growth, lifestyle changes, resolution of problems associated with current situations, positive market perceptions about your business, or the ability to offer greater value that will create a demand for your services. If it is relevant, place timeframes around the opportunities. Does it represent an ongoing opportunity, or is it a window of opportunity? How critical is your timing?

Opportunities are external to your business. If you have identified opportunities that are internal to the organization and within your control, you will want to classify them as strengths. Threats What factors are potential threats to your business? Threats include factors beyond your control that could place your marketing strategy, or the business itself, at risk. These are also external you have no control over them, but you may benefit by having contingency plans to address them if they should occur. A threat is a challenge created by an unfavorable trend or development that may lead to deteriorating revenues or profits. Competition existing or potential is always a threat. Other threats may include intolerable price increases by suppliers, governmental regulation, economic downturns, devastating media or press coverage, a shift in consumer behavior that reduces your sales, or the introduction of a leap -frog technology that may make your products, equipment, or services obsolete. What situations might threaten your marketing efforts? Get your worst fears on the table. Part of this list may be speculative in nature, and still add value to your SWOT analysis. It may be valuable to classify your threats according to their seriousness and probability of occurrence. The better you are at identifying potential threats, the more likely you can position yourself to proactively plan for and respond to them. You will be looking back at these threats when you consider your contingency plans. The implications The internal strengths and weaknesses, compared to the external opportunities and threats, can offer additional insight into the condition and potential of the business. How can you use the strengths to better take advantage of the opportunities ahead and minimize the harm that threats may introduce if they become a reality? How can weaknesses be minimized or eliminated? The true value of the SWOT analysis is in bringing this information together, to assess the most promising opportunities, and the most crucial issues. An example AMT is a computer store in a medium-sized market in the United States. Lately it has suffered through a steady business decline, caused mainly by increasing competition from larger office products stores with national brand names. The following is the SWOT analysis included in its marketing plan.

Strengths 1. Knowledge. Our competitors are retailers, pushing boxes. We know systems, networks, connectivity, programming, all the Value Added Resellers (VARs), and data management.

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Relationship selling. We get to know our customers, one by one. Our direct sales force maintains a relationship. History. Weve been in our town forever. We have the loyalty of customers and vendors. We are local.

Weaknesses 1. Costs. The chain stores have better economics. Their per-unit costs of selling are quite low. They arent offering what we offer in terms of knowledgeable selling, but their cost per square foot and per dollar of sales are much lower. Price and volume. The major stores pushing boxes can afford to sell for less. Their component costs are less and they benefit from volume buying with the main vendors. Brand power. Take one look at their full-page advertising, in color, in the Sunday paper. We cant match that. We dont have the national name that flows into national advertising.

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Opportunities 1. Local area networks. LANs are becoming commonplace in small businesses, and even in home offices. Businesses today assume LANs are part of normal office work. This is an opportunity for us because LANs are much more knowledge and service intensive than the standard off-the-shelf PC. The Internet. The increasing opportunities of the Internet offer us another area of strength in comparison to the box-on-the-shelf major chain stores. Our customers want more help with the Internet and we are in a better position to give it to them. Training. The major stores dont provide training, but as systems become more complicated with LAN and Internet usage, training is more in demand. This is particularly true of our main target markets. Service. As our target market needs more service, our competitors are less likely than ever to provide it. Their business model doesnt include service, just selling the boxes.

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Threats 1. The computer as appliance. Volume buying and selling of computers as products in boxes, supposedly not needing support, training, connectivity services, etc. As people think of the computer in those terms, they think they need our service orientation less. The larger price-oriented store. When they have huge advertisements of low prices in the newspaper, our customers think we are not giving them good value.

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You can also review an example of a SWOT analysis within the online sample marketing plans available at www.mplans.com. Leveraging the insight the SWOT analysis can bring is time well invested.

How to Do a SWOT Analysis 1) Prepare a table such as the one you see at the end of this article. 2) Fill in the boxes, according to the specific purpose of your SWOT analysis. 3) Once you have the table complete, use it to create a strategy or strategies that will make your business more competitive. I like to use these questions as a thinking/discussion guide:

Do strengths open any opportunities?

How can we convert weaknesses to strengths? What do we have to do to use opportunities? How do we best neutralize threats?

SWOT Analysis Tips Always choose a specific purpose for your SWOT analysis. Otherwise, you'll just end up with a bunch of generalizations that wont provide any direction for an action plan. Realize that SWOT analysis is a subjective process; different groups of people may come up with different SWOT analyses for the same stated purpose or a single person may come up with different SWOT analyses for the same stated topic at a different time. For this reason, SWOT analysis is not the be-all and end-all of business planning; it's best, in my opinion, as a planning starting point for small businesses and/or used in conjunction with other business planning tools, such as PEST analysis which "can help to ensure that you don't overlook external factors, such as new government regulations, or technological changes in your industry" when looking at opportunities and threats.

SWOT Analysis Matrix

Positive Factors

Negative Factors

Internal Factors

Strengths

Weaknesses

External Factors

Opportunities

Threats

SWOT Analysis

Discover New Opportunities. Manage and Eliminate Threats.

Analyze your situation with James Manktelow & Amy Carlson.

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying both the Opportunities open to you and the Threats you face. Used in a business context, a SWOT Analysis helps you carve a sustainable niche in your market. Used in a personal context, it helps you develop your career in a way that takes best advantage of your talents, abilities and opportunities. (Click here for Business SWOT Analysis, and here for Personal SWOT Analysis.)

Business SWOT Analysis

What makes SWOT particularly powerful is that, with a little thought, it can help you uncover opportunities that you are well placed to exploit. And by understanding the weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unawares. More than this, by looking at yourself and your competitors using the SWOT framework, you can start to craft a strategy that helps you distinguish yourself from your competitors, so that you can compete successfully in your market.

How to Use SWOT Analysis

Originated by Albert S Humphrey in the 1960s, SWOT Analysis is as useful now as it was then. You can use it in two ways - as a simple icebreaker helping people get together to "kick off" strategy formulation, or in a more sophisticated way as a serious strategy tool.

Tip: Strengths and weaknesses are often internal to your organization, while opportunities and threats generally relate to external factors. For this reason the SWOT Analysis is sometimes called Internal-External Analysis and the SWOT Matrix is sometimes called an IE Matrix.

To help you to carry out a SWOT Analysis, download and print off our free worksheet, and write down answers to the following questions.

Strengths:

What advantages does your organization have? What do you do better than anyone else?

What unique or lowest-cost resources can you draw upon that others can't? What do people in your market see as your strengths? What factors mean that you "get the sale"? What is your organization's Unique Selling Proposition (USP)?

Consider your strengths from both an internal perspective, and from the point of view of your customers and people in your market. Also, if you're having any difficulty identifying strengths, try writing down a list of your organization's characteristics. Some of these will hopefully be strengths! When looking at your strengths, think about them in relation to your competitors. For example, if all of your competitors provide high quality products, then a high quality production process is not a strength in your organization's market, it's a necessity.

Weaknesses:

What could you improve? What should you avoid? What are people in your market likely to see as weaknesses? What factors lose you sales?

Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you don't see? Are your competitors doing any better than you? It's best to be realistic now, and face any unpleasant truths as soon as possible.

Opportunities:

What good opportunities can you spot? What interesting trends are you aware of?

Useful opportunities can come from such things as:

Changes in technology and markets on both a broad and narrow scale. Changes in government policy related to your field. Changes in social patterns, population profiles, lifestyle changes, and so on. Local events.

Tip: A useful approach when looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them.

Threats

What obstacles do you face? What are your competitors doing? Are quality standards or specifications for your job, products or services changing?

Is changing technology threatening your position? Do you have bad debt or cash-flow problems? Could any of your weaknesses seriously threaten your business?

Tip: When looking at opportunities and threats, PEST Analysis can help to ensure that you don't overlook external factors, such as new government regulations, or technological changes in your industry.

Further SWOT Tips

Mind Tools on Strategy:

SWOT Analysis TOWS Analysis PEST Analysis Core Competence Analysis Value Chain Analysis Porter's Five Forces Porter's Generic Strategies Bowman's Strategy Clock Scenario Analysis

If you're using SWOT Analysis as a serious tool (rather than as a casual "warm up" for strategy formulation), make sure you're rigorous in the way you apply it:

Only accept precise, verifiable statements ("Cost advantage of US$10/ton in sourcing raw material x", rather than "Good value for money"). Ruthlessly prune long lists of factors, and prioritize them, so that you spend your time thinking about the most significant factors. Make sure that options generated are carried through to later stages in the strategy formation process. Apply it at the right level - for example, you might need to apply SWOT Analysis at product or product-line level, rather than at the much vaguer whole company level. Use it in conjunction with other strategy tools (for example, USP Analysis and Core Competence Analysis) so that you get a comprehensive picture of the situation you're dealing with.

Note: You could also consider using the TOWS Matrix. This is quite similar to SWOT in that it also focuses on the same four elements of Strengths, Weaknesses, Opportunities and Threats. But TOWS can be a helpful alternative because it emphasizes the external environment, while SWOT focuses on the internal environment.

Example SWOT Analysis

A start-up small consultancy business might draw up the following SWOT Analysis:

Strengths:

We are able to respond very quickly as we have no red tape, and no need for higher management approval. We are able to give really good customer care, as the current small amount of work means we have plenty of time to devote to customers. Our lead consultant has strong reputation in the market. We can change direction quickly if we find that our marketing is not working. We have low overheads, so we can offer good value to customers. Our company has little market presence or reputation. We have a small staff, with a shallow skills base in many areas. We are vulnerable to vital staff being sick, and leaving. Our cash flow will be unreliable in the early stages. Our business sector is expanding, with many future opportunities for success. Local government wants to encourage local businesses. Our competitors may be slow to adopt new technologies. Developments in technology may change this market beyond our ability to adapt. A small change in the focus of a large competitor might wipe out any market position we achieve.

Weaknesses:

Opportunities:

Threats:

As a result of their SWOT Analysis, the consultancy may decide to specialize in rapid response, good value services to local businesses and local government. Marketing would be in selected local publications to get the greatest possible market presence for a set advertising budget, and the consultancy should keep up-to-date with changes in technology where possible.

Key Points
SWOT Analysis is a simple but useful framework for analyzing your organization's strengths and weaknesses, and the opportunities and threats that you face. It helps you focus on your strengths, minimize threats, and take the greatest possible advantage of opportunities available to you. SWOT Analysis can be used to "kick off" strategy formulation, or in a more sophisticated way as a serious strategy tool. You can also use it to get an understanding of your competitors, which can give you the insights you need to craft a coherent and successful competitive position. When carrying out your SWOT Analysis, be realistic and rigorous. Apply it at the right level, and supplement it with other option-generation tools where appropriate.

Here is a SWOT example for a small business. This particular small business is a dog grooming business. (See How to Do SWOT Analysis for Your Business for details on what SWOT analysis is and how best to use it for business planning.)

SWOT Analysis Purpose: to create a marketing action plan. (Note that this SWOT analysis is specifically focused on the marketing of this small business.) Strengths

Have many return customers Customer satisfaction - customers do say they like service and recommend grooming services to others Do get some walk-in business

Weaknesses

Don't pay much attention to marketing dependent on word-of-mouth and website Website purely informational and static Don't have a marketing plan Don't have much of a marketing budget

Opportunities

Increasing use of social media Increasing popularity of dogs Local annual Pet Fair

Threats

Other dog grooming businesses in town One dog grooming business has a series of radio ads running Another dog business has run newspaper ads recently Expense of running media ads

SWOT Analysis: Do Strengths Open Any Opportunities? As customers say they like services and are willing to recommend them, could create some type of referral reward program to actively encourage referrals. Could try to increase walk-in by having an eye-catching window display. How Can We Convert Weaknesses to Strengths?

Looking at opportunities and listed weaknesses, looks like social media could be a real marketing opportunity. Instead of just having an informational website, our business could put up a Facebook page and open a Twitter account to try and reach out to old (and new) customers. (Because dogs are so popular, might be helpful to tweet as a dog?) What Do We Have to Do to Use Opportunities? Set up social media business accounts/pages. (Am already familiar with Facebook and Twitter through personal accounts.) Set aside time or assign staff person to update Facebook/ Twitter accounts.) Canvas staff for Facebook contest ideas. Find out details of annual Pet Fair, such as when it runs and how much a booth/table would cost there. (Remember will also have cost/logistics of manning the booth or table, too.) How Do We Best Neutralize Threats? Without a bigger marketing budget, we cant run competing radio and newspaper ad campaigns (although would be a good idea to run occasional newspaper ad). Might be able to off-set the competition's newspaper and radio campaigns through developing our online presence as above. Results: As you see above, this SWOT analysis has created the seeds of an action marketing plan, providing clear direction for how this small business can counter their competitions' marketing efforts and increase their own customer base. Back to How to Do SWOT Analysis for Your Business SWOT Analysis Matrix

Positive Factors

Negative Factors

Internal Factors

Strengths

Weaknesses

External Factors

Opportunities

Threats