What is SWOT Analysis

What is SWOT Analysis?

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SWOT Analysis Overview What is SWOT Analysis?

Remember, It’s Virtually Impossible To Focus Too Much On What You Do Well And What Creates Profits For Your Business.

A SWOT (Strengths, Weaknesses, Opportunities, and Threats) is a tool used to provide a general or detailed snapshot of a company's health. Think of your SWOT as a tune-up that every business needs periodically to diagnose and fix what’s a bit worn, what’s on the verge of breaking down, or what’s already broken and needs replacement--so that you can keep the business humming—even better than it has in the past.

SWOT offers professional managers an effective evaluative technique to aid the decision making process.

It can not find the solution for you, but it will ensure that issues are: identified, classified and prioritized clearly, showing the problem in terms of key underlying issues. Decision makers can then see the answer.

It's a four-part approach to analyzing a company's overall strategy or the strategy of its business units. All four aspects must be considered to implement a long-range plan of action.


SWOT Example

A start-up small consultancy business might carry out the following SWOT analysis

Strengths:We are able to respond very quickly as we have no red tape, no need for higher management approval, etc. 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 within the market We can change direction quickly if we find that our marketing is not working We have small overheads, so can offer good value to customers

Weaknesses:Our company has no 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, leaving, etc. Our cash flow will be unreliable in the early stages

Opportunities:Our business sector is expanding, with many future opportunities for success Our local council wants to encourage local businesses with work where possible Our competitors may be slow to adopt new technologies

Threats:Will developments in technology change this market beyond our ability to adapt? A small change in focus of a large competitor might wipe out any market position we achieve The consultancy might therefore decide to specialize in rapid response, good value services to local businesses. Marketing would be in selected local publications, to get the greatest possible market presence for a set advertising budget. The consultancy should keep up-to-date with changes in technology where possible.


Why Use SWOT?

In any business, it is imperative that the business be its own worst critic. A SWOT analysis forces an objective analysis of a company's position via its competitors and the marketplace. Simultaneously, an effective SWOT analysis will help determine in which areas a company is succeeding, allowing it to allocate resources in such a way as to maintain any dominant positions it may have. SWOT Analysis is a very effective way of identifying your Strengths and Weaknesses, and of examining the Opportunities and Threats you face. Carrying out an analysis using the SWOT framework will help you to focus your activities into areas where you are strong, and where the greatest opportunities lie.

Why Bother to SWOT? The economy stinks. So why take the time to bang your company over the head doing a SWOT analysis when so much is out of your control? No question that the current downturn is impacting some businesses more traumatically than others, and a lot of disappointing business results can be blamed primarily on the general economic climate. But look around. A high percentage of U.S. businesses are surviving the pain, and many are even thriving. Winners typically win not by sticking with their past game plans--but rather by focusing on some new thing(s) that are under their control.

During depressed economic times, there are still lots of winners


SWOT Analysis The Basics

You can develop the basic analysis in a brainstorming session with members of your company, or by yourself if you are a one-person shop. The business of management today is characterised by complex issues and continuous change. Frequently the related decisions and actions are characterised by trying to understand the complexity of the issues involved so that an appropriate decision can be made. While this kind of applied decision making is not an exact science, SWOT analysis is internationally known as a method of understanding the issues which are involved. In doing so, ideas can be shared between managers and even integrated into a wider picture for subsequent analysis.

Use SWOT analysis to help you and your team reach the best solution by: Helping decision makers share and compare ideas Bringing about a clearer common purpose and understanding of factors for success Organizing the important factors linked to success and failure in the business world. Analyzing issues that have led to failure in the past Providing linearity to the decision making process allowing complex ideas to be presented systematically.

SWOT analysis is a dynamic process of decision making with many applications in organizations and other applied fields


SWOT Analysis How Does SWOT Analysis Work?

The strategy is to look at the organizations current performance (strengths and weaknesses) and factors in the external environment (opportunities and threats) that might affect the organizations future.Once the attributes for each section have been identified it is possible to determine the point of balance. Eventually the points of balance of strengths versus weaknesses and opportunities versus threats can be plotted together. For example, an information technology department needs to determine the strengths and weaknesses of its people and its technology. It also needs to make sure the IT strategy complements the company's business goals. The department head needs to ask: What is each staff member good at? What are they not good at? Project leaders also must consider opportunities and threats -- or customers and competitors. How attractive is the market or direction they're considering? What's their market share and cost structure? POSITIVE NEGATIVE

INTERNAL Strengths Weaknesses EXTERNAL Opportunities Threats


SWOT Example

Delta Air Lines Inc., chose to invest in a multibillion-dollar customer service system that addresses the flight delay problems experienced by 20% of its passengers. Although some companies might think the move was excessive considering 80% of customers have no problems, Delta believed customer service was an important area for increasing market share and that competitors could pose a threat if Delta didn't address the problem.

Another example is Dell Computer Corp., which is a great example of how an IT company can use a SWOT analysis to carve out a strong business strategy, according to Glazer.

Dell recognized that its strength was selling directly to consumers and keeping its costs lower than those of other hardware vendors.

As for weaknesses, the company acknowledged that it lacked solid dealer relationships. Identifying opportunities was an easier task. Dell looked at the marketplace and saw that customers

increasingly valued convenience and one-stop shopping and that they knew what they wanted to purchase. Dell also saw the Internet as a powerful marketing tool.

On the threats side, Dell realized that competitors like IBM and Compaq Computer Corp. had stronger brand names, which put Dell in a weaker position with dealers.

Dell put together a business strategy that included mass customization and just-in-time manufacturing (letting customers design their own computers and custom-building systems). Dell also stuck with its direct sales plan and offered sales on the Internet.

Clarity in strategy works. Fuzzy strategies fail. Most strategies fail because they don't have a clear direction


SWOT Analysis Internal and External Analysis

To get a better look at the big picture, consider both internal and external forces when uncovering opportunities and threats.Internal Analysis: Examine the capabilities of your organization. This can be done by analyzing your organization's strengths and weaknesses.External Analysis:Look at the main points in the environmental analysis, and identify those points that pose opportunities for your organization, and those that pose threats or obstacles to performance. Key points: Once the SWOT analysis has been completed, mark each point with:

Things that MUST be addressed immediately. Things that can be handled now. Things that should be researched further. Things that should be planned for the future.

What better source than the group of participants composed of stakeholders, staff, volunteers, and/or community residents?

A SWOT session is a participatory group process which produces output valuable for annual planning


SWOT Analysis The Basics (Cont.)

A SWOT session is also useful for deciding upon a major transformation of a program

Now that each point has been prioritized, set an action point for each and assign it to a person, add a deadline.Although the SWOT analysis will assist in identifying issues, the action plan will ensure that something is done about each one. With complicated issues, a further brainstorming session might be done to analyze it further & decide what action to take.The SWOT analysis results should be reviewed every few months to determine if anything has changed and what has been achieved. The "Brainstorm" is best used when setting up a new project or organization, works best in smaller groups than a SWOT session, and can be effectively used in the transformation process when the participants are a smaller group of managers. The observations generated by the participants should not include any major surprises to the organizers and coordinators of the program and the administrators of the organization. It can be used in a conference where the participants come from different locations and organizations.


SWOT Analysis Additional Notes

The SWOT framework offers a good starting point for analysis

Do realize that any analysis requires data and information. If you do not have adequate information, the results of your analysis are likely to be less reliable. However, an experienced manager knows that complete information is never available. In the real world, you end up making business decisions with incomplete information. That is where things like common sense, gut feel and experience kick in.

Expanded SWOT AnalysisYou can take an additional step beyond a traditional "text book" SWOT analysis by delving deeper into industry dynamics. A more in-depth SWOT analysis can help you better understand your company's competitive situation. One way to step beyond a traditional SWOT analysis is to include more detailed competitor information in the analysis. Note Internet-related activities such as trade organization participation, search engine inclusion, and outside links to the sites. This will better help you spot opportunities for and threats to your company.You can also take a closer look at the business environment. Often, opportunities arise as a result of a changing business environment. Some examples are:* A new trend develops for which demand outstrips the supply of quality options. Early on, the trend toward healthy eating coupled with an insistence on good-tasting food produced a shortage of acceptable natural food alternatives, for example.* A customer segment is becoming more predominant, but their specific needs are not being fully met by your competitors. The U.S. Hispanic population experienced this phenomenon in the late 1990’s and early 2000’s.* A customer, competitor, or supplier goes out of business or merges with another company. With the demise of many pure-play "dot coms", examples of this abound. As each went out of business, opportunities arise to gain the defunct business’ customers.You can also expand the reach of a SWOT analysis through surveys. You can learn more about your own as well as competitor’s sites and businesses. Areas to consider researching include customer awareness, interest, trial, and usage levels, brand, site, and/or company image, importance of different site or product attributes to your customers, and product and/or site performance.Whether using a basic or more advanced approach to SWOT analysis, you are sure to come away with newfound insights. Use these to increase your company's effectiveness and as input into your business or marketing plan


SWOT Analysis Operational Definitions

A STRENGTH is something that you truly do well, excel at versus the competition, can build on; something that truly differentiates your business, a key metric that is improving, etc. Most companies do surprisingly bad job of identifying what they are really good at doing. Every company has strengths. A strength can be something very concrete like a large, growing customer base or less measurable: a well-run customer service department that keeps customers satisfied (thus helping both retention and new sales). Note that a STRENGTH can also be a weakness: e.g. you’re Number One in your market is a STRENGTH, but if you are taking that for granted—that’s also a weakness.

A Weakness is a real gap, a deficiency, a problem, or a key metric that is going south; something you’re not doing very well and that you should be doing better; something that’s dated that no longer applies—even though it used to; something important that you really don’t know or aren’t sure about. In fact, one good outcome of a SWOT is to discover what you really don’t know and then do something about it. A weakness can be very tangible and concrete or it can be an attitude: e.g. a complete unwillingness to invest in any marketing initiatives or a lack of understanding what to do.

The best way to identify STRENGTHS, WEAKNESSES, OPPORTUNITIES & THREATS is to ask the right questions


SWOT Analysis Operational Definitions (Cont.)

An OPPORTUNITY is a favorable external condition; something (that you haven’t acted on or taken advantage yet) that could impact you positively. Opportunities are new ways that your exploit your STRENGTHS, WEAKNESSES & THREATS--new things that that you can do to potentially improve your business—that turn into recommendations and actions. This list becomes the most important part of your SWOT for prioritizing and determining what next steps to take.

A THREAT is something external to your business that can potentially impact you negatively: competitors (actually doing specific things vs. just being there), changing conditions in your particular marketplace, the overall economy, government regulations, etc. Threats are part of the playing field that you can’t ignore. They are part of the context of your business. Some threats, though, are internal: e.g. hanging onto the status quo when change is required or the impact on remaining if you decide to cut costs (maybe an OPPORTUNITY). You should also make an ongoing list of Issues and questions that inevitably pop-up as a result of developing the STRENGTHS, WEAKNESSES, OPPORTUNITIES & THREATS lists—for further analysis and discussion—and possible incorporation into your SWOT. Generally, STRENGTHS & WEAKNESSES are current in timeframe, and OPPORTUNITIES & THREATS are in the future— starting with tomorrow.

The purpose of strategy is to be really clear before you take the direction. The point of a SWOT analysis is to have the best shot at a grounded plan


About The Author

Steven Bonacorsi is a Senior Master Black Belt instructor and coach. Steven Bonacorsi has trained hundreds of Master Black Belts, Black Belts, Green Belts, and Project Sponsors and Executive Leaders in Lean Six Sigma DMAIC and Design for Lean Six Sigma process improvement methodologies.

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