SWOT Analysis: Definition, Steps, and Examples for Business
If you are working in the field of business and management, most probably you have heard SWOT Analysis many times. In your personal life, when you want to go somewhere or to move to a particular place, you need to know which option will be better for you. In a similar manner, companies and organizations must find out what is working well. Thank god we have a simple method to help you to overcome many issues: SWOT Analysis.
No matter you are an individual or a large organization, performing a SWOT analysis is a useful way to help you to assess your company’s or project’s current conditions, weakness, threats, and other important factors to take decisions. In this article, we will talk about what a SWOT analysis is by walking through SWOT analysis examples and provide you tips and techniques to perform a complete SWOT analysis. You will understand how SWOT will help you to improve your company’s strengths and work-streams.
Before going deeper into the topic, let’s talk about the definition of SWOT analysis.
What Is a SWOT Analysis and What does SWOT Stand For?
SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. This analysis is applicable to both large operations of a company, single department units, and the entire organization. Decision-makers often perform SWOT analyses at the organizational level to understand how far they are from targets and their success criteria. On the other hand, it can be performed to determine how well a marketing team is working or a particular project such as a healthcare improvement project is performing considering realistic projections.
SWOT gives an opportunity to highlight four key elements: strengths, weaknesses, opportunities, and threats for your business. Let’s take a glance at each key traits.
Strengths are some aspects that your organization is good at. These help you to have the quality to stand out among tour rivals. What are the advantages that your company has compared with others? For example, highly motivated team members, know-how, ability to access certain technologies, a good processing manufacturing system are your company’s strengths that are an integral part of your company. Strengths can be either tangible or intangible.
While determining strengths, ask yourself questions like the following ones;
- What do you produce better than your competitors?
- Which values grow your business?
- What type of resources can you access and your competitors can not?
- What factors drive your sales?
Note that the strengths of your company should distinguish you from others. If everybody can produce the same high-quality product in the same marketplace, this thing does not provide you additional strength.
After determining the strengths of your company, it’s time to be aware of your company’s weaknesses. Determine your weaknesses without prejudice because a SWOT Analysis will only be useful if you perform honestly. Collect all the inputs you need and face your miserable conditions now. Likewise to your Strengths, Weaknesses are your organization’s and team’s inseparable parts. Therefore, you need to analyze your company’s people, resources, and processes as well as your competitors.
Think about the reasons that cause your weakness and imagine your competitors how they overcome the problems. Ask yourself why are your competitors performing better than you?
Opportunities are positive risks that have the potential to drive your business forward, however, you need to increase their possibility. They are often external to your organization and require a business insight to understand their effect. Opportunities may arise as a result of your operations in the market or by external causes. Exploiting opportunities may distinguish your company from your competitors.
So, brainstorm with other decision-makers in your organization to catch them immediately. Opportunities may not lead to big changes all the time. Sometimes they provide you small benefits. On any ground, you should detect and evaluate them.
Analyze changes in government regulations, social patterns, trends, viewpoints, customer profile, and market demand to find out which opportunities may arise.
Threats are the last trait of a SWOT analysis. They are the negative risks that have the potential to affect your business or organization in a negative way such as shifts in market requirements or having trouble obtaining resources for production. Since they have destructive effects on your organization’s objectives, it is very important to detect, evaluate, and mitigate threats.
Sometimes threats are apparent and easy to detect. However, sometimes it is difficult to assess the condition whether it may cause a negative effect on your goals. Analyze the challenges that you may face during the marketing and/or manufacturing process. Think about the limits and quality specifications for your goods or services you are producing. Walkthrough the processes that may have the potential to lead to defects.
Obviously, everything tends to change, quality standards, specifications, market demand, and even working conditions. In some cases, evolving technology may lead to threats rather than opportunities for some organizations.
Brainstorm with your team and list factors that cause your competitor’s failure. Try to understand what kind of challenges do others face during performing the same operations of your company. However, copying everything without improving is not a good solution for you to come through the same problems that your competitors face.
Also analyze internal specific factors such as cash-flow issues and organizational structure, storage, and issue problems to view the whole picture while determining threats. For this purpose, you can perform a PEST analysis.
Internal and External Factors that Effect SWOT Elements
We discussed four SWOT elements – Strengths, Weaknesses, Opportunities, and Threats above. However, these elements should be examined in two distinct groups: internal and external.
Strengths and Weaknesses are internal factors that are related to your organization’s structure. So, they are mostly under your team’s control. For example, strong employee attitudes and satisfactory customer service are strengths that are under your control.
Confusing reporting structure and lack of quantitative goals are internal weakness factors of your organization.
As discussed above, in SWOT Analysis, emerging new competitors is an external threat that is not under your control. You can do almost nothing to decrease the number of competitors. That’s why this is an external factor out of your control. The below figure illustrates SWOT Analyses Matrice (Internal-External Analyses or IE matrices) to guide you to develop strategies to deal with internal and external factors.
Dividing four SWOT elements – Strengths, Weaknesses, Opportunities, and Threats into subcategories (internal and external) is not mandatory while performing a SWOT analysis, however, it may be helpful to develop strategies to deal with threats.
Up to this section of our article, we provided SWOT Analysis definition and discuss the characteristics of each four SWOT elements. Now let’s talk about how to do a SWOT analysis effectively.
How to Conduct a SWOT Analysis?
While you are performing a SWOT Analysis, you need to follow some basic steps. Like cost-benefit analysis or fishbone diagram, conducting a brainstorming session is essential for a successful SWOT Analysis. Therefore everything starts with asking a few questions.
Start with determining the strengths of your organization by asking some questions like the following ones;
- In what areas does your sales department fail?
- What are your most negative customer feedback responses?
- Why do you have big canceling rates?
- What systems do your competitors use that you do not?
- What are your worst products?
- Which skills and professions do your team members don’t have?
- What complaints are often mentioned about your new products?
- Do your team members lack of expertise?
- What are the biggest obstacles in your cash flow management?
Now you will see that it will be a bit more difficult to find out your organization’s or project’s opportunities and threats compared with determining strengths and weaknesses. Because Strengths and Weaknesses are internal factors so that you can easily determine them with your team during a brainstorming session with less effort. However, determining external factors require more inputs and effort because they are not under your or your team’s control.
In other words, you need extensive research and examination regarding competitor analysis, latest business trends, and market demands that have the potential to impact your company’s objectives. On the other hand, this does not mean that opportunities and threats cannot be internal.
Think about the opportunities you may come across and ask the following questions to identify them;
- Is it possible to sell your products at a higher price?
- Is there an additional market demand in the industry that you are not meeting?
- Which skills and professions do your team members don’t have?
- Is your target market changing in a positive way?
- Is there a new market that you haven’t penetrated?
Now that we identified the first three elements of SWOT analysis by asking a number of questions, let’s follow the same steps for threats and complete. It is easier to determine the apparent external threats such as emerging new competitors and partners or changing government regulations that are out of your control. On the other hand, threats such as high employee turnover is internal to your organization which can be controlled.
Ask the following questions to determine potential threats to your business;
- Do the other competitors provide better products to your target customers?
- Is it possible for other competitors to pull your employees?
- What will happen if your main supplier runs out of raw materials?
- Is your web system secure?
PEST Analysis and SWOT Analysis
PEST is an acronym that stands for Political, Economic, Social, and Technological. It is a tool that an organization can evaluate major external areas that have the potential to affect its business objectives. It is also known as PESTLE analysis especially in the U.K. The final two letters of PESTLE represent 2 additional factors which are legal and environmental. It is often used along with SWOT Analysis, therefore, we decided to touch on it in that article.
Threats such as changes in government regulations and market demands are classified as external factors in SWOT Analysis. PEST Analysis only examines external factors while SWOT Analysis focuses on both internal and external factors that could affect your business.
By using PEST analysis, you can determine threats in detail before they impact your organization and help you to decide when to avoid starting a new project if the conditions are not appropriate.
Therefore, it will be good to use both methods in sequence. At first, perform PEST analysis to gather insights regarding the world where your company exists, then perform SWOT Analysis to understand how strong or weak your company is.
Why Perform a SWOT Analysis?
Small-business owners often wonder if SWOT analyses are realistic and applicable to their company’s. It is clear that SWOT Analysis is applicable to both small and large organizations. However, it requires resources to be created.
SWOT Analysis Example
We discussed the function of each SWOT element above with examples. Now it is time to create your own in the light of the information given. Below SWOT Analysis Example illustrates the Strengths, Weaknesses, Opportunities, and Threats of a construction company operating in North America.
SWOT Analyses Matrix
First of all start with creating a matrix with four distinct areas to represent each SWOT element. This is beneficial because you can visually illustrate which elements can be analyzed as internal or external with showing a lot of information.
Below matrix illustrates a SWOT analysis for a construction company;
As shown in the figure above, a matrix provides you a quick but effective view regarding four basic elements. You can see all factors such as weather conditions, high costs, new trends on the same chart.
How to Use SWOT Analysis
You completed a SWOT matrix for your construction company. You have determined all strengths and weaknesses, as well as external opportunities and threats for your business through a brainstorming session with other decision-makers.
Now it is time to develop strategies actions after completing your a SWOT analysis. First of all, evaluate your strengths and decide which opportunities can be exploited. Then, analyze your weakness and threats to develop corrective and preventive actions to convert them into strengths if possible. Let’s go ahead and see how to do it.
Areas of Improvement for Strengths
Construction companies are established to build what clients ask for. No matter what you are building, your mission is to ensure stakeholder satisfaction. In our example above, your company’s, high efficiency, skilled staff, excellent customer service, and experienced subcontractors are all strengths. This tells you you are on the right way, continue to improve operational efficiency and productivity in order to reduce expenses. It also tells that you can improve customer satisfaction and engagement by providing excellent service.
Strengthen Your Weaknesses
To strengthen your weaknesses you determined through SWOT analysis is a bit difficult because everything may not be under your control.
Resistance to new methods and/or technologies are more common in companies operating in the field of construction compared with other firms. This reaction is because of your employees who have been using their own methods for many years. Sometimes resistance comes from your company’s executives who think it is not economical to use new methods.
High costs is another weakness of your company which decreases the profit margin and increases unit costs. Using efficient strategies to lower production costs and financial expenditures will contribute to strenghten your weakness.
Specializing in only one type of construction project may have both advantages and disadvantages. It may cause the market share to not exceed a certain limit and your customer profile will always be the same. On the other hand, if you have specialized in only one type of construction project, everyone will know your brand in this field.
Regardless of which industry you are operating in, you may encounter new opportunities every day. Therefore, you should always be looking for new clients and areas of business. Opportunities section of your SWOT matrix requires more effort to carry your company into the future. Evaluating your strengths, weaknesses, and identifying opportunities will help you to narrow down a list of objectives.
Note that swot analysis is a powerful and effective technique if used correctly. It creates awareness regarding what you do well and what you’re lacking considering a few areas.
In addition, SWOT Analysis provides a lot of information about your competitors, which mobilizes you to develop new strategies to push out competitors.
Note that Albert S. Humphrey created a method for team planning called SOFT analysis then developed SOFT into SWOT Analysis during his studies in Stanford Research Institute (SRI International) between 1960-1970.
15 years’ experience as a professional project management and strategy consultant. Director at Northwest Training and Education Co. which provides agile and scrum training service.