What Is SWOT analysis?
SWOT is basically a business tool that deals with the internal and the external factors of the business. It is an acronym which stands for; strength, weakness, opportunities and threats. It uses the basic data of the business to identify what strengths and weaknesses the business has. It also helps the business to spot the opportunities that may arise and the threats it is likely to face.
How to perform a SWOT Analysis?
A SWOT analysis can be done by a single person or a group of people. Both cases involve performing only a few steps.
- Synthesis of the internal data to list the weaknesses and the strengths of the firm
- Collect the external data to identify the possible threats and opportunities.
Strengths describe the positive factors of your business. These are completely under your control, and you decide how to utilize them for the benefit of your company. Strengths are considered as an internal factor and include the positive attributes of your company.
You may classify your strengths based on the area of expertise. If your company has a strong finance sector or a brilliant marketing team, then list them down as your strengths. At the same time, if your workers are highly skilled and have been given adequate training then they are also considered as your strength. In short anything that is likely to give you the edge over your competitor is termed as strengths.
Speaking of competitors, if you produce high-quality goods but at the same time your competitors are producing high-quality goods as well then you cannot classify that as a strength. It becomes more of a necessity rather than strength as it is not giving you the upper hand against your rivals.
Weaknesses are internal factors that are within your control. Despite being in your control, these factors somewhat detract you from performing at an optimum level. These will hinder your progress and give the competitive edge to your competitors.
Weaknesses may include the lack of technologies, lack of capital invested in your business, unskilled labors or even the poor location of your business. These factors are in your control but needs improvements so that you are no longer at a disadvantage.
While making the SWOT analysis, you tend to note down these factors and try to come up with a business strategy that focuses less on these things. In other words, you try to minimize the usage of such factors. A key part of analyzing the weakness is to come up with ideas which will not only improve your weaknesses but also match up with the competitors.
We now move to the external factors. External forces are such that are beyond your control. However, opportunities are the positive external factors. Opportunities reflect the potential of the business and marketing strategy implemented. These open up possibilities for the business to do well. If done right or taken advantage of them the business will have a significant boost over its rivals or competitors.
Opportunities may arise due to certain reasons. For instance, a change in consumer demand or taste can be an opportunity. Weather factors, economic conditions are also termed as opportunities. Government subsidizing certain firms can be classified as an opportunity if your business falls under those certain firms (read more political factors affecting your business). Sometimes opportunities may be such that fall under your internal factors. Let’s say all firms which are eco-friendly will have a deducted income tax. If your company happens to be an eco-friendly firm, then you can take this opportunity and classify it as strength as well.
Threats are basically the factors which may put your marketing strategy in jeopardy. Not only that, but your entire business is also at risk as well. A key part of SWOT analysis is the assessments of the possible threats that may arise. Since it is an external factor, you have no control over it. However, you can make a contingency plan to combat such risks.
Threats can be of different kinds. If you are in the agriculture industry, then bad weather may be termed as a threat. On the other hand, if you are in the importing business, then government tax regulations are seen as a threat. Other threats can be raising prices from suppliers, pressure from the activist groups (more social factors affecting your company), bad media coverage or even lawsuits which are likely to damage the company’s reputation. Keep in mind, even your competitors are your threats. Their improvements will provide competition for your product. You cannot stop them from doing well. But you can use your strengths to outperform them.
You can classify these threats as either “seriousness of harm” or as “likelihood”. Based on how quickly and effectively you can identify these potential threats; you can create your contingency plan.
Application of SWOT analysis
A major part of SWOT analysis is how you implement your strategy based on the data you have received. Listing down all the strengths and weakness, while identifying all the opportunities and threats are of no use if you cannot implement a strategy. In other words, you need to react to the set of information given. You have to utilize the strengths of the firm and take full advantage of the opportunities that open up. Minimizing the weaknesses is also a key factor. You need to come up with ways to either improve on your weaknesses or eliminate them altogether. This combined with avoiding threats or combating those threats will ensure that the business will only provide fruitful results.
The true value of SWOT analysis is to bring all these information together. The analysis helps to assess the most promising situations and the most vital issues.