A SWOT analysis is an important tool used to evaluate an organization's performance and leaders would benefit from being familiar with this tool. A SWOT analysis can provide valuable insight as to the strengths, weaknesses, opportunities and threats the company is currently facing. In this article, we discuss what a SWOT analysis is, why it's a helpful tool for businesses and steps and tips to keep in mind when conducting a SWOT analysis for your organization.
What is the SWOT analysis?
A SWOT analysis is a tool used to help companies identify their strengths, weaknesses, opportunities and threats (SWOT). Many leaders use this tool when conducting business planning or performing a business analysis to determine internal and external factors that are influencing an organization's current state of affairs. The strengths and weaknesses portions of this analysis are aimed at identifying internal components that affect a company such as intellectual property, location and employees. The opportunities and threats part of the SWOT analysis look at external factors such as the cost of raw materials and consumer buying trends.
Performing a SWOT analysis can provide companies with the information needed to create solid business strategies and prioritize goals. This analysis is commonly used when deciding whether a business venture or project is viable and gives organizations a clear idea of the pros and cons associated with it.
Related: SWOT Analysis Guide (With Examples)
Why is the SWOT analysis a good business tool?
The SWOT analysis tool has been a fundamental component in business planning for various types of companies for years, and for good reason. A SWOT analysis is a great business tool for several reasons, including that it:
- Provides a systematic way of identifying internal and external factors affecting business
- Gives companies insight as to where to focus their efforts for growth
- Presents businesses a solid foundation on which to develop new business strategies
- Helps companies look outward at their competitors and customers
- Allows organizations to determine whether projects are viable and the pros and cons of implementing new projects
Who should do a SWOT analysis?
The leaders of an organization typically carry out SWOT analyses. However, the leaders alone cannot complete all tasks involved in conducting a successful SWOT analysis. For this reason, it's important to incorporate other people who are part of the organization and who play different roles. This ensures that various aspects and departments of the company are represented and that all relevant factors are considered when performing the analysis.
Some companies may also choose to include external people such as customers and stakeholders when conducting SWOT analyses. the more points of view provided throughout the analysis, the more comprehensive it will be.
How to conduct a SWOT analysis
The following are the steps you can take to conduct a SWOT analysis for your organization:
- Decide who will conduct the SWOT analysis.
- Identify your company's strengths through brainstorming.
- Narrow down and clarify strengths.
- Choose two or three primary strengths as your focus.
- Define these strengths as a group.
- Repeat steps two through four for weaknesses.
- Repeat steps two through four for opportunities.
- Repeat steps two through four for threats.
- Use your findings to develop a strategy to implement.
1. Decide who will conduct the SWOT analysis
Smaller companies may choose to allow a leader or manager to perform the analysis on their own. However, an external facilitator is often recommended for larger organizations or smaller businesses with the means to do so. Independent SWOT analysis facilitators ensure unbiased input and give leaders the opportunity to take part in the analysis fully.
2. Identify your company's strengths through brainstorming
Once you have decided who will perform the analysis as well as who will participate in it, the next step is to brainstorm your company's strengths. Common strengths to consider include innovation, leadership, productivity and quality of products or services. Keep track of all suggestions made regarding strengths.
3. Narrow down and clarify strengths
Next, put all of the strengths identified in one area so everyone can see all ideas together. Consolidate any strengths that are similar and remove any duplicate strengths. Make your list of strengths as simple as possible but ensure you maintain the original strength ideas. You should also clarify all strengths that are being kept on the list to ensure all participants have a concrete idea of them.
4. Choose two or three primary strengths to focus on
After narrowing down and clarifying strengths, you should choose two to three strengths to focus on. You may need to take a vote on these strengths depending on whether the top strengths are immediately identifiable.
5. Define these strengths as a group
Next, discuss with the group how the strengths will be defined so that there is a uniform understanding of your organization's top strengths. Summarize each strength's definition and write the summary down where everyone has access to it.
6. Repeat steps two through four for weaknesses
Perform steps two through four focusing on the weaknesses of your organization. Common weaknesses identified during SWOT analyses include productivity, quality, efficiency and leadership. Determine your organization's core weaknesses and define and summarize them as you did the strengths.
7. Repeat steps two through four for opportunities
Perform steps two through four focusing on opportunities available to your company. Examples of potential opportunities to consider include new technology, lowered costs and expanding into new markets. Determine the core opportunities you want to focus on within your company and define and summarize them.
8. Repeat steps two through four for threats
Perform steps two through four focusing on the threats your organization may be facing. Threats to consider include a declining market, emerging competitors or new regulations that affect your production or overhead.
9. Use your findings to develop a strategy to implement
Once you have a clear understanding of your company's most prominent strengths, weaknesses, opportunities and threats, you can now formulate a strategy for achieving your current goals. The SWOT analysis should have given you a clear idea of the internal and external factors that may influence your organization as well as a plan on how to address and use them to your advantage.
Related: Ultimate Guide to Strategic Planning
Tips for conducting the SWOT analysis effectively
The following are tips to keep in mind to ensure you conduct an effective SWOT analysis for your company:
- Remember that threats are outside of your control and view them instead as challenges your business needs to prepare for.
- Prioritize the items that bring your company the most profits.
- Create a timeline for each opportunity to ensure you take advantage of them in the correct order.
- Get as many perspectives as possible for your SWOT analysis.
Example of a SWOT analysis
The following is an example of a SWOT analysis you can use as a reference when performing your own. This analysis is based on a fictional local cafe:
- Unique menu that changes seasonally
- Locally sourced foods
- Popular among locals
- Located in a highly trafficked area in town
- Limited marketing and advertising budget
- Prices are marginally higher than chain restaurants
- Small staff due to limited budget
- Possible growth through the use of food delivery technology and apps
- Locally sourced foods are steadily increasing in popularity
- Local farmers are willing to provide ingredients at lower cost if bought in bulk
- Business changes drastically based on the season
- Increased development of chain restaurants in the area