Why Do a SWOT Analysis? 8 Reasons (With Steps and Example)

It's important for organizations to assess their own operations to identify what they do successfully and areas where they may require improvement. There are a variety of tools to consider using, such as SWOT analyses. Learning more about this tool and what it can help you accomplish may be useful for better understanding an organization.

In this article, we define SWOT analysis and explain its purpose, show you how to do a SWOT analysis and provide an example for reference.

What is a SWOT analysis?

A SWOT analysis is a strategic planning technique that you can use to identify a company's strengths, weaknesses, opportunities and threats. It can provide new insights, such as where the company can improve compared to its competitors.

This may help you improve the organization, increase profitability and achieve more success overall. It's often helpful to perform SWOT analyses frequently to ensure you monitor any changes accordingly.

SWOT analyses evaluate both internal and external factors that affect an organization. Strengths and weaknesses refer to internal factors and opportunities and threats refer to external factors. Here's a closer look at what each component of a SWOT analysis includes:

Strengths

Strengths include what the organization does well and what distinguishes it from its competitors. These may relate to the organization's unique selling proposition, achievements or resources. Some potential examples of strengths include:

• Employee skill sets

• Customer loyalty

• Efficient processes

• Proprietary technology

• Access to resources

Weaknesses

Weaknesses refer to areas of improvement. This includes factors that currently prevent the organization from performing optimally or remaining competitive in your market. Examples of weakness include:

• Employee skill gaps

• Weak supply chain

• Lack of capital

• High employee turnover rate

• Significant debt

Opportunities

Opportunities explore possible new areas of success for the organization for which you work. These external factors have the potential for the organization to become more competitive and achieve new methods of success. Some examples of opportunities include:

• Positive changes in government policies

• Growing business sector

• Potential new markets

• Reduced tariffs for exports

• Stagnant competitors

Threats

Threats in a SWOT analysis are external concerns that may affect the organization's ability to succeed. Anticipating these threats is crucial for developing strategies for protecting the organization and helping it thrive. Potential threats may include:

• Supply chain issues or delays

• New government regulations

• Decline in customer spending

• Labor supply shortage

• Increasing costs of materials

Read more: Top 9 Threats in a SWOT Analysis (And Tips To Manage Them)

Why should you do a SWOT analysis?

Here are some reasons why you should do a SWOT analysis:

1. Maximize your strengths

When you determine a company's strengths, it allows you to see what is and isn't working. These strengths are internal factors that distinguish a company from its competitors, such as financial resources like income sources and funding. Another area that you can review for strengths is human resources. This can include employees and customers who benefit the company.

An organization can also assess its processes, such as software systems and department functions. You can analyze the physical and natural resources the company uses to look for its strengths. Here is a list of some conclusions that may come from your analysis:

• Loyal customer base

• Low employee turnover rate

• Increase in income

• Excellent customer service

• Reduction in product cost

2. Reduce your weaknesses

All organizations have areas where they can improve. By conducting a SWOT analysis, a company can discover its weaknesses in order to turn them into strengths or solve reoccurring problems.

You can analyze your internal factors, like the ones listed above, for weaknesses as well. When a company minimizes its weaknesses, it adds to its competitive advantage. Examples of weaknesses that a company may find are:

• Dissatisfied employees

• Leaders who micromanage

• Inadequate technology

• Poor brand image

• Low cash flow

Related: 8 Top Leadership Weaknesses and Ways To Improve Them

3. Take advantage of opportunities

A company can look at external factors to determine opportunities that can positively impact its business. This may include analyzing market trends and economic trends to determine how to benefit from them, such as developing a new product to satisfy new needs or wants. A SWOT analysis may also help you examine the company's relationships with vendors, potentially helping you discover new ways to grow the business.

4. Identify potential threats

Threats that could have a negative impact on the business you work for come from outside of the company. When you predict possible threats, you can lessen the impact or avoid them completely. Some threats that businesses may see when completing a SWOT analysis include:

• Increase in supplier cost

• Change in demographics

• Loss of resources due to environmental changes

• Saturated market

Related: PEST vs. SWOT Analysis: What's the Difference?

5. Have more productive business meetings

Business meetings are helpful for discussing company issues, making decisions, sharing ideas and creating business plans. A SWOT analysis may provide insight to help better guide the company. It may help make business meetings more productive by highlighting the most important factors for the organization to discuss and develop potential strategies.

6. Assess team members

SWOT analyses can also be helpful for individuals to use to understand themselves better. For example, it may help them evaluate their own skills and identify areas for improvement.

However, it's important to be honest to ensure accurate results. It may be helpful for individuals to share their SWOT analysis with their manage to discuss their personal progress, goals and development opportunities.

Read more: 6 Reasons To Do a SWOT Analysis

7. Challenge assumptions

Completing a SWOT analysis requires everyone involved to be honest and respond to questions objectively. This may help you gain a more accurate perspective of the organization and its competitors. As a result, the organization's current success and potential to grow may be more apparent.

8. Improve decision-making processes

A SWOT analysis may help you make more educated decisions. It requires thorough internal analysis and external research, especially of competitors, providing you with a more comprehensive understanding of the situation.

This may help simplify the decision-making process when comparing which options are best for the business and support the organization in making better decisions overall.

Related: SWOT and Other Business Analysis Tools (And When To Use Them)

How to do a SWOT analysis

Follow these steps for how to do a SWOT analysis:

1. Choose participants

Decide whose responsibility it is to complete the SWOT analysis within the organization. Consider involving a variety of team members throughout the organization to provide a more comprehensive perspective, or, if more appropriate, choose people with specific expertise to deliver the most accurate results.

While not a requirement, you may also hire a third-party professional or organization to consult on your SWOT analysis based on their observations and research.

2. Create a SWOT matrix

Set up the document for your SWOT analysis. Most analyses involve using a simple SWOT matrix, but there are other types of templates you may use. This involves a large square divided into four smaller squares with sections for strengths and weakness in the top two boxes and opportunities and threats in the bottom boxes. Most word processing programs allow you to create this type of chart easily.

Related: How To Create a SWOT Analysis in Word

3. Brainstorm all aspects

Analyze the business through an open discussion. Try to categorize each topic of discussion to help create general lists for each section, and label them accordingly. Some examples of questions that may help foster discussion include:

• What do other people say about the business?

• What is the company's best achievement?

• Have you taken any recent risks?

• Have you noticed any recent obstacles that the company has had to face?

• Have people made any complaints about the company?

• Why is there a high employee turnover rate?

• What opportunities and trends have you noticed in the industry?

• What is new in technology?

• Who are the company's biggest competitors at the moment?

• Is there a need that those competitors aren't currently meeting?

• Have there been any changes in regulations that you should be aware of?

Related: 12 Strategies for Brainstorming Effectively

4. Examine the categories individually

Review your notes from your brainstorming session, and start looking at each section individually. Being with the strengths section to identify what are the organization's greatest strengths, and try to pick only a few strengths. Develop these ideas further, then record them in the SWOT matrix you created. Repeat this for weaknesses, opportunities and threats.

Read more: How To Do a SWOT Analysis (With Steps, Tips and Example)

5. Apply what you learned

Finish each section of the SWOT analysis, and review it as a team to ensure it's accurate. Create a final document that everyone has easy access to so they can refer it when necessary. Use the SWOT analysis as a guide for future decision-making or other business concerns.

Example of a SWOT analysis

Here's an example of a SWOT analysis for a boutique to help you understand how to complete your own:

Please note that the company mentioned in this article is not affiliated with Indeed.