6 Reasons to Do a SWOT Analysis

By Indeed Editorial Team

Updated February 22, 2021 | Published January 5, 2021

Updated February 22, 2021

Published January 5, 2021

You can use a SWOT analysis to determine the strengths, weaknesses, opportunities and threats of a company. It is an effective business tool that is used to strategize for short-term and long-term decisions. A SWOT analysis is simple to complete, does not cost much and can lead to positive changes, so it is a good technique to use to assess your business. In this article, we discuss what a SWOT analysis is, explain why a company should do a SWOT analysis and provide tips on how you can apply it yourself.

What is a SWOT analysis?

A SWOT analysis is a strategic planning technique that you can use to identify your company's strengths, weaknesses, opportunities and threats. This business tool can provide new insights, such as where you can improve compared to your competitors. As a result, your profitability can increase, which may lead to more success over time.

Companies should perform this analysis frequently throughout the year. SWOT analysis can be especially useful when preparing to make a big decision or taking on a new project. It can help you examine your company's processes and determine what your next steps should be, so it is a worthwhile endeavor.

Why should you do a SWOT analysis?

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

Maximize your strengths

When you determine your company's strengths, it allows you to see what is and isn't working. These strengths are internal factors that make a company stand out from its competitors, such as financial resources like income sources and funding. Another area that you should 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 your 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

Lessen 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

  • Micromanaging

  • Inadequate technology

  • Poor brand image

  • Not enough cash

Related: 8 Leadership Weaknesses and Ways to Improve Them

Take advantage of opportunities

A company can look at external factors to determine opportunities that can positively impact their business. These are mostly things that a company cannot control. For instance, you can analyze market and economic trends. By examining these external factors, a company can position itself to benefit from reviewing them.

To illustrate, a company may create a new product based on recent trends. You can also examine relationships with outside vendors and regulations. By doing this, you will be able to find opportunities for growth that can help your business now and in the future.

Identify potential threats

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

  • Increase in supplier cost

  • Change in demographics

  • Loss of resources due to environmental changes

  • Saturated market

For example, in 2015, Coca-Cola completed a SWOT analysis and detected various threats. One threat was natural and organic products gaining popularity. Health-conscious individuals viewed beverages containing high sugar content negatively. Federal regulators also added taxes to these drinks in an effort to turn consumers toward healthier options.

Coca-Cola took steps to eliminate these threats by increasing its marketing, promotional and advertising efforts. As of today, Coca-Cola remains a well-known beverage company. They have an expanding portfolio of low and no-calorie beverages, such as Coke Zero, which continues to grow in volume. This example proves that it is best to deal with threats immediately so that they won't become a bigger issue in the future.

Have more productive business meetings

The objective of a business meeting is to discuss company issues, make decisions, share ideas and create business plans. Completing a thorough SWOT analysis reveals key information for many people on the team. It will guide the company in the right direction. With this information, the company can discuss effective business strategies and create recommendations. You will be able to seize opportunities and handle threats because of the information you obtain, which will make your business meetings more productive.

Related: How to Set Business Goals With Examples

Assess team members

Not only can SWOT analysis be useful for companies as a whole but also on an individual basis. Individuals can determine their personal strengths and weaknesses. For example, a SWOT analysis can determine if you are trustworthy, reliable, creative, disciplined, technologically challenged or impatient. In order for a personal SWOT analysis to be effective, the individual must be honest with themselves. An individual can evaluate their weaknesses and work on eliminating them or turning them into strengths. Threats on a personal level can be any external factor that can hinder you from achieving your personal goals.

You can discuss your SWOT analysis with your manager. Management can use this information to evaluate your professional progress and help you meet your potential. They can discuss your personal and career goals and use your analysis to develop a plan that helps you succeed in your job.

Related: Creating a Personal SWOT Analysis for Your Career

How do you perform a SWOT analysis?

There is no need to hire an outside business consultant to perform a SWOT analysis for your company. Individuals inside the company can perform the analysis. Team members who know a lot about the company and its history can brainstorm and answer questions that pertain to each SWOT category.

Start by drawing a large square and dividing it into four smaller squares. Next, you can record your company's strengths and weaknesses in the top two boxes. Then, write down any opportunities and threats you've compiled in the bottom two boxes. You may also choose to simply make a separate list for each section.

When you are filling out the SWOT analysis, consider the following questions to help guide you as you assess your company:

  • What do other people say about your business?

  • What is your 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 your biggest competitors at the moment?

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

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

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