If there was ever a true statement written about business, it might be “Today is definitely not yesterday.” It is probably equally safe to say that “Tomorrow will not be the same as today.”
If there was ever a good time to revisit the advantages of conducting a SWOT analysis in a business, it is now. A SWOT analysis is an extremely useful management tool that highlights the strengths, weaknesses, opportunities, and threats that exist within a business. It can be used effectively in any size or type of business to learn how to operate more efficiently, more profitably, and more competitively while at the same time understanding how to capitalize on new opportunities and minimize potential threats. When prepared with sufficient detail, it is a self-evaluation of a business and focuses on factors critical to planning and long-term growth.
A SWOT analysis is a beneficial starting point in deciding future changes for a business and determining exactly what changes will be most beneficial for the business. Every business regardless of size or type will have something in each of the four categories...strengths, weaknesses, opportunities, and threats. Assuming the ultimate goal in business is to beat the competition, competitive strengths and untapped market opportunities must be capitalized upon while at the same time to improve competitive weaknesses and diminish damaging effects of potential external threats. While every business is trying to determine the best path forward to survive the devastating effects of the global pandemic, preparing a SWOT analysis is almost a necessity.
For a business that has never performed a SWOT analysis, the time to start is now. Depending on the business size and internal structure, a SWOT analysis can be prepared for the entire business or just a segment of the business that is later combined into a master SWOT analysis for the entire business.
The individual four components of a SWOT analysis in more detail are:
Strengths
The strengths of a business are internal resources, processes, or procedures that a company does well. Examples might be: specialized skills, technologically advanced equipment, depth of management, experienced long-term employees, or financial resources. Obviously, the list of strengths can be quite short or lengthy, but it is the combination of all of the various strengths that give a business its competitive advantage in the marketplace. The accumulated strengths have a synergistic effect that make a business valuable.
Weaknesses
Weaknesses are internal resources that a business does not do well or something that a business completely lacks. These contribute to competitive deficiencies. As the number and magnitude of weaknesses increase, a business’ competitive disadvantage also increases allowing stronger businesses to overtake those with real or perceived weaknesses even faster.
As with strengths, the list of weaknesses can be either short or long. Some examples might be: lack of expertise in the field, weak brand image, high operating costs, relatively inexperienced employees, or poor location.
Strengths and weaknesses of a business are like an equation – strengths on one side and weaknesses on the other. This equation should not be balanced.
Opportunities
Market opportunities play a major role in the strategic plan of a business. Growth and profit are based on a company's ability to capitalize on new opportunities. Some opportunities are realistic for a business to undertake, while other opportunities are unrealistic due to a business’ lack of internal resources and strengths.
Opportunities in a business can arise from one or more factors being present. Economic conditions, product or service demand, customer preferences, product innovations, etc. all have a bearing on what opportunities might exist and how those opportunities can be seized upon to be a rival competitor in the marketplace. The best new market opportunity for a business is to match all of its internal resources and strengths with an opportunity that has the potential to yield maximum profit with the most competitive advantage for the company.
Threats
Numerous threats will always exist for any business. These external threats can hinder a business’ profitability and competitive edge. Older threats will remain while new threats can arise because of external factors which the company has little or no control over. To lessen the negative effects of potential threats, a business must foresee some of the threatening elements (although no one could have predicted this pandemic) and know in advance what course of action to take as soon as an external threat is clearly identified to either neutralize or lessen the threat as much as possible. Typical external threats to a business might be new competition, existing competition with less expensive and/or superior products or services, key employee recruited by the competition, increase in interest rates or operating costs, weather related problems, etc.
The Starting Point
A SWOT analysis is simple to prepare and the starting point could not be easier. Begin with a clean slate – a sheet of paper or a white board – divided into four sections. Place each title – Strengths, Weaknesses, Opportunities, and Threats – in a separate section. Begin brainstorming and list each factor in the appropriate category. Consider starting with your opportunities and threats, then ask, "what strengths can I leverage or what weaknesses do I need to shore up in order to seize these opportunities and protect against these threats?". Keep in mind that a SWOT analysis should be a work-in-progress as various factors continue to change – new strengths emerge, weaknesses develop, opportunities present themselves, and threats arise. Prepared correctly, a strategic plan materializes right before your eyes!