The Modern SWOT Analysis – a Step-by-Step Guide
What is a SWOT analysis?
SWOT stands for “strengths, weaknesses, opportunities, and threats”. Performing a SWOT analysis begins with identifying a business objective and focusing on both internal and external issues that affect the success of said business objective (strengths and weaknesses constitute the internal analysis, while opportunities and threats comprise the external analysis). The ultimate purpose of a SWOT analysis is to understand how a business will compete in a given market, unify company goals and direction, and bring clarity to brand messaging while producing an action plan to accomplish the objective.
The SWOT analysis is one tool in the toolkit for strategic planners. A company could engage in a SWOT analysis to assist in developing its long-term outlook or to simply determine the viability of a current or planned project. One of the great things about a SWOT analysis is its versatility – no two SWOT analyses will look the same, and there may be wide variability in the number of points outlined in each category. A company in a new industry may be rife with seemingly endless opportunities (think about cryptocurrency a few years ago), while a company in an established industry may need to take note of high barriers to entry and a great number of competitors. The airline industry certainly fits this description.
Thinking broadly, an organization’s strengths may consist of unique processes and latent knowledge unique to the organization, while weaknesses might include difficulty in accessing capital and poor or underdeveloped company culture. Externally, opportunities may include new tax incentives or the dissolution of a competing entity. Threats to a business endeavor may include a changing legislative environment or a new technological advancement developed by a competitor.
When should a SWOT analysis be performed?
Any company should engage in a SWOT analysis when evaluating meaningful or significant business objectives. Business objectives can include the start-up phase of a business, the launch of a new product or service, or entry into a new market with the organization’s existing products and services. Even without any major identifiable changes, it may be a good idea to look over a previous SWOT analysis every quarter, or at least once a year. You may be surprised at how much has changed when you devote time and energy to your assessment.
SWOT analyses may look very different depending upon the phase on an organization. Before a company is formed, or a new product is launched, the analysis may seem extremely basic. The team responsible for reviewing the business and its environment should define their goals and objectives for the business or endeavor (including targets for items like income, market penetration, scope/breadth of appeal, etc.) and layout basic data points that will assist decision-making.
Personally, I have performed SWOT analyses in all kinds of applications. Whether written or visualized, the performance of a SWOT analysis has been a key analytical tool in various day jobs, when consulting for start-up businesses, and even in strategic planning for a group, I help lead at church. And one thing I’ve learned – the more proactive I am with working on the SWOT analysis, the better things tend to go.
What should the analysis look like?
As referenced above, you will want to identify basic facts about your company/product/service as a result of completing the SWOT analysis, such as:
- Target market
- Primary competition
- Competitors who provide the same good or service
- Other competition
- Competitors who provide a substitute good or service
- Marketplace characteristics
- Total size (in sales dollars) of the market for the product or service to be provided
- Areas in which other companies differentiate themselves – these may be hard to compete with
- For further reading on this topic, see Investopedia’s post about Warren Buffett’s widely-discussed ideas on so-called “economic moats”
- As per the above article, note the double-edged sword of such advantages being diminished over time. A competitor’s economic advantage can be “encroached upon” by an astute organization. However, the same organization’s competitive advantages can be lessened by its competitors over time.
- Inefficient business practices being used by current industry leaders that can be improved upon or taken advantage of
- The threat of adverse or negative circumstances (political climate, the presence of a high number of competitors, advances in technology which may cause certain goods and services to become outdated) which could cut down on the “size of the pie” for the industry that is being examined
- Company differentiation
- The ways in which a company and its products or services demonstrates its superiority to consumers
- Factors that will help or hinder the ability to distinguish a company’s brand from competitors to consumers
- This could be called “product differentiation” or “service differentiation” depending on the nature of the analysis being performed
Advanced Applications of the SWOT Analysis
A more advanced SWOT analysis will look at the relationships between the different groups, such as which strengths can mitigate weaknesses, which opportunities can be exploited to overcome threats, and so on. A brief description of this type of in-depth study sometimes called a “TOWS Analysis”, can be found here. As pointed out in the article, a greater degree of specificity will only help improve the quality of the data produced. This kind of advanced analysis will help identify the “holy grail” of your business – strengths which take advantage of opportunities in the marketplace. And, you guessed it, the TOWS analysis will help you stay away from products or practices that tap into your company’s weaknesses in threatened parts of your business environment.
Keep in mind that a key element to the ongoing usefulness and relevance of the SWOT analysis is diligence in reviewing the four areas of study. A weakness today could be a strength tomorrow, and an opportunity one fiscal period may turn into a threat in the next. Frequent review of the analysis will ensure usable, up-to-date information leading to better planning and execution of company strategy.
Who should be included in the SWOT analysis sessions?
An effective SWOT analysis will utilize various stakeholders within an organization. Limiting such analysis to company leadership or project managers will likely lead to missing out on key perspectives that could shape the future of an organization (or at least a given project). For example, a marketing team may not be privy to the profitability of a given product or service without input from the finance team. Such input will help focus the organization on higher-margin activities while providing the necessary support for shuttering other, less financially favorable activities. Conversely, a strong marketing team may see the potential in a product or service that may have potential beyond its initial sales numbers (as in the case of a product which needed a great deal of research and development spending to initiate but could yield high profitability in the future). Additionally, an executive with a keen eye toward the future could look at a geographic market and have insight into marketplace growth that may not be apparent at a given point of time.
As an example of the point above, think about oil booms in remote areas – who wouldn’t want a piece of the economic output in such situations? Especially if an organization can “get in on the ground floor” to peddle its wares. Suffice it to say, the more stakeholders involved in the SWOT analysis, the more complete the information utilized, and the more valuable the finished product at the end of the day. As a manager, it is important to remember that those closest to the day-to-day operations of a company often have a perspective that can’t be gained elsewhere. To avoid “ivory tower” groupthink it is crucial to involve those at all levels of an organization.
How long does a SWOT analysis take?
The length of time required to complete a SWOT analysis can vary widely – like anything else, you generally get out what you put in. Having experience in this area, I can tell you that the different stakeholders involved in the SWOT process often underestimate the time needed to do a thorough analysis of both the internal environment and external factors. Because usually when the team begins to brainstorm and engage in deep discussions about points in each of the four categories, the time will fly! But rest assured that diving headfirst into the process, despite the length of time that may be needed, should lead to a feeling of camaraderie and a sense of accomplishment when finished that will feel well worth it. So tell everyone to clear their calendars, order a nice lunch, and get to work.
Know also that some discussions under the “opportunities” category may feel redundant of those held during the “strengths” portion, while certain threats may sound a lot like weaknesses. It may be possible to save time and kill two birds with one stone by focusing on having only one discussion about a particular topic that may seem like it straddles two of the four primary areas. While cutting redundancy and being efficient with discussion time is important, it is also key to strike a balance here so that discussion is not stifled, and all team members are given ample opportunity to voice their opinions and concerns.
Who should lead the SWOT analysis sessions?
Like with any task, it is preferable if someone who has prior experience with SWOT analysis development leads the process. It can be helpful if the team leader is someone with the ability to serve as a moderator and facilitator as discussions ramp up in intensity – put another way, someone who can “command the room”. However, this individual does not necessarily need to be a CEO or the most senior person in the room. The leader does need to be able to demonstrate a knowledge of the organization’s vision, goals, and position in the marketplace, and help guide the rest of the team toward a similar knowledge and understanding. This does not mean that the leader is required to be a great orator or accomplished public speaker, but rather someone intimately familiar with what the company would like to accomplish while also having a realistic attitude about organizational weaknesses and industry threats.
To expand on the notion of the leader as a moderator and facilitator, imagine yourself in the middle of a passionate company discussion with 5, 10, even 15 people in the room. You can picture the energy, diversity of thought, and passion for different (sometimes competing) ideas on display. Knowing this, the leader must be capable of orchestrating the discussion in a way that makes all team members feel like their voice is being heard while maintaining an efficient pace. Perhaps most importantly, the leader/moderator must be able to keep emotions in check when things get heated. We’ve all been in situations where the tension was, as the cliché goes, “so thick you could cut it with a knife”. A good leader will diffuse such situations and keep the team focused on the goal at hand.
What should be the outcome of successful SWOT analysis?
A good SWOT analysis will provide the insight needed to determine a company’s internal environment, its position within the industry, or the ability to roll out a new product or service that is being researched. All involved should have a greater degree of familiarity with the inner workings of the organization and the external environment in which it operates. Specifically, what should come out of the analysis is an idea as to which of the company’s current practices can be leveraged and increased, which areas need to be improved upon, and what factors outside the organization can be capitalized upon or seen as a cause for concern.
An underrated and rarely discussed element of the successful SWOT analysis is the education provided to those who are in the room. There are few better ways to see the inner workings of an organization and its focus (or perhaps the areas which should be its focus), as well as the challenges that may present themselves, than in the SWOT environment. Brainstorming, listening, observing, and learning is a key aspect of giving employees a chance to truly feel involved in a company and the SWOT analysis is probably the best way that I’ve found to foster these important cultural elements.
How in-depth should a SWOT analysis be?
Part of the beauty of the SWOT analysis is that it can be tailored to the complexity of the issue at hand. For example, a SWOT analysis performed for a new product launch will likely not be as robust as a look at the health of the organization as a whole. Some factors to consider when deciding on the depth of a SWOT analysis:
- Amount of time at hand – you might need to be concise if you’re trying to give yourself an overview of the whole company and its business environment in one afternoon
- Number of participants – it goes without saying, but a room of 50 employees will provide more feedback than just the legal team, for example
- The uniqueness of the product/service being analyzed – a venture into a new geographic market, new industry, or shift in sales strategy and brand messaging might warrant a full-scale look at how a step into uncharted waters will affect other areas of the company, or how the consumer marketplace might receive such changes in direction.
Don’t overthink it – the more important the topic at hand, the more focused a SWOT analysis will need to be. Ideally, this will ensure that an appropriate level of feedback is achieved to assist managers and stakeholders in the decision-making process. Take a look below at sample discussion questions to get your team thinking and adjust these questions for the desired level of analysis.
Example SWOT questions:
- What do consumers like about our company/brand?
- What do we do more effectively and efficiently than our competitors?
- What are the different product lines/services we provide that we can count on?
- What financial advantages do we have relative to our competitors (think access to financing, cash on hand for research and development, etc.)?
- What human capital, including latent knowledge within the organization, can we leverage to help us continue to improve?
- Where do our customers or clients see us as lacking? This could be quality of product offerings, customer service, etc.
- Which of our business’s activities run on tight margins financially?
- Do we offer products or services that may be obsolete?
- Are we missing out on potential innovations due to a lack of investment in needed technologies?
- Have we fallen victim to groupthink? In other words, do we have an objective view of what we’re doing which prevents us from simply approving every idea? Are we truly assessing whether such ideas are good for the company?
- Are there any potential changes in tax laws or government policy that might benefit our industry?
- What changes in technology are opening new pathways to innovation in our industry?
- Is there a chance that our targeted consumers will grow their personal wealth and expand our potential market?
- Could a well-executed presence at a trade show help us improve our standing within the industry?
- Are there competitors experiencing financial or public relations issues? Can we position ourselves to scoop up market share from weaker organizations?
- Could any potential changes in tax laws or the legal environment hinder our business?
- Is there an external threat of obsolescence from a competitor’s innovation?
- Will shifting consumer attitudes toward our product force us to reassess our product’s usefulness to customers?
- For providers of luxury goods and services, could an economic slowdown or recession deter consumers from our company’s offerings?
- Could a wave of new competitors force us to drop prices and water down our profitability?
Example SWOT templates.
Need a free SWOT analysis template? You should be able to find one to fit your needs!