SWOT (Strengths, Weaknesses, Opportunities, Threats) is a method used to evaluate a company and its environment. It’s a framework that helps organizations identify internal and external factors that may impact their business.
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A SWOT analysis can help assess a business unit, product, service, or whole company. It’s a versatile tool that can be used in many different situations. Below, we go into detail about how you can create a SWOT analysis and use it efficiently in your business.
What Is SWOT Analysis?
SWOT analysis is a strategic planning method to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective.
In the corporate world, SWOT analysis helps a company understand if its strategies or campaigns are aligned with its objectives or growth trajectories. Additionally, it can help a company assess if its products or services can address the needs of its target market.
Components of SWOT Analysis
As mentioned, the four components of SWOT analysis are strengths, weaknesses, opportunities, and threats. Here’s what they mean.
These are things your organization does well. It could be a unique selling point (USP), a competitive advantage, or any internal aspect that gives you an edge over your competition.
Your company may also have tangible assets, like capital, land, or patents, that give it an advantage. These are called core competencies.
For example, if you’re looking to lower business expenses, your team’s expertise and knowledge about creating a business budget would be considered a strength.
These are areas of your business that need improvement or traits that make you less competitive than others. Just like with strengths, weaknesses can be internal or external.
An internal weakness could be a lack of experience in a specific area. An external weakness may be an unfavorable industry trend.
For example, when launching a new product, not having enough money to fund the project would be considered a weakness.
Opportunities are external factors that could help your business achieve its objectives. They’re often market trends or changes. Here are some things that can be opportunities:
- Underserved Markets: Suppose you identify a market your competitors are not serving. It could be an opportunity to enter the market and capture some of the untapped potential.
- Changes in Technology: New technology can present opportunities for businesses to gain a competitive edge. For example, the rise of social media has created opportunities for companies to connect with their customers in new ways. Or it can even be the implementation of training software for your team that can handle process documentation with a task management approach.
- Low Competition: If few companies are competing in a particular market, it could be an opportunity to enter the market and gain a larger share.
- Changes in Legislation: Changes in the law can present opportunities for businesses. For example, the legalization of marijuana has created opportunities for businesses in the cannabis industry.
A threat is anything posing a risk to your business. It could be an external factor like a change in the market or an internal issue like a lack of resources. Here are some common threats:
- Emerging competitors
- Negative press for your business
- A shift in customer buying behavior or attitude
- Strict regulations
Benefits of SWOT Analysis
SWOT analysis has many benefits and can be applied to different ventures. Here are some of them.
Allows Strategic Thinking
Since it is a tool for brainstorming and organizing thoughts, it allows individuals to think more strategically. It forces people to consider all aspects of a situation and consider what could be done to improve the venture.
Suppose you want to create or amp up a digital marketing strategy. With SWOT analysis, you can ensure you are looking at the big picture and thinking about all possible outcomes of your actions.
In other words, it allows for better decision-making and problem-solving.
SWOT analysis can help you manage your time more effectively by allowing you to focus on the most crucial factors affecting your venture.
For example, if you are starting a new business, you may want to focus on the opportunities and threats first since they can impact your business significantly.
By identifying and focusing on the most critical factors, you can save time and energy that would otherwise be spent on less important factors.
SWOT analysis can improve communication within a company or team by providing a common language and framework for discussion.
It can also help identify areas where miscommunication may be occurring.
For example, if your team is having trouble agreeing on a course of action, conducting a SWOT analysis can help everyone get on the same page.
You can create a shared vision that all stakeholders can buy into.
SWOT analysis eliminates guesswork by providing a systematic and logical approach to decision-making. It forces you to look at all the available information and objectively assess your situation.
Thus, it can help you avoid making decisions based on emotion or gut feeling. Taking advantage of decision making tools can help you to make the process easier than ever.
How to Create a SWOT Analysis?
At some point, every business needs to take a step back and analyze its strengths, weaknesses, opportunities, and threats. But how can you do that without spending days poring over data? And what do you even do with all that information once you have it?
It’s helpful to use a template such as this one:
Here’s how to create a SWOT analysis effectively.
Step 1: Gather the Right People
The most crucial part of any SWOT analysis is assembling the right team. You need people from different levels and areas of the company who can offer a variety of perspectives.
For this explanation, suppose you want to create a digital marketing strategy. Your SWOT analysis team should include:
- The CEO or another senior executive
- Your head of marketing
- One or two middle managers from the marketing department
- A few entry-level employees or interns from the marketing department
Step 2: Brainstorm Your Company’s Strengths
Once you have the right people in the room, it’s time to start brainstorming. The goal here is to identify your company’s strengths or the things it does better than anyone else.
Ask your team members to list as many of your company’s strengths as they can think of. Here are some examples:
- A strong brand name that’s recognized around the world
- Innovative products or services
- A passionate and engaged team
Using a combination of marketing data and team knowledge, you should be able to come up with a good list of your company’s strengths.
Step 3: Identify Your Company’s Weaknesses
Now it’s time to look at the flip side and brainstorm your company’s weaknesses. These are the areas where you lag behind the competition or where there’s room for improvement.
Here are some examples:
- An outdated website
- Inexperienced sales staff
- Lack of social listening
- Poor choice of influencers for marketing
The weaknesses can also be based on data. For example, you may not have as much website traffic as you’d like, or your conversion rates could be lower than average.
Step 4: Look for Opportunities
The next step is to look for opportunities. These could be external factors that could help your business grow or areas where you could take advantage of changes in the market.
Here are some examples:
- A new trend in your industry
- An untapped market
- A change in customer behavior
- Low competition
- Consumer interest
For digital marketing, an opportunity could be a new social media platform that’s just starting to take off. If you’re one of the first businesses to start using it, you could get a significant advantage over your competition.
One or more of your competitors may have gone out of business. Now, you can step in to attract their customers.
Depending on your business, you might also benefit from venturing into the NFT space. For instance, the Metaverse has opened the door to business opportunities in the virtual reality realm.
Step 5: Identify Potential Threats
Last but not least, you need to identify potential threats. These external factors could harm your business, such as a change in government regulations or a new competitor in your industry.
When listing threats, you shouldn’t only look for factors harming your business right now. You also need to take a peek at the future.
For example, a potential threat to digital marketing could be an upcoming change in Google’s algorithm. If you’re not prepared for it, it could significantly affect your campaign’s performance.
Step 6: Establish Your Priorities
What’s the most important thing you need to focus on right now?
After identifying all the potential opportunities and threats, it’s time to establish your priorities.
You need to focus on the areas with the biggest impact on your business. For example, if you’re a small business, you might want to focus on opportunities that require less capital.
Once you’ve established your priorities, you can start working on a plan to take advantage of the opportunities and minimize threats. Leverage your strengths and work on your weaknesses to stay ahead of the competition.
Questions to Improve Your SWOT Analysis
Often, stakeholders get stuck when conducting a SWOT analysis because they cannot think of any more factors to consider. If you find yourself in this boat, try asking the following questions for sufficient output for a thorough analysis.
- Which of our business processes are the most efficient?
- Who are our most satisfied customers, and what do they say about us?
- Which physical assets (technology, patents, cash, equipment) do we have?
- How do we have a competitive edge over our competition?
- Which non-physical assets (education, skills, reputation, network) do we have?
- What do we do better than anyone else in our industry?
- Which skills gaps exist within our team?
- Do we need to outsource any processes?
- What do our company’s negative reviews say?
- Do we lack equipment and other tangible assets?
- Has the government made any recent changes affecting our industry?
- Is there a new trend or customer need we could capitalize on?
- Have any of our competitors gone out of business?
- Is there a new technology we could adopt to improve our processes?
- Is a competitor planning to enter our market?
- Has a major customer switched to a competitor?
- Is there a new law or regulation affecting our industry?
- Is a geopolitical situation or natural disaster disrupting the supply of raw materials or talent?
- Has consumer behavior changed in a way that affects our business?
Who Should Conduct SWOT Analysis?
Any organization, whether small or large, profit or nonprofit, can benefit from SWOT analysis. The process is straightforward and can be conducted by anyone with a basic understanding of the organization and its operations.
However, it is usually best conducted by a team of people with knowledge and experience in the relevant areas. You can draw this team from different departments within the organization or outside consultants with specialist knowledge.
For example, the SEO team should conduct a SWOT analysis if you want to improve your website’s search engine ranking. Likewise, the marketing team should conduct a SWOT analysis if you want to develop a new marketing campaign.
A SWOT analysis can be beneficial when determining the best possible course of action for a company. It helps identify what the company is doing well, where it can improve, and what threats or opportunities exist. While it is not the only method that should be used when making business decisions, it can be a helpful part of the process.