What is SWOT analysis for?

Conducting SWOT analysis will help you to come up with new ideas and approaches to the way in which you run your business. SWOT analyses have been used in many walks of life but they are especially useful for planning ways to achieve long-term business goals. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. If you want to know more about how SWOT works, then read on.

How is SWOT analysis conducted?

SWOT analysis looks at both internal and external factors to help you make strategies that will improve your operation as well as developing marketing activities to attract more customers. Not only does SWOT focus your attention on what you are doing but it also helps with analysis of competitor activity. Big businesses often use SWOT to help them move into new market sectors or to gain a larger market share. For freelancers, small business owners and partnerships with a relatively modest turnover, conducting an analysis of this sort can help you to grow or, at least, to consolidate your position. This guide will help you to better understand what SWOT analysis is and how to develop your own strategic ideas as a result.

What is SWOT?

Firstly, it should be said that SWOT is often said to be the brainchild of Albert Humphrey, even though he is on the record as saying he only developed this form of commercial analysis. One of the great things about SWOT is that you don’t need to be a skilled business strategist to use it. Many people do their first ones by using a pre-existing SWOT template. A SWOT analysis template is easy to fill in. What might be more time-consuming is thinking about what you should enter into the SWOT matrix that is truly relevant to your enterprise.

If you are looking for a free SWOT analysis template, then there are lots you can download. For example, the Chartered Institute of Personnel and Development, otherwise known as CIPD, has one available on their website. Other freely available SWOT analysis templates are available, too, of course. Remember that it does not matter which template you use – it is more important that you properly analyse your business before filling a matrix out.

What are internal and external factors?

SWOT analysis relies on establishing so-called factors. These may be either internal or external. When thinking about everything that plays a part on the way your business works, it is important to note which of these are internal factors and which are external. You can just make a big list of everything that is at play and mark each factor with an ‘E’ or an ‘I’ depending on whether it is an external factor or an internal one. Some people make two lists. Either way is fine, but remember that some factors can be both internal and external. Below, you’ll see some typical factors that come up with business planning, each split into their relevant category.

External factors

• Competitor activity.
• Customer demographics.
• The reliability of suppliers.
• Social change.
• Transportation links.
• The regulatory environment.
• Market trends.
• The wider economic situation.

Internal factors

• Manufacturing processes.
• Customer service levels.
• Brand personality.
• Company reputation.
• In-house technological developments.
• Cash flow.
• Access to credit.
• Operational capacity.
• Talented staff members.

Of course, many more factors could be added. Remember that something like ‘cash flow’ could be regarded as external, too, because it may come down to the ability of customers to pay on time, something that is outside of your direct control.

The SWOT quadrant matrix

Once you have thought of every factor you can, ideally in a brainstorming session with others in the business to make sure you have identified as many as possible, it is time to add them to your SWOT matrix. All of the elements of a SWOT analysis must go into one quarter of the matrix. Each is identified as a strength, a weakness, an opportunity or a threat. It is from these four terms that SWOT analysis takes its name. Strengths lie in the top-left quadrant with weaknesses at the top right. On the second row, opportunities are listed on the left while threats are placed underneath weaknesses in the remaining area.

With such an arrangement, it is possible to identify the correct place for all of the factors you thought of earlier. Looking at the matrix in rows, the upper one – which contains strengths and weaknesses – will relate to internal factors. Likewise, the bottom row of opportunities and threats will relate to external attributes. Now, viewing vertically, you should see your strengths and opportunities lined up together on the left. These are known as the helpful elements within your SWOT analysis. On the right, you should have both your weaknesses and threats in a column. These are referred to as harmful elements.

As you can see, the four quarters of any SWOT analysis example should be laid out in exactly the same way. Once you have written one, you should be able to do so again in a different business situation. As such, you can use SWOT analysis not merely for forming a business strategy for future growth. It could equally be used for competitor analysis or to help with decision-making over investment in a resource or to decide whether or not to launch a new product. Although the objective of the strategy derived from SWOT analysis may change, the two by two grid is always used as the framework. It helps to visualise your strengths and weaknesses when you see them lined up side-by-side. Equally, you are better able to assess your weaknesses and threats, for example, when you see them in the same column.

Using SWOT analysis to identify strategies

Regardless of your enterprise’s threats and its weaknesses, you can develop strategies to overcome them. As such, you should think of SWOT analysis as a resource that will help you to achieve your commercial objectives. Remember that it is a resource which you can share or keep private, depending on your preference. Some entrepreneurs understandably like to keep their perceived commercial weaknesses and threats secret. However, you might share your SWOT analysis with a marketing firm, for example, if you wanted them to analyse it and come up with a marketing plan to give you a competitive advantage. Whether you choose to share or not, what it the best way to use SWOT to come up with a strategy or two?

Firstly, filling out your SWOT matrix won’t result in any actionable strategies on its own. This merely helps you to organise your thoughts and analysis within a handy framework. The next step in the planning process is to extend the four quarters of your SWOT so that you make a TOWS matrix. Essentially, a TOWS matrix comprises of four actionable areas which are made up of where your previous categories intersect with one another. To be clear, the four parts of TOWS analysis are:

• Strengths–Opportunities. This is where you might identify commercial strengths to benefit from any opportunities you have listed.
• Strengths-Threats. This is where you make use of your strengths to lower the risk you face from threats.
• Weaknesses-Opportunities. This is where you might think of ways to improve on any weaknesses you have in order to take advantage of commercial opportunities.
• Weaknesses-Threats. This where you might develop strategies to eliminate weaknesses altogether so you can steer clear of perceived threats.

This may sound a little wishy-washy unless you are used to TOWS strategic planning. However, you will understand how to get the hang of it by looking at a couple of examples. For instance, a strength-opportunity might come about if you identify that a trade fair is coming to your city as an opportunity. If you have plenty of human resource as a strength, then your strategic plan might be to make attendance of the exhibition an objective for every available member of your team so they can try some direct marketing with other people there.

Another example might be in the case of a weakness-threat. You may have noted that there is a threat from the external environment, such as the road network close to you being dug up for a prolonged period. That could mean that you face the strategic weakness of not being able to get your deliveries out in a timely manner. As such, a sound business planning decision might be to move finished stock to another warehouse temporarily, or to conduct deliveries at night when the road is clearer.

As mentioned the way in which you assess your situation will be very different from any other business. However, most enterprises want the same basic objectives – to do a better job for customers with more streamlined and cost-effective practices that will allow them to grow and succeed. When you think about strategic analysis like that, deciding what plans to put in place should become simpler. What SWOT analysis allows you to do is to think about all of the factors that go behind your planning decisions in a methodical way.

The importance of honesty in SWOT analysis

Any in-depth analysis of your business will be of benefit to you so long as you have an honest conversation with all of the key players in it. This is so that the various factors you identify in the process really match the reality of what you are doing. SWOT analysis only usually falls short of expectations when people are – knowingly or otherwise – dishonest about what it is they are analysing. Don’t identify a diverse customer base as a strength, for example, if all of your clients are in close proximity to one another and only operate in one sector of the economy. Likewise, you shouldn’t identify a competitor as a threat if what you are producing is a new product that no one else has yet brought to the market.

Applying your SWOT analysis in a variety of ways

Once you have got the hang of developing strategies from SWOT analysis, you can use the approach in a surprising number of ways. The method does not change whether or not you are thinking about your entire business or a single department within it. For example, some big corporations use it to make plans for individual divisions within their organisation. Small businesspeople can do something similar. For instance, you might use SWOT to focus entirely on your sales and marketing activities if you wanted. For many online businesses which use e-commerce platforms, this might be all of the strategic planning they require to move forward. In manufacturing businesses, the reverse may be true. Sales may be working out just fine but using a SWOT template might help to identify problems and solutions in manufacturing, testing and quality assurance processes instead.

However you choose to use this method for business analysis, it should enable you to improve the focus you have on your methods of working. Ideally, it will open up a conversation with others you work with in order to find ways of doing things better. If you work as a sole trader, then this can still work by creating talking points with suppliers and customers. Even the most conscientious of business owner will discover things about their enterprise they’d previously not known or misidentified. As such, SWOT analysis can be applied in all sorts of ways to provide the recipe for future success.