If you've been to business school, then you've probably heard the term “SWOT Analysis.” It's a tried and true strategic planning technique that is indispensable when determining next steps down a product development path. The SWOT Analysis brings structure and logic to a process that can feel overwhelming due to all the potential variables and data. It's worth revisiting how the SWOT Analysis works on a regular basis. I know it always helps me find my bearings and get grounded before making big decisions about product development.
SWOT is a simple acronym that identifies the four major forces that affect your business and future decisions. Trinity Web Works defines it as “a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture.” Your SWOT Analysis identifies your company’s place in the current market (where you are now) allowing you to plan for future innovation and expansion (where you want to be) while still finding roots in data metrics and figures.
The SWOT Analysis is an approach to evaluating and planning proposed projects or business ventures. Trinity explains,
“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.”
Start by defining the objective and ensuring that is attainable. This will save you hours of potentially frivolous, useless work. If you cannot define your end goal, your project is clearly unattainable and your analysis will end there. Time is money, and you can't afford to waste it.
Once you have defined a clear objective, the SWOT Analysis can begin. Just remember that Strengths and Weaknesses are internal and Opportunities and Threats are external. I find that it is easy to get strengths and opportunities mixed up as well as weaknesses and threats.
Analyze the internal aspects of your business and find the areas in which you perform the best. Sandy Baker, an experienced business journalist, urges business owners to list “any and all strengths the business has” that make it a “better choice against the competition.”
So ask yourself, what do you do better than your competitors? Consider some of the following:
- Ability to respond quickly to market demands and changes.
- Management and employee talent.
- Cash flow availability and liquidity.
- Brand awareness
These are just a few in a long list of possibilities that could set your business apart. While assets such as cash or existing inventory are material strengths, Trinity explains how strengths can be abstract as well.
“Not all strengths are physical in nature… one type of strength that is often overlooked is well-trained and experienced staff. Good employees can substantially benefit the firm.”
Look hard at your company’s weakness… and BE HONEST! If you lie to yourself here, you could end up regretting it down the road. This is any place (material or abstract) where your company lacks strength. Weakening or failing assets, poor branding or product positioning, lack of current inventory, or company financial debt — all of these are observable weaknesses that must be addressed. Baker argues,
“In this type of analysis, gathering facts like this can help you to see what the total picture is.”
The most important aspect of this step is being honest and objective, ensuring that you are not neglecting those parts of your business that may be a little too close to your heart.
Now it’s time to get away from the internal and look towards the external factors that are affecting your business. Consider the business environment surrounding you. Any changes in the market can present a business opportunity for you. However, these opportunities, like everything else in a SWOT analysis, need to be clearly defined. Trinity explains,
“If competitors are weakened by a poor cash-flow position, it is an opportunity for the firm to capture market share. Market positioning, new technologies, changes in tax structure and improvements in economic trends can provide substantial opportunities as well.”
Often times, this portion of the analysis will focus your research, leading you to specific, smaller sectors of your business. And spotting these small opportunities can result in a great competitive advantage.
Threats are also external and arise from the strengths and strongholds of your competitors. Any move that threatens your profits or decreases your market share/consumer base ultimately harms your chances to innovate and succeed. Classify these threats and begin understanding the affects these threats may have on your new innovation or project. Some threats might include:
- Changes in consumer preferences.
- New competitor innovations.
- Restrictive regulations.
- Unfavorable trade barriers.
- Loss of favorable distribution networks.
With the completion of the SWOT analysis, you have a well defined (and honest) understanding of your company’s status and position. With that information, identifying the best possible strategy for moving forward should be a lot easier. Refocus on definable goals and objectives using the information you have just compiled, highlighting key factors you plan on exploiting as your innovation plan moves forward. Trinity urges,
“Not every opportunity can be pursued and every strength is not necessarily an exploitable advantage to the firm. Choices need to be made by the firm to take complete advantage of its position.”
Are you ready to move forward? With a SWOT analysis under your belt, you're in a better position to use your strengths to make those opportunities happen!
How has the SWOT analysis (or another analytical framework) helped your business leap forward? Let us know by tweeting @EidsonPartners!