SWOT: definition, explanation and examples
The SWOT is a marketing tool used to identify the possible business strategy(ies) to create or grow a business. Its simplicity should not mask its relevance and effectiveness when properly implemented. You can make make the right decisions through SWOT analysis.
This article introduces you to what SWOT is, what it is for and how to implement it.
- SWOT analysis: definition
- Why do a SWOT analysis?
- SWOT analysis: the matrix and the analysis
- Who should participate in the SWOT analysis?
- How to perform a SWOT analysis?
SWOT Analysis: Definition
The SWOT for Strengths, Weaknesses, Opportunities and Threats or FFPM in French for Strengths, Weaknesses, Possibilities and Threats is a strategic analysis tool. It highlights the different strategies that a company or a creative project can implement to develop their commercial activity.
The SWOT analysis is based on the characteristics of the company or the creation project and on the particularities of the target market to highlight the different possible strategies. When done well, the analysis helps the entrepreneur determine what they are doing well and need to amplify, what they can improve, and where they fit in the competitive landscape.
Why do a SWOT analysis?
Carrying out a SWOT analysis makes it possible to take stock of the relationship that a company has with its market. The approach presents the company from a strategic angle, which helps the manager to step back and make the right tactical and strategic choices.
If the SWOT is often put forward for its ability to highlight the different possible business strategies, it can also be used to organize a creation project or even on a personal basis, for example in the case of a job search.
Thanks to this approach, you will be able to create relevant strategies to take advantage of new potential or expand existing deposits. You will also be able to anticipate threats that might harmful or burden your activities in the future.
Finally, beyond the operational importance of this methodology, by adopting this approach, you will sharpen your ability to analyze and evaluate your business. You will learn how to ask yourself the right questions and how to find relevant answers.
SWOT analysis: the matrix and the analysis
The SWOT analysis has two distinct steps:
1. Complete the SWOT matrix using the company’s internal and external audits;
2. Carry out the analysis according to the elements integrated in the matrix.
Internal audit: research of the strengths and weaknesses of the company
Carrying out an internal audit makes it possible to identify the strengths and weaknesses of the company in relation to its market, its competitors and its partners. These strengths and weaknesses will be specified in the boxes of the matrix provided for this purpose.
The strengths or weaknesses of the company are enduring characteristics on which the company can act. For example, a patent can be a strength, while low authority over the business area or poor physical location can be a significant weakness.
Although these internal positives and negatives can be changed by the company, it takes time and work.
External audit: research of opportunities and threats of the targeted market
Opportunities and threats are usually external to the company. These are lasting characteristics on which the company cannot act. These are the events that have a positive or negative impact on the market and that the company will have more or less difficulty in understanding.
The external audit, or external strategic diagnosis, is broken down into two parts:
1. The analysis of the macro-environment of the company, corresponding to the study of the global environment of the firm,
2. The analysis of the micro-environment of the company, corresponding to the study of the actors in contact with the company.
An opportunity may be the possibility of signing an exclusive agreement with a strategic supplier or the opening of a new market. A threat can be the arrival of a new competitor or the launch of a replacement innovation (the arrival of digital music for the recording industry).
Breaking down the SWOT Analysis process
We know that the SWOT represents the strengths, weaknesses, opportunities and threats that are exerted on a project, a company or an organization. But how to interpret and define each of these elements? Let’s look at them in detail to better understand them and how to work with them individually.
Strengths or forces
The first element of the SWOT matrix to study is S or forces. The approach consists of identifying and then evaluating the strengths available to your project or company to develop its activity. To do this, you have to look at all aspects of the activity: commerce, management, administration, administration.
Strengths identify and summarize what your business or project does particularly well. We are talking here about characteristics and functionalities that represent an added value for your customer offer.
It can be something tangible like a specific location, product or know-how or something intangible, like the reputation of a particular company brand, network or service offering. It can also be your staff, your human resources or your managerial capacity: strong leadership or an excellent team of engineers.
Weaknesses
After working on your strengths, it’s time to take a step back and use your critical thinking to identify what the weaknesses of your project or business are. Your trusted circle, personal or professional, can help you identify them.
What is holding back or limiting your business or project? This can be constraints (financial, technical, geographical, regulatory, etc.), or organizational difficulties (logistical problems, training, recruitment of qualified personnel, etc.).
This second element of the SWOT study must also take into consideration any weaknesses compared to competitors or innovations in your sector of activity. We can illustrate this point by evoking the case of strong competition which would prevent the possibility of developing a clearly defined Unique Selling Proposition (PVU). The presence of too many players complicates commercial differentiation.
The Unique Selling Proposition (USP) is a marketing principle developed by Rosser Reeves, according to which a USP makes it possible to offer an advantage, an added value or a singular functionality allowing the product to stand out and differentiate it from the competition.
The Opportunities
A strategy is based on the strengths and weaknesses available to us, but also on the opportunities available to us and the risks incurred. Opportunities and threats are elements external to the company, elements and/or events over which the company has little or no influence, but which it must take into account to ensure its economic development.
Opportunities, also called Possibilities, represent the external elements that can contribute to the development of the activity. An opportunity represents a business development opportunity that has been identified but has not been implemented. A company that fails to properly process all of the contacts or leads generated by its marketing team has an identified business development opportunity. The company or startup that develops an innovation to conquer new markets represents another opportunity.
In summary, in a SWOT, opportunities cover everything that can be done to develop a project, boost business activity, improve sales. This includes all the steps to develop your business, grow your business or achieve your business goals.
Threats
The last element to identify to achieve your SWOT is the Threats to your business. Namely: anything that poses a risk to the development of your business, its possibilities of success or commercial growth.
This represents a fairly broad field of investigation which may include quite diversified factors such as the emergence of new competitors, changes in regulations, external financial risks (financial or real estate bubble) as well as anything that could compromise the future of your company or your creative project.
SWOT Analysis Example
Here’s an example of a SWOT analysis for a customized online shirt and t-shirt business. Although more factors emerge during brainstorming, these are considered the most important.
Strengths
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Weaknesses
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Opportunities
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Threats
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Think about what strategies this business owner could employ to take advantage of this information. Remember, there is no right or wrong answer here.
Who should participate in the SWOT analysis?
A SWOT analysis is only effective if all the elements related to the company’s activity are taken into consideration. No sector should be left out because the analysis can bring to light elements invisible until then. For effective work, each department or team must be represented in the process.
How to do a SWOT analysis?
Doing a SWOT analysis requires a methodical approach, the steps of which are as follows:
- Assemble a competent team.
- Conduct preliminary research, prepare any document useful for reflection: internal studies, sales statistics, customer surveys, external studies, marketing data (market share, growth rate and total volume).
- Ask everyone to list the strengths, weaknesses, opportunities and threats of the business (or the creation project).
- Compile / group the elements of each. Consider holding a group brainstorming session to identify causes for each category.
- Alternatively, it is possible to ask each member of the team to work alone before sharing, brainstorming and compiling the results as a group. This opens the debate and develops creativity.
- Do not rush into evoking or developing solutions. Start by identifying and listing the relevant factors in each category.
- Once brainstorming is complete, develop a final version of the SWOT analysis that lists and summarizes all the factors in each category. Rank them from top to bottom according to their importance.
- Once the matrix is completed, identify the possible strategies then choose the one(s) that will be the most suitable.
Guide to Business Valuation: Understanding the Basics, Methods, Factors, and Examples
Sources: Consultant4Companies, PinterPandai, Chron, Investopedia
Photo credit: Astrid Carlsen (WMNO) (CC BY-SA 4.0) via Wikimedia Commons