There are a number of steps you should never skip when you’re planning to start or expand your business. One of them is the SWOT analysis. It’s one of a few tools that can give you a birds’ eve view of your business and its operating environment, and let you know what your chances of succeeding with your enterprise are.
A SWOT analysis is simply an evaluation of the strengths and weaknesses of a business, as well as the opportunities and threats that exist outside of it. This evaluation may be carried out on a business as a whole, or on particular aspects of its operations, such as specific projects, products, or services.
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When businesses ascertain their strengths and weaknesses, they have a good picture of what makes them competitive, and the parts of their make-up and operations that need to be improved. These are both internal concerns.
On the other hand, opportunities and threats are external factors that may determine the success or failure of a business or its products and operations. They include current economic conditions, market trends, and other things that single businesses have no control of.
Here’s a more detailed explanation of what the components of the SWOT analysis are.
1. Strengths
They include things like the skills of people on your team, closeness to your market, a strong online presence, brand popularity, and your unique selling proposition. These are the positives about your business that hand it a competitive advantage in its industry.
2. Weaknesses
These are the points on which your business doesn’t do well. They could include process inefficiencies and the associated high production costs, the inadequate skill levels of your staff, and financial constraints. They are internal negative factors that may prevent your business from being competitive.
3. Opportunities
Things like an increase in purchasing power, levels of demand, and favorable government policies could bode well for your business. They are opportunities that your business can take advantage of, even though it doesn’t have any real control over them.
4. Threats
These are situations that arise outside of your business that may threaten its flourishing or survival. Unfavourable government policies, stiffening competition from rivals, reduced purchasing power, disruptive technologies, or economic recessions could all negatively affect your business, although you have little or no control over them.
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Why You Need to Conduct a SWOT Analysis
A SWOT analysis does the following for you:
- Lets you know what your company’s strengths are, and the points on which it needs to improve.
- Reveals the opportunities for growth that exist.
- Exposes the dangers to the company’s growth and continued existence.
- Provides insights into a company’s preparedness to face upcoming challenges.
- Helps determine the chances of success or failure of a new product.
How to Conduct a SWOT Analysis
Here are the steps you should take when conducting a SWOT analysis of your business.
1. Decide the Purpose of the Analysis
When you know why you’re conducting analysis, you’ll be able to note the strengths, weaknesses, opportunities and threats that are most relevant for your present purposes.
2. Note Your Organizations’ Strengths
In order to accurately capture your company’s strengths, you will have to rely on existing assessments of its resources and operations. These assessments will answer questions about the skill levels of the staff, the efficiency of the internal processes, output levels, and unique value proposition.
At the end of this, you should have a list of things that make your business stand out from the competition or at least allows it to compete favourably with rivals.
3. Identify Your Weaknesses
A similar step could be taken to identify the weaknesses of the organization. If you’re noting financial constraints, for instance, you could consult summaries of your financial statements to get an accurate description. Shortcomings with staff skill levels can also be gleaned from employee assessment summaries.
4. List Opportunities
What opportunities for growth exist within your business environment? This question is best answered by market research and a study of prevailing policies affecting your industry.
Market research could reveal things like a rise in demand levels, an increasing preference for the kinds of services you offer, and possible growth areas for the future. Also, list current government policies that open up a market you’re interested in exploring.
5. Write Down Threats
Things you write down in this segment could include disruptive technologies that may threaten your business in the near future, government policies that hinder your growth (like higher taxes or restrictions), and stiff competition from rival businesses.
6. Examine How these Factors Interact
Ask questions like:
- Do your strengths enable you to adequately take advantage of your opportunities?
- How much do your weaknesses prevent you from making the most of the available opportunities?
- Are your strengths adequate enough to deal with the external threats?
- What about the combination of your weaknesses and threats? Are your strengths and the opportunities you hope to explore sufficient to offset the costs you could incur from the internal and external negative factors?
7. Decide a Course of Action
You may decide to do the following things with the details in your SWOT analysis.
- Determine ways to improve on your strengths.
- List possible approaches to shoring up on your weak points.
- Write down your strategies for taking advantage of existing opportunities, with your strengths in mind.
- Work out ways to tackle your threats by deploying or adapting your strengths for those conditions.
- Where you can’t adequately deal with threats, you may want to note areas that your business needs to avoid.
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