Running a business is rarely ever simple. There's a constant need to analyze and refine strategies, goals, finances, customer base, and all the other factors that affect your profitability. Businesses use multiple tools to make this process easy. One such tool is the SWOT analysis framework.
SWOT analysis is a strategic planning tool that helps build an effective marketing plan. It is a part of the strategic marketing process, which helps analyze your present market position and further helps build a strong business plan.
It uses the data from the analysis of the market, customer, and competitors to develop a framework to represent your SWOT parameters: Strengths, Weaknesses, Opportunities, and Threats. It also helps when you need a fresh look at your strategies.
In this article, you will learn what is a SWOT analysis, how it is used in writing an effective business plan, and how to conduct it for your business.
What Is SWOT Analysis?
SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) is a tactic businesses use to evaluate their market position. As the abbreviation suggests, it is a framework that helps identify your strengths and weaknesses as well as the opportunities and threats apparent in your industry.
Conducting a SWOT analysis helps you stay informed about the changing dynamics of your market position. The four aspects of this framework assess both internal and external factors that impact your growth.
The internal factors are strengths and weaknesses, while external factors are opportunities and threats. Conducting a SWOT analysis helps you identify and modify the internal factors and stay aware and attentive of the external factors.
SWOT analysis is an essential part of your business plan as it helps predict risks and explore new possibilities. It usually precedes the marketing plan section of your business plan.
You can use it to assess your company’s competitive position, operational level efficiency, compute the chances of success before accepting new projects, and more.
How to Conduct a SWOT Analysis?
A SWOT analysis, also known as a SWOT matrix, helps you get a new perspective to adjust strategies and serves as a determiner to decide whether or not a project is worth taking up. Make sure to bring together the representatives and/or managers of all the departments.
The more minds involved, the richer and more accurate the analysis can be.
Next, begin brainstorming ideas. This helps incur multiple viewpoints which provide room for further discussion and conversation. Expect some disagreements and conflicts of interest at this stage.
Next, put these ideas together and average them out. That way, you can cut out the intensely opposing views. With the information obtained, start building your SWOT matrix. Make sure to gather enough data to support your claims.
Let’s take a closer look at the four parameters of SWOT analysis.
Strengths are what you excel at and what sets you apart from your competitors. These can include reliable branding, a loyal customer base, unique technology, higher conversion rate, monopoly business, strong supply chains, etc. These should be presented in the matrix with a short description to secure investors.
In case you are still confused, answering the below questions can help you determine your strengths.
- What are you best known for?
- How effectively do you use resources?
- How fast do you deliver products?
- Which of your products was the most successful?
- What are the resources that are exclusive only to you?
- Are your investors happy?
- What are your unique selling proportions?
- Do you have a loyal customer base?
- Is your revenue predictable?
After writing down your strengths, the next parameter is your weaknesses. Honesty is paramount to build an effective SWOT matrix. Weaknesses are the areas you need to improve in and the aspects that are staggering your growth.
- What do your customers often complain about?
- What are the financial resources you lack?
- What is your human resource you lack?
- Do you have enough technical expertise?
- Are your products not innovative enough?
- Are your expenses too high?
Opportunities are advantageous openings in the external business environment that you can exploit to attain higher goals. Identifying opportunities as quickly as possible helps you have a competitive edge over others in your industry.
These don't necessarily have to be groundbreaking discoveries; they can be small advantages that can impact your growth and sales. To identify opportunities, you can start by asking the following questions.
- What are the current market trends that can increase your sales?
- Which new government policies and regulations can benefit you?
- Which upcoming events or festivals can you capitalize on?
- Which recent technological changes can prove to be beneficial?
- What are the social and lifestyle changes that you can capitalize on?
Threats are those events, limitations, or variables that can affect you negatively. These can harm you in the future if you don't identify them sooner and stay prepared to tackle them. An obvious threat is your immediate competitor(s).
You should also be aware of the threats that advancements in technology, increases in material costs, and changes in the market can bring. Identifying threats can be tricky; asking the below questions can help you get started.
- What are the obstacles you are facing in the market?
- What are your competitors doing better than you?
- Does your industry have an easy entry for new competitors?
- Will raw materials costs and labor charges rise in the near future?
- Will advancements in technology impact you negatively?
- What are the market trends that can become threats?
- What are the social and lifestyle changes that can harm you?
Simply having the information is not enough. You need to be able to gain actionable insight from it. Let’s take a closer look at how to use a SWOT analysis.
How to Use a SWOT Analysis?
You have successfully created a SWOT matrix filled with valuable information, great work! Now it’s time to act upon this newfound information. Before starting to take action and setting up strategies, start looking for connections between the four aspects.
Create an action list that addresses all the four elements of the SWOT analysis. Enlist new strategies to complete these actions, set milestones, choose relevant metrics to measure your progress, and closely monitor your actual performance compared to the planned performance.
It is beneficial to prioritize and schedule these changes according to your unique requirements. If you’re conducting a SWOT analysis to determine whether or not a project is worth taking up, these are some questions you will be able to answer at the end of the analysis:
- Do you have the time and resources to accept this project?
- If not, would adjusting current obligations allow room to accept it?
- Is this project worth enough to consider prioritizing over others?
If done well, a SWOT analysis should be able to answer all your questions clearly and in specific and quantifiable terms. Make sure to try and keep your findings measurable. That way, you can get a clear picture of what you’re getting into. You can use the data obtained to create new strategies and set SMART goals.
Plan, Protect, and Prepare with a SWOT Analysis
It can be confusing to set goals and strategies without having complete knowledge of your capabilities and drawbacks. SWOT-analysis helps you do this with ease. It equips you with the data to make more informed business decisions to avoid taking unnecessary risks, protect yourself from threats, benefit from your strengths, and capitalize on opportunities.
It equips you with the data to create a solid strategic marketing process and an effective marketing plan. Business factors such as market trends, customer needs, lifestyle changes, and more change repeatedly over time. To stay relevant, it’s wise to revise your SWOT matrix regularly.