Major Strategy Frameworks | SWOT
No matter the size of the company, it is essential to the growth and success of the business to periodically evaluate the direction it is moving. This process can be done in a variety of ways, but finding a method that is cost effective, reliable and useful often intimidates business executives. For the company that is new to the idea of strategic planning or who wants a simple, quick method of finding direction the SWOT strategy is ideal. Aptly named for its features, the SWOT is an analysis of the Strength, Weakness, Opportunity and Threats that a company experiences.
In this article, we will look at 1) what is SWOT, 2) when is SWOT useful, 3) components of SWOT, 4) creating SWOT, 5) using SWOT, and 6) example of SWOT.
WHAT IS SWOT
The SWOT strategy focuses on two areas: internal factors and external factors. When considering the internal factors, the company must focus on the areas within the company that they can control. The internal inspection will be centered on the strengths and weaknesses of the business. Before starting any campaign to expand the company or trying to advance in the marketplace, it is vital to take inventory of the current company standing.
Beginning with an investigation that looks inward, it is possible to establish a realistic picture of the state of the company. To begin, the business must evaluate the factors of the company that are strengths, or advantages in the marketplace. These items may include staffing, assets, position in the industry – any features that set the company apart from the competition in a positive way. In addition to the strengths of the company, a similar examination of the internal weaknesses of the business must be conducted. Weaknesses may be processes that aren’t fully functioning, limited use of technology, access to shipping lines – the hurdles that the company faces in order to do business.
Conversely, a thorough understanding of the external factors that the company faces must also be established. This is done through the last two features of the SWOT: opportunities and threats. In a business environment, these items are aspects of business that a company cannot control. In many applications, external factors deal primarily with what is considered ‘the competition’, but for a successful SWOT analysis, it must include factors beyond that. Opportunities for the company include market awareness and growth, public perception and economic trends. Threats may be the most difficult to establish, but should be carefully considered. Threats can include funding delays, opposition to new processes or products or timing issues.
WHEN IS SWOT USEFUL
The SWOT analysis can be beneficial to a company in a variety of scenarios. Most scenarios can be categorized into either developing new business or evaluating existing business. Companies that wish to develop a strategic plan for the expansion of their business would be well served by performing a SWOT analysis before engaging in action. The SWOT can be used when a company is beginning to implement an expansion into a new market area, when considering a new product line or when developing new policies. Evaluating the new venture in light of the existing company structure can provide guidance into the feasibility of adding new products or ideas.
In addition, SWOT strategies can be implemented when considering a change in the focus of the company. The possibility of transitioning from a local market to a global scale, for example, could be evaluated using a SWOT analysis. Another consideration for a SWOT analysis is when a taking on new business that could largely impact both productivity and scope of the company.
For new businesses, using a SWOT analysis strategy can help guide the company through the early stages of development. Establishing a clear and definitive course of action will be beneficial as a company identity is being formed. By clarifying the unique aspects of the company, employees have a better understanding of the focus of the company and are better equipped to make the company successful.
COMPONENTS OF SWOT
The four components of SWOT: strengths, weakness, opportunity, and threat must be individually evaluated.
Internal factors: Strengths
The features of the company that are benefits and can be both tangible and intangible are the strengths of the business. These positive features are within the control of the company. Strengths may include: resources (both human and otherwise), advantages over competition, facilities and more. To determine strengths, a company may consider the following questions:
- What does the company do better than any other company in the industry?
- What are the advantages that the company has?
- What are the resources that the company has that others don’t have?
- What human resource advantages does the company have?
- What positive features does the company have that gives an edge over the competition?
Internal factors: Weaknesses
It may seem counter-productive to focus on the negative internal aspects of a business, but to truly achieve success, the weaknesses must be addressed. Being realistic and honest provides a true picture of the company and prevents complications and issues later. Some of the areas to consider weaknesses will be discovered by using questions such as:
- What are the areas that the company can improve?
- What causes the company to lose business?
- What areas are lacking in the business?
- Are the resources available to the company limited?
- Does the location of the business hinder success?
- What continuous training efforts are in place for employees?
Considering the external aspects of the SWOT are equally as important. These issues that are beyond the control of the company must be included in a strategic plan for success. Externally, there are Opportunities and Threats. By maximizing the opportunities and minimizing the threats, the successful company will be able to move beyond their current position in the marketplace.
External factors: Opportunities
These positive features outside the company are reasons that the company will be successful. By taking advantage of the opportunities the company faces, the company can reach their potential for growth, expansion and success.
Opportunities can be evaluated through discussion of some of these questions:
- What opportunity for growth exists in the current market?
- What legislation or funding opportunities have been created that can benefit the company?
- What timeline exists for these opportunities?
- How does the physical location of the company affect the future?
- What changes in demographics can increase sale opportunity?
- What changes in technology can the company take advantage of?
External factors: Threats
These external factors put a company at risk. The threats to the business include competition, legislation, or other factors that are beyond the control of the company. While it is impossible to plan for every contingency, it is helpful to be aware of the threats and have an established plan in place for dealing with them.
- Who are the direct competitors in the industry?
- What changes can affect marketing strategies?
- What shifts in consumer habits could affect sales?
- Are changing legislations putting the company at risk?
- Does new technology or products make current products or offerings obsolete?
These questions are by no means an exhaustive list of items to consider in the creation of a strategic plan. By beginning an investigation of each component of the SWOT, it will help create a clear outline of direction.
The creation of a SWOT can be a short, simple process or it can be a more complex process that involves a wider range of people and time. The only limitation to the size and scope of the SWOT analysis is the intent and desire of the company developing the strategy.
Creating a SWOT analysis can be completed by the head of a department, the CEO of the company, or the chairman of the strategic development committee. For maximum effectiveness, however, the analysis should be completed by a group of people from various segments of the company. By selecting people in different areas of the business, they will have different inputs into the positive and negative aspects of the company which will be essential in creating a true picture of the company. Additional insight can be gleaned from the inclusion of customers in the process.
One reason the SWOT strategy is so effective is the simplified process for creation. A basic SWOT can be created during a staff meeting, a company retreat or spread out over the course of several weeks. Depending on the desired use of the SWOT, it can be helpful to schedule a planning session that will span several hours specifically to conduct the analysis.
Establishing a casual, relaxed environment and inviting key people to the SWOT strategy session will help generate an opportunity for employees to collaborate while sharing their knowledge and insight for the betterment of the company.
Appoint a discussion facilitator to move the group through the exercise. Progress, in order, through the S-W-O-T categories of the strategy. Ask for group feedback regarding each area, using the supplied questions, along with any others that may be relevant. Allow for discussion within each category, making notes of comments and ideas. Encourage answers that may be contrary to the overall perception of the company – a range of ideas and comments will provide the means for honest discussion about the business. Once the lists of each category have been compiled, identify the top 5 – 10 items in each section based on the group discussion. After the analysis has been completed, assemble the results into a chart that lists the results in an easy to see format. Distribute the results to the members of the group to allow for final consideration.
SWOT Analysis: How To Perform One For Your Organization
After completing the SWOT analysis, compiling the reports into useable results is the next step. The analysis identified and prioritized the biggest internal and external factors of the company. The SWOT analysis may have identified issues or problems that need to be addressed. It may have reaffirmed goals and strategies already in place. In addition, it brought attention to factors that can generate growth. In order to successfully use the SWOT, those factors must be turned into short and long term strategies.
One of the primary benefits of the SWOT analysis is the ability to focus on maximizing strengths while minimizing weakness. This can be done through a careful consideration of the areas highlighted in the analysis. Look for ways to use the company strengths identified to capitalize on the opportunities assessed. In the same way, develop solutions to minimize the threats that are present by using the existing strengths of the company.
By focusing on the positive aspects of the company, the negative factors can be minimized and negated while creating opportunity for growth. Use the list of opportunities developed to establish strategies that will reduce weaknesses. Further, focus on minimizing weakness to avoid potential threats in the marketplace.
Generalities are the enemy of a successful SWOT strategy. Use only verifiable and precise claims when identifying strengths and weaknesses. Prioritize the list of factors, ensuring that the most important areas are dealt with first. Revisit the SWOT analysis and subsequent strategy plan frequently to ensure that the company direction is still in accordance with the expected strategies.
EXAMPLE OF SWOT
Generating a SWOT for a famous company will give an idea of the potential uses for this type of strategic planning. Consider the possible SWOT analysis of IKEA, the retailer famous for home furnishings. The global company has taken Scandinavian style to the forefront of the furniture retailing industry and has utilized the SWOT philosophy to generate direction and planning.
A potential SWOT analysis for IKEA may include the following features:
- Low priced, functional products in a wide range of styles
- Vision for giving people a better life
- Consistent global quality and brand
- Quality control in manufacturing countries
- Balance between low costs and quality products
- Communication between consumers and shareholders
- Increased market demand for environmentally conscious products
- Market increase for low carbon footprint corporations
- Economic downturn forcing consumers to consider lower cost products
- Market slowdown of first-time homebuyers
- Competition entering the low price market
- Disposable income shrinking due to economic downturn
By maximizing the opportunities for growth, IKEA can continue to dominate the home furnishings market. Fitting in with their vision to create a better life for people, they can focus on the environmentally conscious aspects of their company by using sustainable, renewable resources. Consistent use of their existing global network will help to reduce their carbon footprint through creative packaging and shipping.
The use of the SWOT analysis and strategy can be an essential part of a company’s development. Critics claim the limited scope of the process make it ineffective in truly determining future growth, but used as part of a larger strategic plan it can be a powerful tool. By using the plan to develop a framework for success, the company will be able to minimize weakness while maximizing the potential for the future.