SWOT Analysis the Right Way

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by Alex Mangrolia

Overview of S.W.O.T.

SWOT analysis stands for Strengths, Weaknesses, Opportunities and Threats. It is an analysis of an organization’s strengths and weaknesses alongside the opportunities and threats present in the external environment. The analysis involves the collection and portrayal of information about internal and external factors which have, or may have, an impact on business.

It overall has 5 key benefits to an organization:

  • Simple to do and practical to use in your company
  • Easily understood
  • Allows for a focused approach on internal and external factors impacting your business.
  • Helps to identify what your organization’s future goals are.
  • Allows to uncover things that need more analysis.

Brief S.W.O.T. History Lesson

The SWOT analysis was created by Albert S. Humphrey in the 1960s as a means to start figuring out where the company fit in the market place. (I told you it was brief).

Benefits of a SWOT analysis

Why the heck do you need this?

Now you’re thinking, wow is this more work? Yes, but this will give you the insight you really need in order to move forward the right way. There are a lot of businesses that never perform a SWOT analysis, they go about marketing and then they figure out, “Oh Yeah! I need to figure out why all this marketing I did didn’t work!” Now you just lost a few thousand dollars or more! So, as a part of the DeClustered Marketing methodology, you have to do this. We will get to the juicy stuff soon…Like I said before, if you can’t wait! Then contact me!

You will need this image to make sure you are doing this right…

swot-matrix

The Details of How to do a SWOT analysis:

Internal Factors

Strengths

Strenghts are factors that give you a competitive edge on your competition. Strenghts are also considered to be INTERNAL factors. These could be a number of things ranging from new software that you have implemented or you have specific members on your team that almost no other company has. i.e., CEO, CFO, etc. Here are some basic questions you can ask to get this going:

  • What advantages does your organization have?
  • What do you do better than anyone else?
  • What unique or lowest-cost resources can you draw upon that others can’t?
  • What do people in your market see as your strengths?
  • What factors mean that you will “get the sale”?
  • What is your organization’s Unique Selling Proposition? (USP – I will get into this later).

If the above questions can’t get you started, then you might want to start by making a list of your organization’s characteristics. Here are some more ideas:

  • Resources: land, equipment, knowledge, brand equity, intellectual property, etc.
  • Core competencies
  • Capabilities
  • Functional areas: management, operations, marketing, finances, human resources and R&D
  • Organizational culture
  • Value chain activities

Weaknesses:

This is something that EVERYONE has, so don’t come out and say that your organization doesn’t have any weaknesses. Remember to be as specific as possible; having really broad terms may not lead to the best results. Also, make sure that if you are doing this with a group of people, don’t take it personal! This is all being done to grow and improve!

  • What could you improve?
  • What should you avoid?
  • What are people in your market likely to see as weaknesses?
  • What factors lose you sales?
  • Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you don’t see? Are your competitors doing any better than you?

It’s best to be realistic now, and face any unpleasant truths as soon as possible.

DeClustering Key Elements for Strengths and Weaknesses:

  • Have a Clear definition. Very often factors, which are described too broadly, may fit both strengths and weaknesses. For example, “brand image” might be a weakness if the company has poor brand image. However, it can also be strength if the company has the most valuable brand in the market, valued at $100 billion. Therefore, it is easier to identify if a factor is strength or a weakness when it’s defined precisely.
  • Have a Benchmark. The key emphasize in doing swot is to identify the factors that are the strengths or weaknesses in comparison to the competitors. For example, 17% profit margin would be an excellent margin for many firms in most industries and it would be considered as a strength. But what if the average profit margin of your competitors is 20%? Then company’s 17% profit margin would be considered as a weakness.
  • VRIO framework. A resource can be seen as a strength if it exhibits VRIO (valuable, rare and cannot be imitated) framework characteristics. Otherwise, it doesn’t provide any strategic advantage for the company.

External Factors

These factors are outside of your organization! You may have very little or NO control over these.

Opportunities:

  • What good opportunities can you spot?
  • What interesting trends are you aware of?

Useful opportunities can come from such things as:

  • Changes in technology and markets on both a broad and narrow scale.
  • Changes in government policy related to your field.
  • Changes in social patterns, population profiles, lifestyle changes, and so on.
  • Local events.

Tip:

A useful approach when looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them.

Threats:

  • What obstacles do you face?
  • What are your competitors doing?
  • Are quality standards or specifications for your job, products or services changing?
  • Is changing technology threatening your position?
  • Do you have bad debt or cash-flow problems?
  • Could any of your weaknesses seriously threaten your business?

Tip:

When looking at opportunities and threats, PEST Analysis can help to ensure that you don’t overlook external factors, such as new government regulations, or technological changes in your industry.

PESTEL. PEST or PESTEL analysis represents all the major external forces (political, economic, social, technological, environmental and legal) affecting the company so it’s the best place to look for the existing or new opportunities and threats.

Grand Close:

Okay if you were good and read this through, you can actually now gain some seriously valuable insights on your business! This should have uncovered a lot of things that you as the manager, director, whoever didn’t really understand.

Now what you want to do is the following!

Prioritization

Strengths and weaknesses are evaluated on 3 categories:

  • Importance. Importance shows how important a strength or a weakness is for the organization in its industry as some strengths (weaknesses) might be more important than others. A number from 0.01 (not important) to 1.0 (very important) should be assigned to each strength and weakness. The sum of all weights should equal 1.0 (including strengths and weaknesses).
  • Rating. A score from 1 to 3 is given to each factor to indicate whether it is a major (3) or a minor (1) strength for the company. The same rating should be assigned to the weaknesses where 1 would mean a minor weakness and 3 a major weakness.
  • Score. Score is a result of importance multiplied by rating. It allows prioritizing the strengths and weaknesses. You should rely on your most important strengths and try to convert or defend your weakest parts of the organization.

Opportunities and threats are prioritized slightly differently than strengths and weaknesses. Their evaluation includes:

  • Importance. It shows to what extent the external factor might impact the business. Again, the numbers from 0.01 (no impact) to 1.0 (very high impact) should be assigned to each item. The sum of all weights should equal 1.0 (including opportunities and threats).
  • Probability. Probability of occurrence is showing how likely the opportunity or threat will have any impact on business. It should be rated from 1 (low probability) to 3 (high probability).
  • Score. Importance multiplied by probability will give a score by which you’ll be able to prioritize opportunities and threats. Pay attention to the factors having the highest score and ignore the factors that will not likely affect your business.

Now you have some true insight!.

 

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