Guide: SWOT Analysis
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SWOT Analysis is a strategic planning diagnostic tool that evaluates a business’s internal Strengths and Weaknesses as well as external Opportunities and Threats. Strengths and weaknesses are intrinsic characteristics that highlight where an entity excels and where it falls short. Threats and opportunities, on the other hand, emerge from the external environment, presenting potential areas for growth or challenges to be aware of. These elements, when combined, provide a comprehensive view of the current state and potential future paths, assisting decision-making and ensuring informed success strategies.
Table of Contents
What is a SWOT Analysis?
A SWOT Analysis is a strategic planning tool used to identify and evaluate the Strengths, Weaknesses, Opportunities and Threats to an individual, department, business, or other entity. Conducting a SWOT analysis involves identifying internal and external factors that are beneficial or a challenge to achieving an objective.
The SWOT analysis tool is a type of matrix with 4 quadrants:
- Strengths: Internal attributes and resources that support a successful outcome.
- Weaknesses: Internal attributes that work against a successful outcome.
- Opportunities: External conditions that could enable success.
- Threats: External conditions that could jeopardize success.
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Strengths: Positive attributes that are under control and upon which you can benefit. These are resources and capabilities allow the business to be competitive in the market. For example, a strong brand reputation, a loyal customer base, proprietary technology, patents, strong financial reserves, or an efficient supply chain can all be listed as strengths. Apple Inc would be an obvious example of having this type of strength in the marker.
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Weaknesses: Factors that detract from an business’s ability to attain the core goal and which are within its control. These might include lack of expertise, limited resources, poor location, inadequate infrastructure, or inefficient processes. It’s important to be honest and realistic about what the weaknesses are so they can be addressed.
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Opportunities: External chances to make greater sales or profits in the environment. These could be perceived from market trends, economic shifts, policy changes, social patterns, or technological advances. Opportunities might arise from expanding markets, changes in government policy related to your field, or societal shifts that could potentially increase demand for your products or services. An example of this might be government grants towards solar and renewable businesses that can grow their business on this opportunity.
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Threats: External elements in the environment that could cause trouble for the business or project. These could include changing market conditions, a new competitor entering the market, negative press, shifts in consumer behaviour, new regulations, or supply chain disruptions. Recognizing threats is crucial as it allows for the development of contingency plans. A good example of this would be car manufacturers that are not investing in battery technology and sticking with combustion engines.
Why do a SWOT Analysis in Continuous Improvement?
A SWOT analysis is useful to apply in a variety of situations, from business strategy to personal development. However, it is also useful in Lean Six Sigma and used as part of strategy development for operational excellence. Within my role, this is done at the end of each year to focus on the goals of the next year with a SWOT being a vital input for the strategy.
SWOT Analysis can complement Lean Six Sigma in several ways:
Identifying Bottlenecks: Within business processes, it is common to find bottlenecks in processes that limit the business’s outputs. These bottlenecks are clear weaknesses that you should seek to address. You might find the sales teams saying, “We can sell more and have a long lead time but we can’t get the product to the customer fast enough.” Actions should be taken to address this.
Resource Allocation: A business’s strength can provide insight into where its competitive advantages are and where resources can be allocated to make the greatest impact.
Risk Mitigation: By conducting a SWOT analysis, a business can identify external threats that allow it to anticipate potential problems and take preventative measures. This should be identifying weaknesses in the supply chain, for example.
Capitalizing on Opportunities: Opportunities identified in the SWOT Analysis can be used to guide the direction of Lean Six Sigma projects. These opportunities can align with the principles of Kaizen, or continuous improvement, to ensure that the organization is always moving forward and capitalizing on new trends and changes in the industry.
How to conduct a SWOT Analysis
Step 1: Define the Objective
Before beginning a SWOT analysis, it is important to state the objective of the analysis to set the right direction for the following steps. The objectives can range from improving a specific business process to broader goals like business expansion or new product development. The objective should be a SMART target: specific, measurable, achievable, relevant, and time-bound (SMART).
Step 2: Gather a Team
A SWOT analysis can be done alone. However, it is likely to be limited to one point of view. It is recommended when doing a SWOT analysis, even if it is based on an individual, to consider the multiple points of view that a diverse and cross-functional team can offer. This team might include people from different departments, leadership levels, and areas of expertise. The diversity within the team can provide a more comprehensive view of the situation. Each member can contribute unique insights into the business’s operations, market position, and competitive environment.
Step 3: Conduct Research
This step involves collecting the data that will inform the SWOT analysis. Research should be thorough and cover internal and external factors.
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Internal Research: Look into your business’s reports, performance metrics, employee feedback, and any past surveys or assessments. This will help identify the strengths and weaknesses within the business.
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External Research: This includes market analysis, industry trends, competitor analysis, customer feedback, and other environmental factors. Such research helps in identifying the opportunities and threats that exist outside the business.
Step 4: Fill in the SWOT Matrix
Organize your findings into the four quadrants of the SWOT matrix:
- Strengths: What does your business do well? What resources do you have that others don’t? What do others see as your strengths?
- Weaknesses: What could you improve? Where do you have fewer resources than others? What are others likely to see as weaknesses?
- Opportunities: What good opportunities are open to you? What trends could you take advantage of? How can you turn your strengths into opportunities?
- Threats: What trends could harm you? What is your competition doing? Could any of your weaknesses lead to threats?
Prioritize the items within each quadrant based on their potential impact on the organization.
this can be done with the support of the SWOT analysis template below, found in the template section
Step 5: Develop Strategies
The next step is to develop strategies that:
- Utilize your strengths to take advantage of opportunities.
- Utilize your strengths to minimize threats.
- Improve your weaknesses by taking advantage of opportunities.
- Minimize your weaknesses and avoid threats.
Each strategy should be actionable and linked back to the overall objective you defined in Step 1.
Step 6: Implement and Review
Finally, you must put these strategies into action. This involves planning, assigning responsibilities, and setting timelines. A method of doing this could be by using a Hoshin X Matrix for yearly strategic planning to set annual goals and activities.
Once the strategies are implemented, it’s crucial to review their effectiveness over time. We recommend running a monthly review of KPIs from the output of a SWOT to see how the business is progressing in relation to them and taking action where necessary. These reviews should be an ongoing process where you periodically reassess your SWOT analysis to ensure that the factors are still relevant and that the strategies are working.
SWOT Analysis Template
If you are looking to conduct a SWOT analysis in your business consider using our free SWOT analysis template to support you in your analysis.
Conclusion
Completing a SWOT analysis sparks a strategic conversation that translates insights into actions. The real value lies in the strategies developed from this analysis: leveraging strengths, bolstering weaknesses, seizing opportunities, and countering threats. With our free SWOT analysis template, we offer a structured tool to map out your competitive landscape. Remember, the efficacy of a SWOT Analysis is not just in its execution but in the continuous cycle of review and improvement, ensuring strategies remain relevant and responsive to a continually evolving business environment.
References
- Leigh, D., 2009. SWOT analysis. Handbook of Improving Performance in the Workplace: Volumes 1‐3, pp.115-140.
- Pickton, D.W. and Wright, S., 1998. What’s swot in strategic analysis?. Strategic change, 7(2), pp.101-109.
- David, F.R., Creek, S.A. and David, F.R., 2019. What is the key to effective SWOT analysis, including AQCD factors. SAM Advanced Management Journal, 84(1), pp.25-32.
Additional Useful Information on SWOT Analysis
TOWS Matrix: The Reverse Perspective
Just like SIPOC has COPIS, SWOT has a variant called the TOWS Matrix. TOWS stands for Threats, Opportunities, Weaknesses, and Strengths. While the SWOT analysis starts by focusing on the internal factors (strengths and weaknesses), TOWS begins with external factors (threats and opportunities).
Why TOWS Matters
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External Focus: TOWS shifts the focus to the external environment first, helping organizations to concentrate on adapting to market conditions or external threats.
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Strategic Options: By looking at Threats and Opportunities first, TOWS helps in generating different strategic options that might be overlooked in a conventional SWOT analysis.
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Comprehensive View: TOWS can be used in conjunction with SWOT to provide a more comprehensive view of both the internal and external factors affecting an organization.
Variations and Extensions
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SWOT-C: This variant adds a fifth dimension—Challenges. These are the hurdles or obstacles that neither fall under weaknesses nor threats but still need to be addressed.
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Weighted SWOT: This involves adding a weight to each factor based on its significance, followed by a scoring mechanism to prioritize actions.
Integration with Other Tools
SWOT Analysis can be integrated with other business and continuous improvement frameworks such as:
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PESTLE Analysis: A macro-environmental analysis tool that can help in identifying Opportunities and Threats.
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Balanced Scorecard: SWOT can feed into the Balanced Scorecard to help align various business functions with the organization’s strategy.
Q: What is a SWOT analysis?
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Q: Why is SWOT analysis important?
SWOT analysis provides a clear and structured overview of an organization’s internal capabilities and external environment, enabling informed decision-making and strategic planning.
Q: How often should a SWOT analysis be conducted?
While there’s no fixed rule, it’s a good practice to conduct a SWOT analysis annually or when significant changes occur in the business environment or organizational structure.
Q: Who should participate in a SWOT analysis session?
Of course! Here’s a set of Frequently Asked Questions (FAQs) related to SWOT analysis:
1. What is a SWOT analysis?
A SWOT analysis is a strategic planning tool that helps businesses identify their Strengths, Weaknesses, Opportunities, and Threats.
2. Why is SWOT analysis important?
SWOT analysis provides a clear and structured overview of an organization’s internal capabilities and external environment, enabling informed decision-making and strategic planning.
3. How often should a SWOT analysis be conducted?
While there’s no fixed rule, it’s a good practice to conduct a SWOT analysis annually or when significant changes occur in the business environment or organizational structure.
4. Who should participate in a SWOT analysis session?
Diverse participation, including members from various departments and levels within the company, ensures a comprehensive view. Including external stakeholders like partners or customers can provide additional insights.
Q: How is the SWOT matrix used in strategy development?
The SWOT matrix helps businesses devise strategies that leverage strengths, address weaknesses, capitalize on opportunities, and counteract threats, ensuring growth and resilience.
Author
Daniel Croft
Daniel Croft is a seasoned continuous improvement manager with a Black Belt in Lean Six Sigma. With over 10 years of real-world application experience across diverse sectors, Daniel has a passion for optimizing processes and fostering a culture of efficiency. He's not just a practitioner but also an avid learner, constantly seeking to expand his knowledge. Outside of his professional life, Daniel has a keen Investing, statistics and knowledge-sharing, which led him to create the website learnleansigma.com, a platform dedicated to Lean Six Sigma and process improvement insights.
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