SWOT analysis is a tool for determining strategies in organizations, projects, individuals or groups, based on the assessment of internal aspects (strengths and weaknesses) and external aspects (opportunities and threats).
It is today’s topic for organizational strategy.
How enthusiastic we are! This time we’ll take a closer look at the SWOT analysis. You probably already have an idea of what it’s all about, but if you’re here it’s because you’re interested in learning more about the matrix and how it can be done, but more than that, how it can bring you value.
That and more is what we will detail in today’s post.
Stay with us.
First let’s define… what is SWOT analysis?
As a picture says more than a thousand words… what better than an infographic:
The SWOT analysis consists of a matrix in which we identify:
- S: Strengths
- W: Weaknesses
- O: Opportunities
- T: Threats
In short, with this tool we analyze the interactions between the good and the bad of the company / person / project / business / team / etc, to determine strategies.
Having said that, let’s define the 4 components of a SWOT matrix:
- Strengths: These are the internal strengths.
- Opportunities: External characteristics or elements that can be taken advantage of.
- Weaknesses: Internal aspects that work against us.
- Threats: External risks to be faced.
Although it is often said that SWOT and TOWS are the same, we can find small differences in the way external and internal aspects are addressed.
How to perform a SWOT analysis
The components of the SWOT analysis can be placed in a matrix, but you can also determine them one by one and then confront them to determine the strategies. The advantage of the matrix is that it manages to condense the whole analysis.
It is very common for companies to perform SWOT analysis to define their strategies. The step by step that you will see applies no matter if you are a company, person, project, etc., but from now on we will talk about companies.
Step 1: What is the objective
This step may seem logical but I must mention it. If you are going to do a SWOT matrix, it is for a reason. Is it the strategic planning of the year? A segmented evaluation of the employees? A mega expansion project? Attendees should be clear on why they are gathered.
Step 2: Defining threats
- How is the market view changing?
- What is the competition doing?
- Are there any weaknesses that could be a threat to the company?
- Are the quality standards of our product changing?
- What obstacles are we facing?
- How are government measures affecting us?
Threats are the factors that pose risks to the company. They are external, so it is difficult to control them, but we can develop contingency plans to deal with them.
There are all kinds of threats, depending on the company’s characteristics. For example, the increase of the dollar for a trading company that brings products from the USA, the environmental policies for an oil company, the excessive increase in the prices of our suppliers or the development of technology of our competitors.
A good practice can be to prioritize threats according to their severity and probability of occurrence.
Step 3: Now the opportunities
- What are the market trends in favor?
- What technological changes may represent an opportunity?
- What should we do that we haven’t done and they have?
- What events will allow us to expand the brand?
- How are people behaving around this issue?
- Are there any strengths we can exploit?
Like threats, we have no direct control over opportunities, but we can develop plans to take advantage of them. We are talking about potential advantages for the company to do better, which can mean the difference between it and the competition.
A change in consumer perception, the opening of a trade agreement in the country and public business tenders are examples of opportunities.
We can even go further by starting from our weaknesses. If we are able to eliminate a weakness, does that open up an opportunity? Can that strength be exploited in a different way to create an opportunity?
Paso 4: What are my strengths?
- What are we better at?
- What are the company’s advantages?
- What are the factors that make us worthy of the opportunity?
- What is our value proposition?
- How is our financial muscle?
- What strengths does the market see in us?
Strengths are the positive aspects that are internal to the business and are therefore under control. Usually when we think of strengths we think of what we are good at, but we can go further by asking customers and the market what they think of us. If we have done things right, some of the answers will be strengths.
Strengths can also emerge at the process level. Maybe we have a great sales team or excellent after-sales service.
Examples of strengths can be certifications received, patents, knowledge of the organization and locations in different places.
Paso 5: Detecting weaknesses
- Where can we improve?
- What should we stop doing?
- What negative aspects has the market and customers mentioned?
- Why are we losing sales?
- Where do we lack more experience?
- What does the competition have that we do not have and is affecting us?
Aspects that even when they are under control or can be controlled, they mean disadvantages in relation to the competition and towards the achievement of the objectives.
Lack of experience, poor location, process waste and poor product quality are examples of weaknesses.
Paso 6: Defining the strategies
Strategies are drawn by comparing strengths, opportunities, threats and weaknesses.
How can we use our strengths to take advantage of our opportunities? SUCCESS APPROACH .
How can our strengths be used to mitigate threats? REACTION APPROACH .
How can we take advantage of opportunities to correct our weaknesses? ADAPTATION APPROACH .
How can we stand our ground even with the threats seen? SURVIVAL APPROACH .
In summary, take each aspect of one element of your SWOT matrix and compare it to another element.
Last but not least, there are a number of recommendations to keep in mind throughout the development of the SWOT.
Example of SWOT analysis
We will perform an example with the HomeComb hypermarket.
Step 1: In this case we are doing the annual strategic planning of the hypermarket. The objective is to identify the external and internal context of the organization in order to create strategies that ensure its permanence and growth.
Step 2: Threats
- Small supermarkets that offer alternative brands in return of low costs.
- The arrival of Walmart, a retail leader in other countries around the world.
- The upward trend of the dollar, which increases the cost of imported products.
Step 3: Opportunities
- The purchase of products through cell phones in warehouses without products in stock, which means savings in inventory and lower costs for hiring personnel.
- The growing number of companies that manufacture products for other brands to market under their name.
- Our competitors do not have our technological infrastructure to adopt new technologies.
Step 4: Strengths
- Better prices offered by our technology and appliance suppliers, which allows us to offer products at lower prices than our competitors.
- Our loyalty points program that has allowed customer loyalty and an increase of 15,000 people in the program in the previous year.
- Our customers recognize that the service provided at our facilities is excellent.
Step 5: Weaknesses
- Failures in the delivery time of 60% of the sales made through the online store.
- Hanging notices of discounts in the hypermarket facilities are not removed in time after the discount has ended, which causes inconvenience to customers at checkout.
- Increased staff turnover during the last year, in addition to the time spent on training.
Step 6: The strategies
For the success approach, HomeComb has defined:
- O3: Sell low-priced products under the Home Comb brand, in order to face small-sized supermarkets.
- O3S2: Offer consultation and transaction portal for users on website and app, and seek new partners (airlines, restaurants, gyms, etc) to use loyalty points.
In the adaptation approach:
- O1W1: Establish a mini-store for products without stock, which will reduce part of the shipping logistics, as this will not be done in the mini-store but from the distribution centers.
- W2: Codify the discount notices placed in the shopping center facilities to know in time when they should be removed.
- W3: Design and implement staff incentive plan.
On the reaction approach:
- T3: Determine substitute suppliers in the region that provide products with different currencies.
- T1S3: Open mini-stores in residential areas with own-brand products to compete with low-cost supermarkets.
- T2S1: Seek new commercial alliances with other suppliers that sell product segments in which Walmart is strong and has low prices.
Lastly, and in defense approach, we have:
- T2: Strengthen the CRM program to increase customer loyalty in the face of Walmart’s arrival.
This example, shown in the FADO matrix, has this aspect:
SWOT analysis template
Image source: The header image of the post is downloaded from Freepik