A SWOT Analysis is a marketing tool used to strategically identify a business’ Strengths, Weaknesses, Opportunities, and Threats. You can use it for decision-making in your business.
The SWOT Analysis is a framework that uses data and facts to evaluate a company’s competitive position in its market. As an acronym, SWOT stands for Strengths, Weaknesses, Opportunities, and Threats—all of which are then categorized by internal and external factors. As a tool, it’s a key part of strategic planning for a business.
This planning strategy provides the tools to assess the assets and liabilities of an organization, its initiatives, or its current industry status. By identifying core strengths and weaknesses, alongside opportunities and threats, a company can gain a fresh perspective. This can then lead to new ideas for products and services as well.
While SWOT may seem simple, it is a valuable and effective tool when used correctly. By analyzing these factors, you can improve current business initiatives and guide your future decision-making. This glossary article will discuss how a SWOT Analysis works and how to implement one.
Table of contents
How a SWOT Analysis Works
A SWOT Analysis starts with an identified goal or initiative for the company to work towards. The decision-maker outlines the objective for the team to take on. Based on that objective, the team then creates a matrix under the four categories of Strengths, Weaknesses, Opportunities, and Threats.
An organization’s strengths are the aspects in which it excels or distinguishes itself from the competition. These can include anything from brand loyalty to unique technology, so long as they qualify as an “advantage” for your company.
These strengths are internal factors that are fundamental to your business. They answer the question, “What do you do better?” Essentially, you’re highlighting the assets or qualities you have that your competitors do not.
Let’s use an example of a music streaming software like Spotify. When the company was created, there were not many options for streaming music legally, so that was a strength that helped them dominate the market and get them where they are today.
These are factors that prevent your company from reaching its full potential or performing at an optimal level. These are areas in which the business needs to improve to remain competitive in your industry. A weakness can include a variety of different issues, such as a high churn rate, sunk costs, inefficient supply chain, or low brand impact.
One easy way to identify your weaknesses is by analyzing your competitors to see what they’re doing better than you. Take note of where they have strengths that you lack. The essential aspect here is honesty; being realistic will help your company improve down the line.
Let’s use an example of an app like Instagram which caters heavily to mobile users. Initially, their website’s browser function was limited and that was a weakness for them. Now, while they’ve improved it over time, it’s still something that some competitors do better.
An opportunity for a company involves favorable external factors that could provide it with a market opening or a competitive advantage. This can include developments in technology, new consumer desires, change in the price of materials, or changes in local policies and social conditions.
Let’s use an example of a software product that offers financial organization for users. Perhaps all the other competitors are using a monthly subscription service, and no one has a free-to-use model. That free model could represent a big opportunity if no other competitors offer that feature. If you can identify that the users are looking for it through keyword research and search engine queries, then your company can pivot to meet the demand.
Spotting an opportunity is a skill that requires an eye on both the market and potential trends. Taking advantage of that opportunity then allows your company to get ahead in your industry.
A threat is an external factor that could potentially harm your company’s initiative or product. Any issues to a supply chain or market shortage count as a threat, as does increasing competition.
Let’s use an example of email marketing software. Recently, Apple had an email privacy update and its new policies meant that email marketing companies would have less visibility on things like email open rates, deliverability, and so forth. This was a major threat for companies in that industry and many were going to have to find ways to adapt.
By identifying potential threats early on, a business can plan accordingly and minimize the impact.
When to Use a SWOT Analysis
A SWOT Analysis is most useful before deciding on a new strategy or product. Assessing your business’ performance and risks allow you to gain actionable insights, which you can use to finesse your decisions making. You also gain an understanding of your current position against a stated goal.
By visualizing competitive advantages as well as potential problems, you can plan accordingly. The company can then capitalize on the positives and preemptively address any deficiencies.
Additionally, a SWOT Analysis can help a business avoid the sunk cost fallacy by deciding whether an initiative or product is worth an investment of time and effort. It will also allow the business to match its resources to its priorities. This, in turn, prevents the company from investing its resources poorly resulting in diminishing returns.
How to Create a Good SWOT Analysis
It’s important to create a thorough SWOT Analysis as a means to assess all the positive and negative factors that could affect your goal’s success. This will best help your business align its resources and skills with its objectives.
Here is an example of some questions to answer to help you build a thorough SWOT table:
Before you start your SWOT Analysis, make sure you have decided on a specific objective that the team is working towards or a strategy you wish to implement. Within an agile framework, you can use the Shape Up method to determine this goal.
With that objective in mind, you can begin constructing a SWOT matrix. Then you can make a list of questions in the matrix about each SWOT element. Following that, begin honestly and thoroughly answering each question in order to fill out the framework.
Use SWOT to Improve Your Products
By using SWOT, you can ensure you’re evaluating what your business does well—and what it needs to work on. It’s important to note that a SWOT Analysis functions best when you have diverse perspectives within the team. This framework is also not without limitations; therefore, it should not be used on its own as a planning technique but in combination with all your other strategies.