Examining the strengths, weaknesses, opportunities, and threats (SWOT) of a company is an integral part of strategic planning for that company. In many respects, the SWOT analysis is a report card on where the subject company is positioned in the competitive marketplace. Any attempt to identify the direction a company should take in the future must be grounded in an honest understanding of where that company is now.
Without assessing each of the key areas of SWOT analysis, no effective strategic plan can be formulated.
Strategic Planning and SWOT
This strategic planning process includes the following five elements:
- Mission and Objectives
- Environmental Scanning
- Strategy Formulation
- Strategy Implementation
- Evaluation and Control
SWOT analysis is part of the environmental scanning step in the strategic planning process. Essentially, the environmental scanning step is broken down into three specific activities:
- A thorough internal analysis of the firm’s strengths and weaknesses.
- A task environment analysis of the firm’s industry that looks at entry barriers, suppliers, customers, substitute products, and competitors.
- An external macro environmental analysis that focuses on opportunities and threats.
SWOT Analysis: Defined
SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.
A SWOT Analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning has been the subject of much research.
- Strengths: characteristics of the business or team that give it an advantage over others in the industry.
- Weaknesses: are characteristics that place the firm at a disadvantage relative to others.
- Opportunities: external chances to make greater sales or profits in the environment.
- Threats: external elements in the environment that could cause trouble for the business.
Identification of SWOTs are essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs. First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated. The SWOT Analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development.
SWOT Analysis Breakdown
Strengths must focus upon what the firm can do with its internal resources. Any asset that the firm owns could certainly be classified as a strength, but the degree of each asset’s contribution to the competitive position of the firm may vary greatly. Newer assets such as state-of-the-art production line machinery would provide greater strengths to the firm than older assets such as an aging truck fleet. Not all strengths are physical in nature. A strong brand-name presence, recognized customer service excellence, and/or exclusive access to a strong supply chain network are all examples of nonphysical asset strengths.
One type of strength that is often overlooked is well-trained and experienced staff. Good employees can substantially benefit the firm.
Weaknesses can include any area in which the company lacks strength. Poor product positioning, deteriorating physical assets, out-of-date production equipment, and poor customer service all are among the weaknesses of the firm. High employee turnover that causes the firm to lose talented people can be a major weakness of the firm. Talent is hard to replace, especially in the innovative environment of today. Sometimes a strength can be a weakness, such as if the firm’s physical plant is state of the art but saddles the firm with a large amount of debt that limits what the company can invest in to improve earnings.
Opportunities can be subject to interpretation. In general, any changes in the external environment can be an opportunity to the firm. If competitors are weakened by a poor cash-flow position, it is an opportunity for the firm to capture market share. Changes in tax structure, improvements in economic trends, or the passage of favorable laws can all be opportunities of which the firm should take advantage. Market positioning, new technologies, and international trade agreements can provide substantial opportunities as well.
Threats arise from a lack of opportunities or from the strengths of competitors that may place the firm at an extreme disadvantage. Changes in consumer preferences, new competitor innovations, restrictive regulations, and unfavorable trade barriers are all examples of threats. Loss of favorable distribution networks and the restrictions on the firm’s cash flows can threaten the firm’s market position. Changes in the economic climate can also put a substantial strain on the firm.
Optimizing After SWOT
After completing the SWOT analysis, the firm should try to configure its overall position in the marketplace by seeking the best combination of strengths and opportunities that can optimize returns. Not every opportunity can be pursued and every strength is not necessarily an exploitable advantage to the firm. Choices need to be made by the firm to take complete advantage of its position; likewise, the firm should seek to improve its weaknesses and minimize its threats.
Internal and External Factors
The aim of any SWOT Analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company’s unique value chain. SWOT Analysis groups key pieces of information into two main categories:
- Internal Factors – The strengths and weaknesses internal to the organization.
- External Factors – The opportunities and threats presented by the external environment to the organization.
The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization’s objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P’s (product, price, place, and promotion); as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a quadrant matrix chart.
SWOT Analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.
It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.
SMART Marketing Objectives
All businesses need to set objectives for themselves or for the products or services they are launching. What does your company, product or service hope to achieve?
Setting objectives are important. It focuses the company on specific aims over a period of time and can motivate staff to meet the objectives set.
A simple acronym used to set objectives is called SMART objectives.
SMART stands for:
- Specific – Objectives should specify what they want to achieve.
- Measurable – You should be able to measure whether you are meeting the objectives or not.
- Achievable (Attainable) – Are the objectives you set, achievable and attainable?
- Realistic – Can you realistically achieve the objectives with the resources you have?
- Time (Traceable) – When do you want to achieve the set objectives?
Examples of SMART Objectives:
There are a number of business objectives, which an organization can set:
- Market share objectives: Objectives can be set to achieve a certain level of market share within a specified time. For instance, the market share objectives may be to obtain 3% market share of the mobile phone industry by 2012.
- To increase profit: An objective maybe to increase sales 10% from 2011 – 2012.
- To survive: The hard times the business is currently in.
- To grow: The business may set an objective to grow by 15% year on year for the next five years.
- To increase brand awareness over a specified period of time.
For assistance on how to effective conduct a purposeful SWOT Analysis for your business, we encourage you to contact us for a no-cost professional marketing consultation today.
Be smart and be encouraged,