What is a SWOT Analysis?
SWOT analysis is a tool used to scrutinize an individual, team or organization and the environment. Swot analysis serves as a guide for decision making, formulating long term plans and even directing brainstorming sessions.You can also perform a competitor analysis using SWOT.
There are four elements that make up a SWOT - Strengths, Weaknesses, Opportunities and Threats. Strengths are positive traits and resources that contribute to success. Weaknesses are internal factors that limit your ability to achieve your goal. Opportunities are the external factors that you can use to thrive.Threats represent factors that are beyond your control that can cause harm and jeopardize the business.
Investopedia defines SWOT analysis as “a basic, analytical framework that assesses what an entity can and cannot do, for factors both internal (the strengths and weaknesses) as well as external (the potential opportunities and threats).”
In this blog we outline why a swot analysis is important, give you two SWOT analysis examples and show you how to conduct it.
How is a SWOT Analysis Useful?
A SWOT analysis provides useful insight when combined with a specific objective. It can be used to:
- Utilize a new business opportunity
- Stay updated about new trends and respond to them
- implement new technology
- Respond to competitors’ tactics
SWOT helps understand both internal and external factors that contribute to success. It unearths opportunities that you can exploit based on your strengths and exposes your weaknesses so that any threats can be neutralized. The SWOT analysis chart can improve operations by helping decision makers focus on areas that are in need of an overhaul. Besides finding new opportunities those in the distant future can also be forecasted. A company can also devise strategic plans based on competitor’s vulnerabilities.
SWOT Analysis Example
The first example is that of a general swot analysis. The objective of this particular SWOT is to determine the feasibility of introducing a new product.
Let’s look at Amazon for the second example.
- An e-commerce giant dealing in an extensive array of products.
- A robust CRM to implement customer-oriented processes.
- Strategic partnership with logistics providers
Amazon built on its success as a books retailer and expanded into other product categories. This extensive diversification has established Amazon as a leader in the industry. Amazon’s CRM takes advantage of its consumers’ buying pattern. Personalized suggestions are offered based on past purchases or items viewed. Strategic alliance with logistics providers and a stellar distribution network allows Amazon to offer superior customer fulfilment.
- Profit margins affected due to investment in delivery networks and price wars.
- Loss of strategic advantage.
- Narrow focus on online marketplace
Amazon tends to operate at near zero margins. This affects profitability and the high revenue volume becomes meaningless. In the recent years, amazon’s diversification strategy has diluted Its focus. As it continues to expand, Amazon loses the strategic advantage that it enjoys as a books retailer. Amazon’s narrow focus on the online marketplace may hamper future expansion plans and stunt growth.
- Expand to global markets.
- Introduce products under its own brand.
- Open Brick-and-mortar stores
Global expansion can help Amazon tap into low competition markets in developing countries where the market is relatively less saturated as compared to US markets. Amazon can leverage its distribution networks to introduce products under its own brand. This can help improve their profit margins when compared to just being a seller for other brands. To improve customer engagement, Amazon can open physical stores.
- Saturated markets:
- Local competitors
- Security Concerns
The online retail space has few or no entry barriers. This causes the markets to become saturated. Price wars ensue.This result in losses and unsustainable business operations. Local competitors in every region emerge, with a better understanding of the local preferences. This forces Amazon to continuously innovate to retain their market share. Identity theft, data breaches and security concerns is another threat. Amazon must address these concerns and ensure data privacy and security.
How to do a SWOT Analysis
1. The SWOT team
Identify the right people and conduct a brainstorming session. Select an able facilitator and also assign a person to capture notes from the session.
2. Define SWOT objective
SWOT analysis is used in different scenarios, such as checking viability of a new idea or arriving at a specific business decision. Defining the objective helps in efficient use of SWOT.
Gather relevant data that will aid in decision making. Swot analysis has to be based on facts and numbers for it to yield the right results.
Conducting SWOT Analysis
1. Record Strengths and Weaknesses
Analyze the internal factors that affect your business. List strengths and weaknesses and ask the team to reach a consensus on how to rank them, prioritizing the strongest strength and most dangerous weakness. Use these questions as a guide to list your strengths and weaknesses.
2. Record Opportunities and Threats
In SWOT analysis opportunities that can be exploited are obtained from an environmental scan. This involves understanding economic factors, customer preferences and performing competitor analysis. The opportunities and threats should be ranked according to importance.
3. Considerations and Planning
Analyze S-W-O-T and develop strategies to drive business. Determine what problems need attention and what needs to be changed. Then formulate plans to address these problems. Review goals to check if they are still on track.
Mistakes to Avoid While Performing a SWOT Analysis
1. Ambiguous SWOT Objective
People tend to list many points under each head if the objective of the swot analysis is not clearly defined. Long lists also make it difficult to prioritize and address issues that need the most attention.
2. Subjective Strengths and Weaknesses
Strengths and weaknesses that are generic and are not quantifiable deter the development of precise action plans.
3. Biased Estimation of Strengths and Weaknesses
Strengths are often overestimated and weaknesses are brushed under the carpet. This can negatively impact the success of the business.
MeetNotes provides a SWOT analysis template that allows you to align your strengths and weaknesses with opportunities and threats. You can prioritize issues and derive solutions. You can understand where you stand and create action plans based on the analysis.