SWOT Analysis In Business: The Complete Guide

by Bruno Medici | October 13, 2022 | Reading time: 10 minutes

What Is SWOT Analysis?

A SWOT analysis is an easy yet powerful tool that can help you build the most effective business strategy for your company, organization, entity, or firm. SWOT stands Strengths, Weaknesses, Opportunities, and Threats, and seeks to reaffirm where a business project or organization stands. Plus, categorizes its analysis into two factors, namely: external and internal.

This concept was designed to use data derived from the strengths, weaknesses, opportunities, and threats of a business organization to guide the development of a more beneficial business strategy. It is to be used majorly as a guide in business rather than a prescription. A company makes use of a SWOT analysis to ascertain its competitive position. By analyzing the areas it could improve, the chances of success, the sabotaging elements, and the core strengths of a business, a business can be guided to progress.

Aside from analyzing the external and internal factors, SWOT also assesses the current and future potential of a business organization. The internal factors are the strengths and weaknesses of the company. These are the factors that the business or organization has control over. Examples of these factors might be your organization's high technological machines or increased productivity output as strengths or low supply stream, and inadequate customer service as weaknesses.

On the other hand, the external factors are the opportunities and threats available to a business or organization. These are the external elements out of the business's control. Examples of these factors can be increased competitive advantage in similar companies as a threat and customer shopping trends as opportunities. As we go further into this guide, we'll elaborate on the internal and external factors.

In this article, we'll be looking at:

1. Why you should do a SWOT analysis

2. Components of SWOT analysis

3. How to conduct a SWOT analysis

4. Benefits of a SWOT analysis

5. Example of a SWOT analysis

Why Do a SWOT Analysis?

Every business organization, be it a production line, industry, firm, or enterprise, plans to succeed by regularly delivering quality products and services to customers efficiently. In the sight of this goal, businesses ought to follow some quality management standards to help them achieve certain improvements and business plans. While the ISO 9001 was renewed in 2005, it emphasized analyzing risks and opportunities a business encounters. SWOT analysis, a strategic management tool, was introduced to comply with business TQM (total quality management) standards.

SWOT is a management tool introduced to assess a business's weak spots and potentials by analyzing its core strengths, weaknesses, opportunities, and threats. Also, it’s done to keep up with a quality improvement in an organization, since it reveals what a company can be doing better or what a company can use to maintain customer satisfaction. Without a SWOT analysis, business management teams might not fully understand where they stand in the competitive market.

For the most, it helps to stay on track with a business timeline and progress. As far as a business project is concerned, a SWOT analysis is the best way to determine what potential your business holds and what risks are available to you. SWOT helps you determine if you should continue running a business or sacrifice resources and effort. Whether or not you're a business project manager or an employee/individual, using this analysis will help you know where you stand and what dangers are available to you before you embark on any business plan.

What Are The Components Of a SWOT Analysis?

The components of a SWOT analysis are the inevitable subjects and elements considered or used throughout the entire analysis. These elements' nature varies depending on the type of business venture or production line; however, a SWOT analysis is not complete without them. These components are:

Strengths

This refers to the internal positive characteristics or attributes that separates a company from the competition. The strengths of a business organization are the core values that give the business an edge in the industry. These strengths include a loyal customer base, high technological equipment, fastest supply stream, strong balance sheet, e.t.c. A business organization with enough strengths can keep its current customers and gain new customers as long as its strengths remain unwavering.

However, companies or business organizations with good-enough core strengths should understand that it's not enough to have something that places you higher than other establishments. It's imperative to know that market trends will always keep progressing; therefore, the strengths of a business should be continually improved from time to time. Activities like spreading more customer-oriented awareness, updating tech systems, e.t.c., will make an organization preserve its strengths as an establishment. The strengths of a business can also be referred to as its potential. To outline the strengths of your business venture or company, you should answer the following questions:

• What processes in your business is successful? Examples: software systems, employee programs, etc.
• What strong points does your team have? Examples: skills, knowledge, network, etc.
• What other advantages do you have over your competitors? Examples: Access to natural resources, trademarks, consistent tracking of materials, etc.
• What are your physical assets? Examples: perfect location, standard equipment, loyal customers, patents, etc.

Weaknesses

The weaknesses of a business organization are the internal attributes that stop it from performing at its optimal level. They are the business areas that place it at a disadvantage in relation to other businesses of similar interests. Therefore, they are the areas that need improvements to stay competitive. Examples of what count as weaknesses in a business organization are: an inadequate supply stream, lack of capital, weak brand identity, very high turnover, huge debts, etc...

Sometimes, you may think that you have outlined every weakness in your business, but a SWOT analysis will force you to look into obscure areas that will cause progressive turnouts if improved. Even if it means seeing things from the perspective of a third party (friend, vendor, supplier, accountant, e.t.c.), a SWOT analysis will explore every possible area of weakness. In a business venture, weaknesses can mean the areas with faults or areas that need to serve their purposes better. To discover the weaknesses in an organization, project managers should answer the following questions:

• What business process needs improvement or modification?
• What do competitors do better
• What resources or tangible assets do you lack?
• Is your location going to contribute to the success of your business?

These are the external factors that are likely to contribute to the success of a business establishment. The external factors are usually not under the control of the said business; they're naturally occurring circumstances and events that usually positively affect a business's progress. Most of these external factors exist in the business environment. Other trends in the market or economy create opportunities for an enterprise to attain high profit or success.

Opportunities in a SWOT analysis are simply what the word says. They're not automatically successive factors; rather, they're chances and openings a business can utilize to gain more success. Businesses need to perform a SWOT analysis to uncover those opportunities in the market and national economy that will contribute to the success of a business organization. The following conditions will indicate an opportunity in a business:

• If there are certain market trends that prompt customers to seek your product
• If your business is thriving and is in customers are fond of your products or services
• If there are new regulations that favor your business process
• If your business can utilize environmental conditions or events in its favor.

Threats

Threats are the external factors that can cause a decline in business progress. They are naturally occurring factors outside of a company's control that could harm it in one way or another. For instance, a drought would spell doom for a wheat-producing company since plants need water to grow. While a business cannot stop a threat from affecting a business, the business management can minimize its impact by preparing ahead.

Other threats that can harm a business organization are an increase in the cost of materials, equipment, or resources, an oppressive competition phase, bad relationships with suppliers and partners, national regulations, market and economic trends, demographics, etc. Companies should consider the following situations as a threat to the success of their business:

• If existing market trends don't align with your business strategy, instead, they act as a stumbling block to your goal.
• If customers shift into a different space where your business is considered irrelevant.
• If competitors with obvious potential enter your line of business.
• If technology advancements change affects the way business runs.

SWOT Table

The SWOT table is best referred to as an illustration of a business's strengths, weaknesses, opportunities, and threats organized in a dashboard format. The main diagrammatic layout of SWOT is presented in a two-by-two grid where strengths and weaknesses are displayed on the top, and the opportunities and threats are displayed at the bottom. The diagram is then presented in a way that the right side features the internal factors (advantages and favorable elements), while the left side features the external factors (disadvantages and concerning elements).

The visual representation on the grid layout provides a better view for analyzing the company's stance while displaying key insights into the areas that could upgrade or downgrade the business.

How To Conduct A SWOT Analysis?

Conducting a SWOT analysis requires the consideration of some requirements to invoke effective results. Whether your SWOT analysis proves ineffective due to inadequate accurate data or there are not enough heads to contribute or provide ideas concerning a business, a lot could go wrong when conducting a SWOT analysis. Asides from a business organization, SWOT analysis can be helpful in other spheres like individual self-inspection, product assessment by an investor, project analysis, evaluation of government programs, etc. Notwithstanding the area of specialization, SWOT analysis can be seamlessly conducted by observing the following steps:

• Determining the inherent objective: When there is a clear objective as to why a SWOT analysis is being conducted, it's possible to grasp the risks and potentials involved with that objective fully. Therefore, a goal must be considered before performing a SWOT analysis. Even if your goal is just to grasp your or your business's current status, holding onto that will guide you on how you should conduct the analysis, including what data you'll need.
• Gather the right & enough individual support: SWOT analysis is mostly performed in managerial spaces involving executives, stakeholders, and team members from various departments because it's more effective as an analysis when a lot of ideas, contributions, and opinions from different participants are involved.
• Gather enough ideas, data, and resources: Before conducting a SWOT analysis, there must be enough information to base the analysis on. While gathering data, it's imperative to ensure that they're from the right places and people for the objective of the analysis. Also, all information gathered, whether internal or external, should be reliable for effective analysis. The types of information for a SWOT analysis are internal data about the company's core strengths, and weak spots and external data concerning the risks lying around and the progressive leads out in the open.
• Refine your data and come up with a strategy: After retrieving more than enough data from various departments of the organization, stakeholders, market news and trends, operational risks, etc., highlight the most concerning issues and factors by prioritizing in order of which benefits and endangers your business the most. After doing this, use the information to build a counter-strategy that furthers your business to your original goal.

The Benefits Of a SWOT Analysis?

A SWOT analysis is one of many business analysis techniques like Gap Analysis, PEST analysis, etc., so it might not single-handedly cause a large-scale business improvement immediately. However, using a SWOT will guide a business manager in making better and smarter decisions. Below are some of the benefits of a SWOT analysis.

• Easy to conduct: SWOT analysis is a useful framework that anyone can easily set up as it requires no technical expertise. As long as you've been involved in a business or company for more than a while, being able to conduct an analysis aimed at drawing out its strengths, weaknesses, opportunities, and threats won't be burdensome.
• SWOT analysis not only focuses on the issues and factors in an organization that affect its success, but it also gives a clear view of external factors outside the business's control. While alerting you on the internal elements you should pay attention to, it doesn't leave out other environmental, geographical, market, and unforeseen elements that might benefit or sabotage its progress.
• You can use a SWOT analysis in almost any business enterprise. It doesn't matter if it's a large-scale production industry or a sole-proprietorship; this analysis will be equally effective in both places.
• SWOT analysis can help you disintegrate and manage complex and numerous information regarding your business. It helps you compile and sort all internal and external factors while highlighting them in order of importance or impact.
• SWOT analysis guides a business establishment in developing a business strategy that tackles various angles of your organization. Using SWOT analysis to guide strategy development enables you to cover all concerning and vulnerable areas of a business; in other words, it's an all-encompassing analysis technique.

An Example Of a SWOT Analysis

We will look at the SWOT analysis of a product roll-out. In this example, we'll look at an instance where an upcoming leather shoe production company is trying to launch a new shoe design trending. However, the company is going through with this project with insufficient capital, so they're only not able to get kangaroo (the most durable leather), but a different type with lesser quality. Additionally, this is a company that spends a huge sum of money on the latest production machinery and has a lot of skilled workers. In this case, the SWOT analysis of the product roll-out would appear as thus:

Strengths

• Fast and efficient production cycle due to the best technological equipment and well-skilled workers handling the production process.
• Enough well-trained and skilled workers.

Weaknesses

• Using leather materials with low quality.
• Management skills that aren't up to par, seeing that the company prioritizes fast productivity over quality produce which is a lethal move for a shoe company.

Opportunities

• Trying to gain more customer patronage by having the skilled workers successfully create the new shoe design in trend.
• Collaborating with leather supplying companies to produce the shoes with the most durable leather for an agreed period.

Threats

• Other companies use the most durable leather to produce the same shoe design in the same vicinity.
• Producing these mediocre quality leather shoes during the rainy season where customers are likely to experience the non-durability of the shoe.

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Bruno Medici

Bruno, who received his journalism degree in Madrid (UCM), is specialized in objective information after working for international news agencies. He is also dedicated to photography, literary writing and communication consulting among many interests. In addition, these include his passion for the “industrial world” and production philosophies, portrayed in his articles in Lumiform.