SWOT Analysis

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Why Perform a SWOT Analysis? Small Business | Advertising & Marketing | SWOT Analysis

By Brian Hill Updated March 12, 2019

SWOT refers to strengths, weaknesses, opportunities and threats. SWOT analysis is a process where the management team identifies the internal and external factors that will affect the company’s future performance. The company’s strengths and weaknesses are the internal factors. Opportunities and threats deal with factors external to the company – environmental factors. G

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SWOT analysis is done as part of the overall corporate planning process in which financial and operational goals are set for the upcoming year and strategies are created to accomplish these goals.

Using Resources Efficiently

Every company – even the largest ones that dominate their markets – has a finite supply of labor, production capacity and capital. Evaluating the company’s strengths helps it determine how to allocate these resources in a manner that will result in the highest possible potential for revenue growth and profitability.

The management team examines where the company can compete most effectively. The company often discovers it has competitive strengths that have not been fully utilized in the past.

Improving Business Operations

When the management team looks at the company’s weaknesses, it is not to assign blame for past shortfalls in performance. It is to identify the most critical areas that need to be improved in order for the business to more effectively compete. A realistic assessment of weaknesses also prevents strategic blunders like entering a market with products that are clearly inferior to what well-entrenched competitors are offering. Continuous improvement in all areas of a company’s operations is an important aspect of staying ahead of competitors. Current weaknesses can – and must – be turned into future strengths.

Discovering New Opportunities

Growth in business requires seeking out new opportunities, including new potential customer groups, broader product distribution, developing new categories of products and services and geographic expansion. In a SWOT analysis, the management team identifies emerging opportunities to take advantage of right now and tries to forecast longer term opportunities so advance planning can be made to be ready to enter the market when the time is right.

Dealing with Risks

A threat in SWOT analysis is another term for risk – an occurrence outside the company’s control that could have a negative impact on performance. Companies face many threats beyond those caused by direct competitors. Changes in the regulatory environment can have an adverse impact on performance. Consumer tastes can abruptly change such as when a recession causes consumers to cut back on purchasing luxury goods and services.

Risks are less threatening to an organization when it takes the time to develop contingency plans to quickly implement should the threats become a reality. SWOT analysis helps a company be better prepared for whatever it will encounter in the external environment.

Competitive Positioning and Strategy

Many companies do a form of SWOT analysis on their key competitors. Combined with the information from the company’s SWOT analysis of itself, the management team begins to get a picture of how the company should position itself against competitors. The company wants to attack competitors’ weaknesses with its own strengths. It is much like game planning in football – trying to locate where the opposing team is vulnerable.

Conversely, it does not want to meet a competitor’s strengths head on if the competitor has an overwhelming advantage. SWOT analysis shows a company that even its most powerful competitors have weaknesses that can be exploited.

R E F E R E N C E SR E F E R E N C E S W R I T E R B I OW R I T E R B I O

De8nition of a Successful Strategic Business Plan By Brian Hill

Strategies are actions a business takes to compete more aggressively, to acquire additional customers and to operate the company more profitably. A successful strategic plan provides the information and guidance the management team needs to run the company with greater efficiency and help the business reach its full potential. Strategic planning helps managers make decisions based on logical assumptions and a clearer view of the future.

Positions Company Vs. Competitors

Strategic planning creates a game plan for the management team to follow to meet the challenges posed by competitors. During the planning process, competitors’ weaknesses are analyzed. The company’s marketing strategies are then designed to take advantage of these weaknesses by positioning the company as offering a superior mix of products and services to its target customers. Positioning also means making sure the company doesn’t waste resources trying to compete in an area where a competitor has already established clear and sustainable market dominance.

Accurately Forecasts Future

The strategic plan helps a company predict what its best opportunities are for growth -- the ideal target customers, the best markets to serve. The company forecasts the expected growth in current business sectors, and exciting new markets are identified for the company to enter in the future. The ability to forecast with reasonable accuracy prevents the company from making strategic errors, such as committing large amounts of capital to enter a market that initially appeared promising but turns out to be insignificant in size or not profitable.

Provides Performance Measures

The plan should provide management with quantifiable goals, and forecast revenues and expenses that can later be compared to actual financial results. Management needs to know which products, services and markets are contributing the most to the company’s bottom line, and which are falling short of expectations. Part of strategic planning is contingency planning, having changes in strategy already thought out that can be implemented when the original strategies prove to be ineffective.

Facilitates Efficient Resource Allocation

All companies need to be judicious with how they employ their capital, time, people and productive capacity. Planning provides a logical means to make these decisions -- managers are forced to explain why each decision makes sense and if possible quantify the likely financial benefit of each expenditure. If a current expenditure cannot be justified, these resources can be freed up for more productive uses.

Sets Long-term Objectives

The strategic planning process forces managers to look past the pressing challenges they must deal with on a day-to-day basis, and focus on formulating a long-range vision for building the business. This is the creative part of planning -- being able to imagine the company continually growing and gaining market share, and then determining the sequence of strategic actions and the resources needed to turn these imagined goals into reality

Creates Planning Culture

If the business owners conduct the planning process with enthusiasm and recognize everyone’s contributions to the final product, the company can be transformed into one where strategic planning is ongoing, not just a once-a-year project. Managers begin to see their roles as constantly trying to make the areas they are responsible for operate more efficiently. They develop a capacity for spotting emerging market opportunities and potential innovations. The successful strategic plan can inspire managers to be more forward looking every day.

R E F E R E N C E SR E F E R E N C E S W R I T E R B I OW R I T E R B I O

RELATED Marketing Theory & Strategic Planning for a Firm

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