What is a SWOT analysis (also known very simply as a SWOT) and why is doing one important to your business? Use this sample SWOT analysis to help you do your own SWOT. All small businesses need to include a SWOT in their strategic planning. SWOT is a key element of successful strategy development.
The definition of SWOT analysis is that it is an acronym for the strengths, and weaknesses of the internal organization and the opportunities and threats of the environment external to the organization. The importance of doing a SWOT is that it provides an opportunity for small business owners to identify and analyze the strengths of, and opportunities available to, the business. It also helps to identify and minimize internal weaknesses and develop management strategies for external threats.
The most effective use of a SWOT analysis is within the planning process. But analysis and plans must be followed with actions. Develop your SWOT and build an action plan that includes who, what, where, when, why and how to deal with the strategies.
The sample SWOT analysis below will help you develop your own. The best approach is to include key members of your organization in the process. If you are a one-person business; then do it on your own or try to do it within your network of business acquaintances.
The Internal Organization: strengths and weaknesses. Ensure that you build on your strengths and manage and control your weaknesses.
- Strong in-house training program that has cross-trained staff to learn a number of functional areas. Action: Leverage that training to develop employees with even more depth and value to the organization.
- Exceptional customer service. It is well recognized by customers through regular customer service surveys and feedback. Action: Leverage the strong customer relationships to find out more about what customers want and need.
- Have a well developed new product development process; successfully adding two new products a year. Action: Using customer input, look to add more than two new products a year and/or add new product differentiation elements to existing products.
- Average order size ($) is small. Large volume of orders needed to increase sales. Action: Develop more new products to ‘bundle’ price with existing products.
- Cost of goods sold is high (due to small order size). Action: Develop sales plan to sell more volume and larger orders.
- Internal organization has grown quickly and added layers of management. Action: Re-assess the need for each management position and work to reduce the layers to not more than three. Understand the limitations of span of control.
The external environment (also known as the macroenvironment) is about the opportunities and the threats that the organization faces. These external factors are not controlled by the business, but we can manage to minimize threats and maximize opportunities. To be successful in managing the external environment’s impact on your business you must track economic indicators and understand how they impact your business and what you need to do about them.
- Partnerships or alliances with competitors, suppliers or customers. For example, if a large contract is up for bid, you may want to partner with a competitor (one that you trust and value – hopefully you have competitors like that in your network) to put together a joint bid.
- New potential customers are entering your market or you have identified another customer group for your products and services. For example, telephone companies added many more customers with the introduction of wireless mobile phones.
- Marketing costs are decreasing with the widespread introduction of digital technology and with the increase in social media applications. For example, you can produce a cross-media marketing campaign with a farther reach than ever before, for less dollars.
- Vulnerable to local and global economy slowdowns. If economy is slow, sales drop. Action: Provide products or services that answer customer needs in good times and bad. Ensure that your products or services are the highest value for the money.
- Changing legislation and/or penalties. For example, the increased cost of operating for businesses with an environmental cost. Action: Consider what you can do to change your processes (before you are forced into a more costly change by government actions) and capitalize on those changes by communicating to your market the actions you have taken and why.
- Competitors. There are good competitors and bad competitors. The good ones understand how to run a business, how to develop products or services and price them accordingly. The bad competitors undercut on price without understand their cost structure – the goal is to get the orders at all costs. Eventually they go out of business or are bought out. But while they continue to do business, they drag the market down and make you look like you are over-charging (even worse, that you are gouging the market). Action: Use a variable price strategy and ensure that your costs are as low as possible. Also build a strong, ‘untouchable’, differentiation strategy that will ensure that your price is supported by the value and benefits of the product.
To build your own strengths, weaknesses, opportunities and threats analysis for your business, use the above sample SWOT analysis in your strategy planning. Make sure that you clearly understand and can identify your organization’s strengths and weaknesses and that you know what the opportunities and threats are in your industry. Once you’ve used the SWOT model to complete your own SWOT analysis, make sure you update it annually – as your business and your external environment is constantly changing and evolving.