Small Business Analysis Tools: SWOT Analysis – Basic Framework for Initiating Planning and Analysis

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A SWOT (Strengths, Weakness, Opportunities, Threats) analysis is a basic yet powerful analysis tool that can be used at any level (company, product, business line, etc.) and at any depth of analysis. It is used by large firms and is equally at home within a small business.

A SWOT analysis is typically broken up into two components; internal and external and each of the four parts can be further analyzed with other tools. This structure lends itself to introducing ideas, brainstorming, strategic planning, marketing, and many other areas. It can be an “icebreaker” to begin a dialog or a deep analysis of an aspect of a product. Effective usage of a SWOT analysis will help you discover opportunities that you are positioned to exploit and also show markets to avoid.

Internally the SWOT analysis will help you understand your Strengths and Weaknesses. To analyze Strengths and Weaknesses, it helps to ask yourself and your planning group a number of questions. These questions need to be answered not only from your perspective, but also from the viewpoint of your customers. While you can brainstorm your customer’s answers, nothing beats getting the answers from your customers via interviews, surveys, data, etc.

Strengths:

  • What advantages does your business have?
  • What is your businesses value proposition, how do you define and deliver value to your customers? Do you deliver value better than anybody else?
  • Where do you have competitive advantages? Do you have access to customers in a manner your competitors don’t? Do you have supplier relationships that provide a cost advantage? Are you able to deliver a better product for a lower cost?
  • Why do customers choose to buy from your business? Do you have well-developed relationships and deep understanding of your customers needs?

It’s critical as you move through answering the questions that you capture both your viewpoint of your business as well as how customers perceive your business. Just as when developing a business model, it isn’t “true” until you’ve validated the answers and to validate the answers you need to hear from your customers. Getting your customer’s viewpoint is critical and you’ll learn a great deal about the accuracy of your assumptions (is your strength considered to be the minimum acceptable level from your customers standpoint for instance…)

Weaknesses:

  • Where can your business improve? What does it need to do better? Where are you getting beat by your competitors? What are your customers complaining about?
  • Are your sales growing or declining? Do you know why? Is your market share decreasing?
  • Do your customers view you as a commodity seller? What do your customers perceive as your weakness?
  • Are there areas your business needs to avoid and why?

As with Strengths, Weaknesses need to be seen through the eyes of your customers too. Understanding your weaknesses clearly requires understanding how your customers view your firm, its products, and its position.

Opportunities and Threats are the external parts of the analysis. Together they help paint a picture of your environment, competition, and customers.

Opportunities:

  • Where are their opportunities that fit your strengths or that you can develop strengths to exploit?
  • What is the market doing? Is it rising, is it falling, is it being disrupted by new products (computers disrupting the typewriter industry for instance)?
  • Where do you have particular advantages that other businesses do not?
  • Have changes (technology, market size, outsourcing, etc.) caused changes that play into your strengths?

In cases where a strength leads to an opportunity, it is important to highlight the linkage. When you move through validating each area, it is critical to understand if an identified opportunity may have been built upon a falsely identified strength.

Threats:

  • Are there competitors in the market with significant advantages?
  • Do you have to make complicated or expensive changes to try to take advantage of a market?
  • Are your production, channels, customer acquisition/retention costs much higher than your competition?
  • As with opportunities, are changes (technology, market size, regulations, etc.) impacting your business?
  • Is cash flow a challenge in moving into a new market or developing a new product?

Threats are useful to consider, as they tend to ensure that realism is embraced and false assumptions are challenged. By conducting this analysis you may also discover that some of your strengths overcome identified threats.

SWOT can be used as an initial brainstorming tool or a more robust component of a comprehensive analysis. It is also possible to use it as a progression from brainstorming into strategic analysis and planning. Its strength is its simplicity and adaptability. You can ask any questions you can conceive of and consider limitless opportunities with the SWOT analysis.

SWOT as a brainstorming tool works best when you can gather your team into a conference room and work through the topic while capturing the thoughts that come from the participants. A white board works great and is simple. Draw a square divided horizontally and vertically and label the left boxes Strengths and Weaknesses and the right boxes Opportunities and Threats. The left side represents the internal and the right side the external analysis.

As the ideas flow from the participants, either write them in the quadrants or on sticky notes that you paste on the board. At the conclusion of the session make sure that somebody captures the information. The next step depends upon your desired usage. If it was only to brainstorm and to get people thinking than you can distribute the model to the team. If the SWOT analysis session was the beginning of a more involved analysis or planning structure, your next step is to validate your assumptions that you captured.

An effective means to take your SWOT analysis to the next level of detail is to combine it with Porter’s 5 Forces analysis (or our updated 6 Forces version). Within each quadrant of the SWOT matrix, do a separate 5 Forces Analysis and examine which components have the most impact, stand out, give cause for concern, highlight opportunities, etc. From the output of this analysis, it’s easy to begin strategic planning and goal setting, but again, make sure you test and validate your assumptions here. Testing and validating assumptions is much easier and cost effective when they are still in the idea stage rather than finding out that some were incorrect after significant investment in time or money.

The SWOT analysis is a great tool for small business owners to have at their disposal. Not only is it easy to start using, it’s a great primer for more robust analysis and planning techniques that can give your business an advantage. Despite its simplicity, SWOT analysis can provide a good framework for organizing your thoughts as you conduct a strategic analysis of a business and its marketplace.


Source by Michael K Nelson

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