One of the best and most relatable planning tools is the SWOT analysis.
SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
Strengths and Weaknesses are internal characteristics of what you are analysing, whether it be your business or a part of the business, like a product or a system. You can control what happens to your Strengths and Weaknesses.
On the other hand, Opportunities and Threats are external influences on your business or other parts of your business. You are not in control of whether these Opportunities or Threats crystalise, but you may be able to manage their effects.
You can use SWOT to analyse your business and help you to create business-improvement strategies.
So, how do you conduct a SWOT analysis, and what does it tell you about your business?
Let’s start by looking at how to conduct a SWOT analysis and then below, there’s a video on what they tell you about your business.
You can start a full-blown SWOT analysis by first surveying all the people inside your business (employees, partners and so on) and all the people outside the business but connected to it (customers, suppliers, etc.) and asking them what they perceive as your main Strengths, Weaknesses, Opportunities and Threats.
You would then summarise the results and bring them in-house to discuss with key members of your team.
Alternately, especially if you have a close-knit team who are close to the facts, you can start there.
Hold a brainstorming session, first asking people to list all the internal Strengths and Weaknesses of the business.
During these discussions, make sure that you are focused on the major Strengths and Weaknesses, and that you also drill down into the real meaning of the Strengths and Weaknesses called out.
For example, don’t leave “good people” as a proposed strength. What is it that is about the good people that are the real strengths? Is it because they are skilled or trained? Is it because they are hard-working?
When you get to the analysis stage, identifying the real characteristics becomes important so that you can apply the right strategy to take advantage of the correct and specific strengths.
Once you’re happy that you have identified your major Strengths and Weaknesses, discuss the Opportunities and Threats that may come upon your business.
Some people confuse opportunities with strengths, and threats with weaknesses. This is because strengths may appear to produce an opportunity to exploit them, and weaknesses may pose a threat if not corrected.
However, in terms of SWOT, Opportunities and Threats refer specifically to external influences, not the effect of Strengths and Weaknesses.
As a result, your team will need to be careful that they are identifying real external influences that could represent an opportunity for your business, or pose a real threat.
They will also need to be on top of what’s happening in the industry and the economy.
For example, a change in legislation may represent an opportunity or a threat. The economic climate, a downturn in the industry, a pandemic – these are all external occurrences that you have no control over and may or may not have an effect on your business, and some of these effects may be opportunities or threats, or sometimes both, depending on what pans out.
It is useful to have a glass half full approach to external influences.
During the COVID-19 pandemic, a theatrical stage-building company called Stagekings Australia was affected immediately with cancelled contracts and the collapse of the entertainment industry. They could have rolled over and gone out of business. But seeing the effects of the pandemic on Australian households, they saw the opportunity in work-from-home furniture and quickly pivoted. Not all “bad” external influences are automatically threats.
Once you have identified your Strengths, Weaknesses, Opportunities and Threats, you can analyse them by reviewing what it means to your business.
Taking each Strength and Weakness in turn (and that’s why you need to identify the correct, underlying character) ask four questions of each:
- What does this strength or weakness mean to the business right now, and why?
- Is this a major or critical effect?
- Knowing how it affects the business now, what can we do to build on the strength and expand the benefit, or what can we do to eliminate the weakness and stop the cost or disadvantage?
- What strategies should we put into place to take to build on strengths and eliminate weaknesses?
Then, take each Opportunity and Threat in turn and ask a similar set of questions.
- How can this opportunity or threat affect the future of the business if it takes place?
- Do we have to prepare for it? Is it critical? When will it become critical?
- How do we take advantage of an opportunity occurring? How do we mitigate a threat when it happens?
- What strategies do we need to put into place now in order to get ready?
Your answers to each Strength, Weakness, Opportunity or Threat will tell you where you stand in your business right now, in relation to those matters.
They will tell you what you can rely on to build the business and identify the rates that need work. If these are critical areas like sales and customers, or costs and efficiency, you can immediately get to work on them.
Your final table of Strengths, Weaknesses, Opportunities and Threats will give you a clear picture of the current state of your business so that you can assess what you need to work on to go toward the business you want to build.
You’ll see that on the main, Strengths and Weaknesses usually lead to immediate strategies while Opportunities and Threats lead to strategies to prepare. This means that scarce resources can be allocated to the most immediate needs.
This SWOT analysis can also be measurable.
Measuring their effect means that you can measure the success of strategies.
For example, you should be able to specify that your internal strength of having well-trained and skilled staff lead to savings of $X per annum in service bills. You can also measure what further savings there are if you improve the way you use this strength.
Or, you may calculate that a change in legislation could lose you $Y in lost business each year, thus allowing you to either plan for the reduction, or pivot to find new markets to replace the reduction.
The strategies you put into place are usually those that:
- Use Strengths to improve what they bring the business
- Eliminate Weaknesses
- Get ready to take advantage of Opportunities
- Get ready to manage the effects of Threats
In the Business Planning process, it is important that you define where you want to end up, but equally important to understand where you are starting from so that your strategies bridge the gap.
I have written a free Business Planning guide and checklist for you to use as you plan your way to success. It explains the steps in Business Planning, and shows you how a SWOT analysis paves the way from the start.
I hope you get it and find it useful – and I’ll see you soon!