Updated: September 22, 2014
A business is a dynamic entity, it needs to continually adapt and evolve to be able to survive and grow amidst competitive markets. One of the many tools that strategic planning experts use to evaluate a business is the SWOT analysis. This simple but extremely useful tool is designed to help an organization identify the factors that affect the business and determine the possible courses of action it can take to achieve an objective.
Sometimes referred to as SOWT analysis, this term is simply an acronym of the four areas that strategic planners consider when making a SWOT analysis – they are Strengths, Weaknesses, Opportunities and Threats. This technique was created by Albert Humphrey, a Stanford University research project coordinator who did a study of Fortune 500 companies in the 1960s and 1970s.
There are two basic reasons why you need to do a SWOT analysis for your business. The first one is to orient your company towards a specific objective. It helps you determine if a certain goal is attainable for the organization. The second use of SWOT analysis is to come up with strategies on how to achieve such goals. Ideally for a business, a cross-functional team that represents various perspectives of the company should carry out the SWOT analysis.
How Do You Conduct a SWOT Analysis?
- Brainstorm on the lists of strengths and weaknesses of the company. Remember to focus internally, which means you should concentrate on inherent traits and characteristics. In a nutshell, the strengths represent what is GOOD NOW while weaknesses are those that are BAD NOW in the business.
- Do the same for opportunities and threats. However, your focus should now shift to external factors that could affect the business in the future. Consider the market environment and determine the opportunities (GOOD FOR THE FUTURE) and threats (BAD FOR THE FUTURE) that will affect the company.
- Take the list and qualify the items of each category. Review and combine similar ideas and based on the summarized list. Discuss and strategize on several plans of action to address the four areas.
In summary, you should maintain or leverage your strengths while find ways to remedy or eliminate your weaknesses. Furthermore, you should prioritize on seizing and optimizing opportunities and prepare to counter and minimize the effect of potential threats.
Sample SWOT Analysis 1: Home-based Baked Goodies Sideline
A mother is currently earning good extra income selling her homemade baked goodies to her neighbors and friends. She wants to determine if she can orient and expand her hobby into a small enterprise. Below is a possible SWOT analysis:
- Strengths: high-quality products because it’s not mass produced, cheap price because there is less overhead and production costs
- Weaknesses: limited advertising and relies heavily on referrals from loyal customers, small production output because she does everything alone
- Opportunities: offer her products for reselling to local coffee shops, partnership with food caterers to supply pastries to their clients
- Threats: volatility of prices for the ingredients she uses, production management when influx of orders become high, mass-producing competitors
Plan of action: Documentation of recipes to maintain quality of products when delegated to hired kitchen assistants, bulk buying from dedicated suppliers who are willing to negotiate fixed costs for ingredients, make a pricing strategy for your products, allotting a portion of the profits for product branding and advertising campaigns in the locality
Sample SWOT Analysis 2: Personal Money Making Blog
A blogger wants to strategize how he can increase his earnings from his personal blog. His current income sources are contextual advertising, affiliate programs and paid reviews. A simple SWOT analysis would be:
- Strengths: blog is regularly updated with new entries, blog has own domain and hosting, good and active subscriber list
- Weaknesses: no clear niche, high bounce rates from visitors, low search engine referrals
- Opportunities: sponsored review companies are increasing in number, blogging and RSS subscription is becoming popular
- Threats: search engine delisting and page rank penalties, blog hacking, physical and emotional burn-out of blogger
Plan of action: Optimize blog layout to increase revenue from pay-per-click programs, write entries that will target high trend and low density keywords to increase search engine visibility, create posts that will establish individuality and highlight personal characteristics that’s unique from other bloggers, start an article series and host regular contests that will increase return visits and possibly bait inbound links, explore and study new get paid to blog programs, study social media optimization (SMO), review hosting security setup, learn proper time management.
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Photos courtesy of Tambako and tuliplan