SWOT analysis: what it is and how to do it with practical examples
Strengths, Weaknesses, Opportunities and Threats: if these words don’t tell you anything, the time has come for you to deepen the concept of SWOT analysis, a very useful tool to learn about the business and compare yourself with competitors.
What does SWOT mean
SWOT analysis is a strategic planning tool that serves to analyze the position of a company as a whole, but also of a particular product or service. It is called this way because it takes into consideration 4 specific factors: Strengths, Weaknesses, Opportunities and Threats.
The strengths and weaknesses refer to the internal environment, while the opportunities and threats refer to the external environment (the identification of the latter factors can also be carried out through a PEST or PESTLE analysis).
The SWOT matrix
SWOT analysis is also called the SWOT matrix. This particular name is due to the fact that, to perform the analysis, you have to draw up a matrix, that is a 2×2 grid, in which each square is dedicated to each of the 4 aspects examined by the SWOT analysis.
Graphically, the grid appears with strengths in the upper left, weaknesses in the upper right, opportunities in the lower left, and threats in the lower right. It follows that the left column refers to the qualities useful for achieving the objectives (strengths and opportunities) and the right column to the qualities that are harmful to the achievement of the objectives (weaknesses and threats). The top line, on the other hand, is dedicated to the internal environment (strengths and weaknesses, which have to do with the constituent elements of the company, with its processes and its uses) while the bottom line to the external environment (opportunities and threats, which instead come from competitors and the market in general).
Once you have drawn the matrix, you need to fill it with the most appropriate relevant information, i.e. noting the strengths, weaknesses, opportunities and threats in the relevant section of the grid.
What SWOT analysis is for and why it matters
Now that you know what a SWOT analysis is and what it consists of in practical terms, it will be easier for you to understand why it is really so important for the success of your business. First, however, further reflection is required: do you know what you really need to launch a business?
Dave Thomas, founder and CEO of the famous fast-food chain Wendy’s, answered this question as follows:
“You need 3 things: know your product better than anyone, know your customer, and have a burning desire to succeed”.
SWOT analysis is just for this, because it helps you build your business plan around what you do well, understand what your company lacks, minimize the risks you may incur and, instead, make the most of the chances of success that arise.
Not only that: an analysis of this type helps you to better understand the behavior of your competitors, the market in general and its evolution over time, thus helping you to identify the right business model and understand how to differentiate yourself from the competition and to position yourself on the market more consistently and effectively.
As already mentioned above, the SWOT analysis can concern the company in its entirety or a particular project but also, more simply, any decision aimed at achieving a specific goal. It is no coincidence that the first step you must take when carrying out a SWOT analysis, even before dwelling on the various factors on which it is based, must be to define your final goal. Do not forget that a specific element, in fact, can represent a strength with respect to a specific goal, but turn out to be a weakness for another purpose.
Strengths are factors that affect the building blocks of your business. Trivially, they can be identified in what the company does well and through which it makes itself unique and positively distinguishes itself from competing companies. Think about your Unique Selling Proposition, or USP: it’s that message that, by leveraging your strength, sets you apart from the competition.
There are many examples of possible strengths in a SWOT analysis: they can range, specifically, from production processes to customer service. Remember, however, that a factor really represents a strength only if it ensures you a competitive advantage : if your strength is also the strength of your competitors, you will hardly be able to gain an advantage of any kind from it. Not having it, however, would be a weak point for you.
To identify weaknesses, the real challenge for you is being able to conduct the SWOT analysis in the most objective and realistic way possible, so as to avoid unpleasant surprises in the future (when it will probably be too late to remedy).
As well as your strengths, your weaknesses are represented by elements within the company and, that is, they refer to the skills of your staff, the resources you have available and the production processes you have adopted. Each evaluation, however, must also be made in relation to the behavior of your competitors and the way in which, precisely with regard to these specific aspects, your company is seen by your customers. You need to focus, in particular, on what you are missing and what you are not doing well or what, in general, is not perfecting as it should.
The opportunities of a SWOT analysis are the conditions external to your company that can facilitate the achievement of your goal. To identify them, you must focus your attention on the social and cultural changes underway, on the new trends that have appeared or are about to appear on the market, but also on the technological evolution and on any changes to the legislation of your reference sector that may promote your business.
Like opportunities, threats are factors external to the company and more specifically concerning the market in which it operates. Unlike opportunities, however, threats are represented by elements that could worsen company performance and, in general, make achieving the goal more complicated.
It should be emphasized that the factors mentioned above as “opportunities”, from socio-cultural changes to technological and legislative evolution, can also represent “threats” in different situations and in relation to specific objectives.
The Critical Success Factor
The time has come to introduce a new concept: that of the Critical Success Factor (or CSF). This is the element necessary for a company (or a project) to achieve its mission.
Identifiable through business analysis and unique to each organization, the Critical Success Factors concern those areas of intervention in which it is necessary to perform your business in the best possible way and on which the achievement of the corporate mission and objectives depend.
Identifying your Critical Success Factor correctly helps you refine your business strategy, minimizing unnecessary effort and errors.
Some examples of SWOT analysis and tips
To understand even better how a SWOT analysis works, it may be useful to use some practical examples: one of the most common concerns the Google SWOT analysis.
The opportunities, for Google, are represented by the new expanding markets, but also by the areas and sectors in the ascendancy (such as, for example, wearables, the cloud and remote working). Finally, the threats concern the pandemic crisis and geopolitical tensions (in the specific case of Google also with China), as well as regulations (in terms of privacy, antitrust, but not only).
Let us now take the example of Amazon. Among its strengths stand out, undoubtedly, the value of the brand, the large catalog of products, the large network of sellers and the efficient distribution system. The limited physical presence ensures many advantages to Amazon in terms of costs, but also represents a weakness, because it compromises the possibility of intercepting the demand of all those customers who are reluctant to buy online. Other weaknesses include excessive dependence on distributors (who thus have a high bargaining power) and disputes related to tax aspects and employees’ working conditions.
Amazon’s SWOT analysis shows that the company has several opportunities: it can, for example, penetrate developing markets or expand the network of physical stores, but also increase the production of Amazon-branded products by leveraging the value of the brand and work on new acquisitions outside its core business.
Government regulations pose a threat to Amazon in terms of possible restrictions on its business practices. Not only that: the checks to which the company is subjected regarding the working conditions of its employees risk causing reputational, as well as legal and economic damage. Counterfeit products and fake reviews are other threats for Amazon, which, also due to the fact that it has significantly diversified its business, also has to deal with fierce competition in various fields.
Now that you know everything, in conclusion, you must not forget that the SWOT analysis is, precisely, an analysis: on the basis of its information, you have to develop specific strategic objectives and plans and verify the consistency between strategy and actions, so to be able to identify the areas in which it is necessary to intervene and evaluate the possibility of changing the objectives.