Unlocking the Potential of Your Business: Guide to SWOT Analysis

SWOT analysis is a term you might have heard at work if you work in a corporate environment. You can examine a company's strengths and weaknesses using SWOT analysis. If you are a two-person company or a 500-person project, a SWOT analysis is an effective way to analyse your company. 

SWOT analysis applies to various aspects of business and economics. It is an essential but highly effective tool for evaluating organisations, projects, and strategies. This report examines current and future external and internal factors affecting and shaping the company. The purpose is to analyse reality (based on information) comprehensively. The list includes Strengths, Weaknesses, Opportunities, and threats relevant to your analysis. 

Did You Know? In the 1960s and 1970s, Albert Humphrey conducted a Stanford University research project using data from leading long-range planning companies to develop a SWOT analysis.

What is SWOT Analysis?

Using SWOT analysis, you can identify your strengths, weaknesses, opportunities, and threats. It is possible to conduct a SWOT analysis of an entire organisation, company, or individual project. A quadrant represents each element of the SWOT analysis in a grid-like matrix. This presentation has several advantages, such as identifying internal versus external components and displaying various data visually appealingly.

Importance of SWOT Analysis

Using SWOT Analysis, your organisation can challenge risky assumptions and discover dangerous blindspots. The tool can provide helpful insights into where your business is and assist you in developing the right strategy for any given situation if applied carefully and collaboratively.

You might know some of your organisation's strengths, but you might only realise how unreliable they are if you record them alongside weaknesses and threats. In addition, you may have reasonable concerns about some of the disadvantages of your business. Still, systematically analysing them may reveal an opportunity that would substantially compensate for the deficiencies.

Also Read: What is Goodwill Evaluation? Formula and Methods of Valuation

Components of SWOT Analysis

The four categories of a SWOT analysis are as follows: These categories may vary from company to company, but they are essential to a SWOT analysis:

1. Strengths

Organisations' strengths are what make them stand out from their competitors. They can be strong brands, loyal customers, strong balance sheets, cutting-edge technologies, etc. In some cases, hedge funds develop proprietary trading strategies that outperform the market. After analysing the results, it must determine how to use them to attract new investors.

2. Weaknesses

Organisations cannot perform at their full potential when they have weaknesses. An inadequate supply chain, a weak brand, high turnover, high levels of debt, or an insufficient supply chain are all areas where the business needs to improve and remain competitive.

3. Opportunities

Opportunities are external factors that give an organisation an advantage over its competitors. For instance, a country's reduction in tariffs can increase automobile manufacturers' sales and market share.

4. Threats

The term threat refers to factors that could harm an organisation. Droughts, for instance, may damage or reduce crop yields at wheat-producing companies. Materials costs are rising, competition is increasing, and the labour supply is tight, among other things.

Steps To Create a SWOT Analysis

Companies can take several steps before and after analysing a SWOT analysis's four components. SWOT analyses generally involve the following steps:

Step 1: Define Your Objective

SWOT analyses can be broad, but they will be more valuable if they focus on a specific objective. Depending on the objective of the SWOT analysis, for example, a decision needs to be taken on whether or not to introduce a new product. It will be easier for a company to know what they hope to achieve at the end of the process if they have an objective in mind. 

Step 2: Collect Resources

SWOT analyses differ from company to company, so a company may require different data sets to conduct various SWOT analyses. Data limitations, data quality, and the reliability of external data sources should all be considered by a company before it begins collecting information.

Along with the data, a company should determine the right combination of personnel to include in the analysis. While some employees may better understand what is happening internally, others may be more connected to external forces. Diverse, value-adding contributions are more likely to be generated by having a wide range of perspectives.

Step 3: Organise Your Ideas

A group of people assigned to perform the SWOT analysis should list ideas under each of the four components. Below is a table with questions to consider or ask for each group.

Also Read: Understanding Batch Costing | Formula, Features, Process, Etc.

The company may choose to do this step using whiteboards or sticky notes. Everyone should be encouraged to share their thoughts, whether right or wrong. Despite the company's ability to discard these ideas later, the goal should be to create as many items as possible to inspire others.

Step 4: Revise Findings

Now that the company has compiled a list of ideas within each category, it is time to clean them up. A company can focus only on its most significant risks or most creative ideas by refining the thoughts everyone has. To rank priorities, analysis participants may need to engage in a substantial debate involving upper management.

Step 5: Develop the Strategy

The company can convert a SWOT analysis into a strategic plan based on ranked strengths, weaknesses, opportunities, and threats. A synthesised program is created based on the bulleted list of items within each category by members of the analysis team.

Suppose a company debating whether to launch a new product determined it was the market leader for its existing product and had the opportunity to expand. However, strained distribution lines, increased material costs, unpredictable product demand, and additional staffing requirements may outweigh the potential benefits. In six months, the analysis team will revisit the decision in hopes that costs will decline and market demand will become more transparent.

Example of SWOT Analysis

At the organisational level, SWOT analyses determine how closely a business aligns with its growth trajectory and success benchmarks. You can also evaluate a project that is meeting expectations.

Example #1

The Coca-Cola Company conducted a SWOT analysis in 2015. Its strengths include its globally recognised brand name and distribution network. The company identified a few weaknesses and threats. These include foreign currency fluctuations, the growing popularity of "healthy" beverages, and competition from companies that provide healthy drinks.

Despite raising some tough questions about Coca-Cola's strategy, Value Line noted that the company would likely remain a top-tier beverage provider, providing conservative investors with a reliable source of income and some capital gains exposure.

Five years later, Coca-Cola remains the world's 6th strongest brand (as it was back then) thanks to the Value Line SWOT analysis. After the analysis, Coca-Cola's shares have appreciated over 60% over the past five years.

Example #2

A fictitious organic smoothie company conducted a SWOT analysis to understand how it competes in the smoothie market. It identified a solid relationship with suppliers and good sourcing of ingredients. It identified a few weaknesses within its operations: little product diversity, high turnover rates, and outdated equipment.

By assessing how the external environment affects its business, it identified emerging technology opportunities, untapped demographics, and a shift toward healthier lifestyles. The report found gaps in the supply chain, a winter freeze that damaged crops, and a global pandemic. The company used SWOT analysis and other planning techniques to strengthen the company in its weak areas and eliminate threats.

Also Read: Discovering the Limitations and Drawbacks of Financial Accounting

Conclusion

One can gain a competitive edge by doing a SWOT analysis. Identifying your strengths and opportunities allows you to identify weaknesses, threats, and other factors that may undermine your efforts. It is quick and easy to consolidate your ideas using SWOT analysis. You will be able to make better plans and decisions, regardless of whether you are doing a personal career assessment or a business analysis.

Follow Khatabook for the latest updates, new blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and account.