There are a variety of factors necessary to build a successful business or product. One of them is an in-depth understanding of the internal and external factors which may favor or hinder the success of the endeavor. That is why a variety of analytical tools have been designed to help you identify issues within your business structure, improve upon existing systems, avoid potential mistakes as well as learn from past shortcomings.
One of the tools used to achieve this is the SWOT analysis template. This is a strategic planning framework that was designed to help businesses better analyze the factors mentioned above. In this article, we will discuss the components, benefits, uses, steps, and limitations of the SWOT analysis technique.
What Is a SWOT Analysis?
A SWOT analysis, as mentioned earlier, can be defined as a strategic planning or management technique used by an organization to thoroughly evaluate a business or product. SWOT is an acronym that stands for strengths, weaknesses, opportunities, and threats.
Strategic planning is a process whereby a business organization generates a defined set of objectives, crafts policies or programs designed to achieve these goals, as well as puts in place important indicators to measure the success of the entire process.
Therefore, a SWOT analysis is a crucial tool typically used by businesses to evaluate their company’s competitive advantage, as well as the flaws of its current business model, and create strategies to capitalize on or ameliorate these.
The SWOT analysis template was designed by the influential American business consultant Albert S. Humphrey During his work at the Stanford Research Institute in the 1960s. He developed the technique as a framework to understand why corporate planning failed consistently over a wide range of business types.
The components of the SWOT analysis template are divided into four sections based primarily on two criteria:
- Whether they are beneficial (strengths and opportunities) or harmful (weaknesses and threats) to the business;
- Whether they are directly within the control of the organization — i.e., internal (strengths and weaknesses) — or outside the control of the organization — i.e., external (opportunities and threats).
Some people also classify these according to current and potential influences on the business, with current influences — which include internal factors —, while potential influences mainly concern external factors.
The first criterion is somewhat obvious. Therefore, let’s explore the second criterion for classifying the different components of a SWOT analysis.
As mentioned briefly, internal factors refer to components or influences within the business structure which are directly under the control of the organization. This may include a wide range of factors such as the type of personnel they employ, their financial situation, the manufacturing capabilities of the business, the workplace culture, their brand positioning as well as the brand equity they enjoy.
The primary feature which sets all these apart from external factors is that a business can directly manipulate any of the above-mentioned factors. It is also important to remember that these factors may either be beneficial or harmful. Some examples of beneficial internal factors include strong brand awareness, a low-cost manufacturing model, as well as a positive workplace environment.
On the other hand, these same factors may also be detrimental, such as a negative brand association, an unprofitable manufacturing model, as well as a poor workplace culture. Each of these sections will be more thoroughly discussed under the appropriate headings.
External factors may also be referred to as environmental factors. As the name implies, these are influences that are not directly within the control of the business organization. Similarly to internal factors, they may affect the corporate entity positively or negatively.
Some examples of positive external factors include conducive legislation, technological advancements which lower the cost of production, as well as favorable changes in consumer habits. Examples of unfavorable external factors include things like poor macroeconomic trends, natural disasters, and increasing competition from other businesses.
When Should You Perform a SWOT Analysis?
One of the primary advantages of a SWOT analysis is its versatility. This strategic planning technique can be applied across a wide range of situations and in various fields. However, let’s quickly take a look at some of the most common uses for SWOT analysis within the business world.
When starting a new business
Obviously, before embarking on any business venture, a thorough analysis of the potential business model and structure must be carried out. This is done for both multinational companies, as well as small and medium enterprises.
An old business that seeks to evaluate its current business model and structure
The SWOT analysis technique can also be used by already established business organizations to evaluate (or reevaluate) the strengths, weaknesses, opportunities, and threats to their current business model. This may help them identify positive or negative changes which are vital to the continued success or survival of the business. Of course, aside from routine evaluations, a SWOT analysis can also be implemented when attempting to diagnose specific issues within a business organization.
When rolling out a new product
A business can also perform a SWOT analysis before the introduction of a product into the market. This allows them to identify the competitive advantage that their products have over Those offered by similar brands, as well as their shortcomings. It also outlines factors outside their control that may contribute to the success or failure of the product rollout.
A SWOT analysis can be performed when adopting new strategies
Before an organization can implement a new strategy, look for attempts to pivot, or make a significant change in internal policy, it is necessary to thoroughly analyze the expected and potential effects of such a change. Of course, this involves the beneficial and harmful external impacts that may have on the business, as well as how external events may affect the implementation of the policy.
What Are The Elements of a SWOT Analysis?
We have previously briefly discussed the various components of a SWOT analysis, as well as how they are grouped. However, let’s take a closer look at each section within a standard SWOT analysis as well as give some practical real-life business examples.
As mentioned earlier, the strengths section of a SWOT analysis has to do with internal factors which are beneficial to the business structure. This means that these factors are directly within the control of the business And can be manipulated to increase its advantage over its competition. This also implies that these factors are currently being enjoyed by the company, in contrast to opportunities that will be discussed later. The general idea behind this section is that a business should do all it can to maximize its strengths.
Let’s take a look at some common examples of features that could have been listed under this section:
- First-mover advantage
- Strong brand recognition and effective marketing
- Offering lower prices than competitors
- Innovative and novel business models or technology
- High market valuation
- Low operating expenses
- Positive workplace environment
- The ability to hire skilled talent
- Strategic partnerships and acquisitions
- Prudent financial management
Just like the strengths section had to do with internal factors which were beneficial to the business, when we are talking about weaknesses, we are referring to internal factors which are detrimental to the success of the organization. These factors are directly within the control of the business, and therefore the business should do all that is within its power to mitigate these shortcomings.
Some examples of common weaknesses which can be identified Within a business structure include:
- A lack of quality control
- Poor financial management, slow growth, and unprofitability
- Poor branding
- Poor leadership
- Numerous scandals and legal battles
- Fraudulent practices
- An inefficient supply chain
- A chaotic workplace environment with a higher-than-average employee turnover rate
- High levels of debt
- Restricted access to capital
Within a SWOT analysis, opportunities refer to external factors which are not within the control of the business but which positively affect its ability to provide its core value proposition to consumers. Unlike strengths, the business cannot directly affect these factors, but you can still take advantage of their presence. Other factors that can be included under this section are possibilities that the business has not yet capitalized on, but may seek to in the future.
Here are a few examples that may be considered opportunities for a business:
- The availability of new markets to expand into
- The potential to acquire new partnerships through collaboration and acquisition
- Future technological advancements
- Potential legislative changes
- Increasing sales and market share
This is typically the last section of the SWOT analysis to be discussed, and can be considered the opposite of the opportunities section. It involves actual or potential harmful influences outside the control of the business, which the organization should seek to avoid or mitigate as much as possible.
Here are a few examples of common threats to businesses:
- Disadvantageous government legislation
- Increasing competition from other brands
- Changes in customer preferences
- Natural disasters
- Restricted supply of raw materials
- Changes in labor supply and labor costs
Why Is a SWOT Analysis Important?
Now that we have taken a deeper look at what a SWOT analysis is, as well as what the various sections mean, it is time to examine the benefits of a SWOT analysis. We’ll only highlight these benefits, for a deeper understanding of the benefits of a SWOT analysis, you can check out the link above.
- The tool helps determine the viability of a business model or new product. A SWOT analysis also helps identify internal and external challenges and opportunities for a business or product;
- It is well known that information is easier to understand when displayed as images. Thereby, SWOT analysis makes it easier to conceptualize large amounts of complex information;
- A SWOT analysis allows the reader to quickly scan through the analytic framework and grasp key information without having to burden themselves with intricate details or large amounts of data;
- The technique is an efficient communication tool because it allows easily understandable information to be shared among different divisions within the company as well as external parties such as investors;
- The SWOT analysis technique can also be applied to a wide range of fields and disciplines. This versatility also allows it to be used by a number of vastly different organizations, ranging from large multinational companies to brick-and-mortar shops;
- Unlike specific analytical tools which over-emphasize one aspect of a business over another, a SWOT analysis offers a balanced look at both the positive and negative features of a business, such as the strengths and opportunities versus weaknesses or threats;
- Matching and converting is a strategy mostly unique to SWOT analysis, which involves pairing your strengths with your opportunities in order to discover or maximize your competitive advantages. It also involves looking for ways to convert weaknesses/threats into strengths/opportunities, or at the least minimize their harmful effects;
- Companies can use the technique to capitalize on the concept of strategic fit. This involves determining how well-suited a business is to its available resources, as well as prevailing constraints. The idea behind this is that a company should strive to maximize the advantages it possesses while mitigating its constraints in order to achieve optimal function;
- It can help a company craft the optimal strategy to adopt in terms of developing an aggressive growth plan or a defensive growth plan, depending on the business environment;
- One of the key advantages of using this SWOT analysis is that it promotes the gathering of data and perspectives from different sources. This enables the business to obtain a holistic view of the organization, as well as how these other parts interact to form a functional business model;
- A good SWOT analysis should promote data-driven and evidence-based decision-making. This allows the business to build a dependable framework that can be utilized for future strategizing;
- One of the advantages of a SWOT analysis is its cost-effective nature. It does not require capital-intensive accounting processes, hiring expensive external consultants, or any significant rearrangements of resources. It promotes discussion and fosters relationships within the company;
- Another advantage of the SWOT analysis technique is that it encourages different divisions within a business to collaborate and share insights concerning their area of expertise, as well as fields outside their area of specialization. This fosters communication within the company as well as builds deeper relationships among various members of the organization;
- Another reason that the SWOT analysis technique is so important is that its simple nature allows it to be carried out by nearly anyone with a basic understanding of the fundamental principles behind how each section is derived;
- In the process of trying to evaluate both the internal and external factors affecting a business, essential trends or insights about the market may be discovered. This allows the company to capitalize on these opportunities and further strengthen its position.
SWOT Analysis Examples
To better understand how a SWOT analysis is created, let’s take a look at some examples of SWOT analysis. We’ll analyze the multinational activewear brand Nike, but for more models, as well as a more detailed analysis of how to do a SWOT analysis, check out our dedicated article on the topic.
Nike SWOT Analysis
Nike, Inc. is easily one of the most recognizable sportswear brands in the world. The company has mastered the art of branding and marketing, with the brand name and iconic Nike “swoosh” symbol forming one of the most prominent symbols in modern culture. Best known for its footwear (most notably the Jordans brand of sneakers) Nike, Inc. is also a leader in a wide range of other areas such as activewear, sporting equipment, and even activewear technology.
The Nike business model has found the perfect balance between fashion and function, making the brand quite successful among athletes, sports enthusiasts, and non-sports enthusiasts alike. Let’s take a look at a summary of the Nike SWOT analysis to better understand how the company achieved and maintained its dominance in the market.
Nike’s strengths lie in its strong brand equity, which is built upon its reputation for innovation, quality, and social justice. The company also benefits from its low-cost manufacturing strategy and innovative marketing techniques, including celebrity endorsements and the effective use of social media. In addition, Nike has increased its direct-to-consumer sales and boasts an impressive research and development department.
However, despite all these strengths the company faces several weaknesses as well. This includes controversial labor practices, over-dependence on the US market, worrying financial trends, and an unfavorable relationship with retailers. Outsourcing also reduces the company’s control over quality and increases the risk of counterfeit products flooding the market.
To capitalize on potential opportunities, Nike can expand into new markets, diversify its product range, and invest in new technologies such as anti-counterfeiting and green energy.
However, the company also faces threats such as counterfeit products, competition from other brands, high-profile patent disputes, international trade tensions, and competitors investing more heavily in advertising.
How To Perform a SWOT Analysis?
Now it’s time to look into how to craft a SWOT analysis. The technique is quite easy to grasp and can be mastered with just a little practice. No two SWOT analyses are exactly alike, even for the same company. However, there are some key stages that are necessary for virtually any type of SWOT analysis.
Identify Your Reason For Carrying Out the SWOT Analysis
This involves deterring your objective(s) for carrying out the exercise and what information you expect the technique to provide you. This includes a variety of purposes such as creating a comprehensive framework of the business model, as well as the company’s structural organization and their interactions. Performing a SWOT analysis also allows you to identify the competitive advantage and weaknesses of a new product, service, or policy.
Gather the Resources You Need
In this phase, it is important to identify the resources required to conduct the exercise, identify which of these resources are available to you, collect the necessary materials, confirm the reliability and accuracy of the information, and recognize any obstacles to obtaining data and ensuring its accuracy. Furthermore, gathering data from various sources, viewpoints, and levels within the organization is essential to developing a comprehensive SWOT analysis.
Create a List of Ideas
Once data has been gathered from diverse sources, analyze it to create valuable information that can be used to make evidence-based conclusions. For instance, a company that has consistently grown and maintained a healthy financial position can be considered to have favorable fiscal indicators.
During this stage, it is quite similar to a brainstorming session, and individuals from various departments within the organization, as well as external parties, should be encouraged to contribute actively. The emphasis at this point is on generating as many ideas as possible, rather than the accuracy or relevance of these conclusions.
Organize the Information into Relevant Sections
Once important points have been identified, arrange each conclusion under the appropriate section, such as strengths, weaknesses, opportunities, and threats, using the principles outlined in the article.
Refine Your Ideas
Next, refine the ideas by prioritizing them based on their relevance and significance. Less credible or minimally important points can be discarded to create a more concise and actionable schematic.
Create the SWOT Analysis Table
The final step is to construct a SWOT analysis table by creating a matrix divided into four sections. The internal factors, strengths, and weaknesses are listed above, with strengths on the left and weaknesses on the right. The external factors, opportunities, and threats are listed below, with opportunities on the left and threats on the right. Key points are then listed under the appropriate sections to complete the SWOT analysis.
You can use the Business Model Analyst SWOT Analysis templates to create your own table!
- Download the SWOT Analysis Template PDF
- Download the SWOT Analysis Template Google Slides (Fully Editable)
Develop an Actionable Strategy
While not technically part of the SWOT analysis process, it’s important to remember that the ultimate goal of this analytical framework is to develop a strategic management plan. This involves creating plans to achieve previously defined objectives and establishing reliable performance indicators or milestones to measure progress toward those goals.
SWOT Analysis Limitations
Despite all the advantages associated with the technique, there are some limitations to the SWOT analysis method. Let’s take a look at some key examples.
- It can be somewhat preoccupied with strengths/opportunities over weaknesses/threats. This may leave the business vulnerable to a range of potential dangers and therefore defeats the purpose of using this analytical framework;
- Users may over-exaggerate the strengths/opportunities outlined by the model. At this point, a previous strength may become exaggerated to the point of being detrimental to the success of the business;
- The technique does not outline what to do after crafting the SWOT analysis. Due to this, there is a tendency to abandon the technique after the initial stages of planning;
- There may be a failure to deeply examine inputs from all the relevant sources, leading to the creation of an incomplete SWOT framework and, therefore, the failure of the entire project;
- Each point may not be of equal relevance or prioritized according to importance. Therefore, a subjective approach is typically used to determine which points are more important than others, and this, of course, is prone to error;
- A SWOT analysis can be deceptively simple and can create the impression that the various divisions, interactions, and functions which are carried out within the business organization can be easily classified into deceptively basic forms;
- One of the key shortcomings of the SWOT analysis technique is that it does not offer solutions to the weaknesses or threats identified by the strategy;
- Various efforts are made to introduce as much objectivity to the SWOT analysis process as possible, such as using reliable factual information. Despite this, there is a great degree of subjectivity within the process of creating a SWOT analysis;
- The process can be overwhelming if not well-refined. Remember, a SWOT analysis is not a detailed report upon which definitive strategies are built, but rather a guide that can be used as a quick reference for further stages of strategic planning;
- Despite your best efforts, some vital points may be skipped or omitted from the SWOT analysis due to human error. That is why many of the techniques mentioned above have been adopted to reduce the possibility of this occurring as much as possible.
A SWOT analysis is a useful analytical tool used to develop a holistic framework of how a business model or structure operates in terms of its strengths, potential opportunities, shortcomings, and external threats to its continued existence. It can be applied across a wide range of different business organizations and in an even wider range of situations. This versatility makes it one of the most useful techniques for carrying out a strategic management plan.