SWOT stands for Strengths, Weakness, Opportunities, and Threats. It is a high-level analysis tool that can help inform the development of a strategy. Importantly, it is a tool that considers both internal and external factors impacting an organization’s ability to achieve its goals successfully.
Strengths and weaknesses refer to internal factors that an organization has some level of control over (team, technology, customer segmentation, etc). These are things important to a business that it can directly take control over and change as it sees fit.
Opportunities and threats refer to external factors such as competitors, market conditions, regulations, etc. A business can choose to take advantage of opportunities or protect against threats, but it can’t change them directly.
Unfortunately, the application of SWOT as a business planning tool is often oversimplified. To do a SWOT analysis the right way takes time, planning, and a concerted effort on the part of company leadership. It is not the kind of thing that you simply accomplish in a few hours.
However, it can be a critically important resource when applied correctly. You cannot create a good strategy without first having a deep understanding of your own business and of the external circumstances in which you’re operating – and that’s precisely what the SWOT process helps you define.
This blog provides you with my approach to conducting a practical SWOT analysis for an existing business.
It’s A Process
Conducting a SWOT analysis isn’t the sort of thing you can complete in a single, caffeine-infused planning session. Instead, it is a discovery process that typically requires several days or weeks to do correctly. It also requires the active participation of company leadership as well as input from various members of your team who possess vital insights into your business.
Start by identifying the individuals in your organization who should participate in a SWOT analysis. I’ve found that the most effective brainstorming sessions usually involve groups of 5 to 8 people. If you have too few people, you run the risk of having too little diversity and not enough unique perspectives. On the other hand, too many people can result in an insufficient opportunity for everyone to contribute. The individuals selected should represent the organization’s brightest, most engaged people and ensure appropriate representation from key functional areas like sales, operations, product, finance, etc.
Once you’ve identified the team members involved in the SWOT analysis, bring everyone together for a quick kick-off meeting. In this meeting, explain what a SWOT analysis is and its importance to your company’s future. Ensure everyone knows this isn’t just a fun project or extra busy work but rather a critical factor to your company’s overall strategy. Team members should feel excited and honored to be part of the SWOT process because it reflects your confidence in their ability to help plot your company’s future.
Provide everyone with a detailed overview of the process you’ll go through to develop your SWOT analysis. Schedule the necessary meetings and due dates for the completion of each step. Provide appropriate guidance and resources to each member of the team and answer any questions. Consider creating a dedicated Slack channel for SWOT planning and discussions that the team can use to exchange ideas, share research findings, and ask questions. Also, identifying a “SWOT Leader” who will be the person who keeps everyone on schedule and ensures all steps are followed (typically the founder or CEO).
Step 1: Market Research
The first step in your SWOT analysis is for the team to do a deep dive into the market. All too often, companies skip over this critical step or assume that their team already has the necessary market knowledge. This is a huge mistake! Even if you’ve been in your industry for years, you must take the time to educate yourself on the current state of the market and understand what upcoming changes might impact it.
- Have each member of the team research competitors as well as customer alternatives. Alternatives are ways that a customer can solve their problem without using your company or a competitor (example: rather than pay for a CRM software, I could just use a spreadsheet to keep up with customer contacts). Only include viable alternatives that customers routinely choose in place of working with you or a competitor.
- Each team member shares their findings with the group, and the SWOT leader compiles results into a single unified list. If the group identifies many competitors or alternatives, the SWOT Leader should use their judgment to narrow the list down to the top 5 biggest competitive threats and share the final list with the team.
Competitor Deep Dive
- Ask each member of the team to research each of the identified top 5 competitors independently. Remember that a competitor could be an “alternative” but only if it is one of your business’s top 5 biggest competitive threats.
- Each team member should independently (not as a group) come up with their opinion of the top 3 strengths and weaknesses for each of your identified competitors.
- Challenge your team members to imagine being a savvy, well-informed customer doing their research into your competitors. Encourage team members to be objective and not to be biased in their reviews.
- Ask each team member to share their findings with the group at a specific date and time. That helps to avoid one member of the team influencing another’s selections.
Identify External Factors
- Next, each team member should research the external trends that could positively or negatively impact your business? These include the economy, regulatory environment, changes in customer preferences, etc. Be sure to indicate whether each is an opportunity (positive) or a threat (harmful).
- Here are some guiding questions to help your team:
- Is the market for your product or service growing or shrinking?
- Are there economic factors (such as a recession) that could impact demand for your product or service?
- Are there new or upcoming changes to regulations that could impact your business?
- Are there third-party dependencies such as supply chains or key vendors that could help or hurt your business?
- How is the role of technology changing in your industry? For example, taxi companies in the late 2000s might have anticipated a ‘smartphone app for finding a ride’ as a potential new threat before there was an actual competitor such as Uber or Lyft.
- Are customer preferences or needs likely to change in the near future?
- Do your customers currently have underserved or completely unmet needs that you or your competitors could potentially fill?
- Each team member shares their findings with the group. The SWOT Leader should compile and refine the results into a unified list of the top 5 external opportunities and top 5 external threats and then share this with the team.
- At this point, the SWOT Leader should have each member of the team’s opinion of the top 3 strengths and weaknesses of each of your top 5 competitors. Then, the SWOT Leader should combine these into a single list of ALL strengths and weaknesses broken out by competitors.
- Finally, share the list of competitors’ strengths and weaknesses with the team and ask everyone to study the findings for both competitors and previously identified external opportunities/threats before the next step.
Step 2: Honest Self-Review
Next, ask each team member to individually and independently come up with a list of your company’s strengths and weaknesses. Again, I recommend completing this step after your market research because it provides the necessary reference points to analyze your strengths and weaknesses objectively. In other words, a strength is something your company does better than most of the competition. So it is essential to have a good understanding of the competitive environment before reviewing your own strengths and weaknesses.
Here are some guiding questions you can give your team:
- What are our companies strengths?
- What do we do well?
- What unique resources or assets do we have?
- Why do customers choose us over a competitor?
- What are our weaknesses?
- What could we improve?
- Where do we have fewer resources than competitors?
- Why do customers choose a competitor over us?
Ask team members to compile their lists of your company’s top 5 strengths and weaknesses but not to share them with the team until the next step.
Step 3: Team Brainstorming
This is the step that most people jump to when doing a SWOT analysis…the big group brainstorming session. However, as you can see, there is a lot of research and preparation required before getting to this step. Once you have completed all of the above research, plan a whole day for the group to get together and brainstorm your company’s strengths and weaknesses and discuss and identify its most pressing opportunities and threats.
- Ask everyone to have their lists of your company’s strengths and weaknesses prepared before the meeting.
- Bring printed copies of the market research findings for each member of the team.
- Top 5 Competitors Complete List of Strengths and Weaknesses (by competitor)
- Top 5 External Opportunities and Threats
- Bring brainstorming supplies:
- Whiteboard and markers
- Sticky notepad for each team member
- Sticky “dots” for voting
Identify a facilitator for the brainstorming session who does not participate. This ensures the facilitator doesn’t guide the discussion. It’s typically good to have an experienced third-party familiar with SWOT planning facilitate for your team so that the SWOT leader can participate.
- The facilitator asks each team member to individually come up with their top 3 to 5 strengths for your company and write each down on one of their sticky pads. Allow 5 or 10 minutes for everyone to do this on their own to avoid groupthink.
- The facilitator asks each team member to come up and post their sticky notes to the whiteboard while explaining their choices. Group similar responses together.
- Allow time for group discussion to add any newly generated ideas.
- Repeat this process for weaknesses, opportunities, and threats.
- The facilitator should point out to the team that your competitors’ strengths are likely to be your threats while their weaknesses are your opportunities.
Rank and Refine
At this point, you should have a whiteboard filled with sticky notes of all the identified strengths, weaknesses, opportunities, and threats. Now it’s time to cull the list down and identify each category’s most important and impactful items.
- Eliminate duplicate or similar ideas by combining them into a single sticky note
- Provide each team member with five sticky dots (or some other voting mechanism) for each category. Then, ask team members to vote on their top 5 choices in each category.
- Identify the top 3 to 5 items from each category that have the most votes.
- Draw a SWOT diagram on the whiteboard with the top items from each category and discuss as a team. Make adjustments as necessary until the team collectively feels that the diagram captures a complete picture of the SWOT environment for your company. The SWOT Leader should be the deciding vote if the team can’t come to a consensus.
At this point, you have a completed SWOT analysis for your company based on in-depth market research. You can now use this SWOT analysis to inform your strategic planning process. For example, analyzing how your weaknesses overlay with your threats can help you diagnosis the primary challenge standing between your company and its goals. Similarly, understanding the relationship between your strengths and the opportunities available to your company could inform your guiding policy about how best to approach your challenges. By taking a methodical approach to understanding the internal and external realities with which you operate, you now have the proper foundation to construct an effective strategy.