How To Perform A SWOT Analysis

Lockwood & Ward have developed a very thorough SWOT System that provides exact measures for each area of the SWOT Analysis, highlights the areas that need attention, and presents results in an easy to interpret graphical format.

Instead of using a brainstorming session, we have a list of several hundred questions which guide you through the analysis and provide measurable results. Avoid the motherhood statements, the broad generalisations and see where your real strengths, weaknesses, opportunities and threats lie, so you can take real action.

Why SWOT?

SWOT analysis is a simple way of structuring your thoughts about your business’s competitive advantage (Strengths and Weaknesses) and the environment (Opportunities and Threats) in which it operates.

Systematically and honestly working through your firm’s strengths, weaknesses, market opportunities and threats with a SWOT analysis is a simple process that can offer major insights into the strategic issues and challenges faced by your business.

There are differing views on where to start. Some experts recommend starting with the environment (Opportunities and Threats) and then moving on to your capacity to compete (Strengths and Weaknesses). We believe the starting point is not as critical as the quality of the analysis itself.

Categorising the issues facing your business may not be straight forward. Today’s Strength could be tomorrow’s Weakness. Threats can also present Opportunities for well-managed businesses that spot the threat early and devise a strategy to deal with it.

Devoting some serious time to the process of working through the inventory of issues for your business and assigning them to each of the SWOT categories should help keep you ahead of the game.

Strengths

Strengths are the things that your business does well. They can be controlled and are usually judged relative to your competitors. To help organise your thoughts, they could be sorted by area – for example, sales and marketing, finance, manufacturing.

Be alert to the natural bias of those within the business to “talk up” their strengths and be honest in your self assessment. The SWOT analysis should provide a picture of where you are now not where you aspire to be. Employees at the coal face, customers and suppliers are often better positioned to provide unbiased assessments of your business’s strengths than managers.

Strengths could be physical or tangible assets that are tough for others to replicate. Copyrighted materials, patents and shop-front positioning are all examples here.

Within finance, access to capital and credit would be strengths. Strong customer relationships and distribution channels would be key strengths for sales and marketing. Low-cost, low-error rate production methods are potential strengths for manufacturing.

Strengths can also be intangible. In today’s fast moving marketplace, intangible assets are becoming increasingly important sources of competitive advantage relative to tangible assets.

All modern businesses should aspire to include “staff” as a key strength. Are your employees better educated, more experienced and/or better connected than their competitors?  Does your organisational structure and culture bring out the best in them? Or, do you have some work to do here?

Weaknesses

Weaknesses are those things within your control that you do poorly relative to competitors. They place you at a competitive disadvantage and directly or indirectly cost you money.  All businesses have their weaknesses but awareness is a step towards correction.

Those weaknesses identified as destroying most value need to be addressed. Others may be minor irritants that may not really warrant the necessary investment and dedication of management time required to get them fixed. No business is perfect and many management consultants recommend managing to the 80/20 principle – focus on the 80 percent that really matters.

Like strengths, you may choose to order weaknesses by business area. Weaknesses might include no “hard” assets or resources which are difficult for others to replicate. Your stores may not be in key traffic areas. Your balance sheet may be not as strong as others. Customer relationships may be of relative short standing and therefore more fickle. Production processes may be inefficient and prone to error. These weaknesses may be due to inferior quality staff. Conversely. they could hinder you ability to attract and retain quality staff in the first place.

Opportunities

Opportunities are those spaces in which your business can sell product at a decent margin. Opportunities may be beyond your control but your strengths and weaknesses impact your capacity to exploit opportunities as they arise. Opportunities reflect the potential you can realise through implementing your marketing strategies.

Opportunities may result from market growth and/or the gaining of market share by your business.

Market growth may result from strong economic conditions or demographic, lifestyle or regulatory changes.

Market share gains can result from superior positioning of your product relative to your competitors, geographic expansion, or even disruptions at competitor firms.

Opportunities to gain share could also present from currency movements (for those that export or compete against imports) or input cost inflation (which may push higher cost producers out of business or leave them vulnerable to takeover).

Timeframes are important here as the potential duration of the opportunity is likely to dictate your willingness to invest time or money to pursue it. For example, currency movements can quickly reverse and may therefore present only transitory opportunities. Other opportunities can persist for years or even decades. For example, an ageing population is likely to see strong protracted growth in demand for a range of goods and services such as health care and retirement services.

The greater the opportunity, the more attractive it will be to your competitors as well.

Threats

Threats place your business’s profitability at risk. Time frame is also important here as a persistent structural threat can threaten survival unless corrective action is taken. Threats are best dealt with proactively rather than reactively. You may not have control over threats but you can create a flexible, responsive business culture with contingency plans in place.

Competition is a persistent threat. Competition may come from existing players or new entrants.

Deteriorating economic conditions are a threat.  Almost all businesses will experience slower sales growth as the economy slows but some will experience a more rapid deterioration than others.  Businesses that produce or sell luxury goods usually see a sharper revenue decline than those involved in staples such as basic grocery lines.

Suppliers may squeeze your profit margin by increasing prices. Governments may affect demand for or the cost of producing your product through regulatory change. Consumers may change their tastes or preferences adversely affecting sales. Technology could change the way in which your product or service is produced and distributed and will typically advantage new entrants that are not heavily invested in the old technology. Technology could also make your product and services obsolete.

Some threats, should they arise, may be dealt with reasonably painlessly.  Others may require significant recalibration of the business to restore profitability.It pays to list all threats, even those that seem highly unlikely at the time.  Ordering threats by “severity” and “probability” is useful.

Interpreting a SWOT analysis

A well-prepared SWOT analysis allows you to compare your business’s strengths and weaknesses with environmental opportunities and threats. How can you better leverage off your strengths to pursue opportunities? Which weaknesses impede your ability to capitalise on these opportunities? Could your business cope with the most likely, most severe threats on your list? What contingency plans would you need? The real value of the SWOT analysis lies in its capacity to organise the issues facing a business drawing out those that are most pressing and warrant immediate attention.

Quality Input Equals Quality Information

Finally, the usefulness of a SWOT analysis is determined by the quality of the information it contains. Perceptions do not always align with reality particularly where comparisons with competitors are involved. Lockwood and Ward’s questionnaire-based SWOT analyses allow our clients to compare their business with “optimal” practice at similar businesses.

Please call our office and speak to Steve Lockwood who will organise your SWOT process.

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