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Frequently Asked Questions:
What is a SWOT analysis & how do I do one?

Introduction

A SWOT analysis builds on the results of the PEST analysis, which looks at the company’s external environment. Its purpose is to identify company strengths and weaknesses so that strengths can be maintained or increased and weaknesses corrected. A further purpose is to identify opportunities and threats resulting from external factors – especially those that have an impact on the company’s strengths and weaknesses. Company strengths and weaknesses need to be identified in all aspects of the business, relative to the market and expected or previous performance.

It is also important to realise that opportunities arise out of weaknesses. Correcting a weakness presents a marketing opportunity. Similarly, failing to maintain a strength is a threat to the company.

A preliminary approach for carrying out a SWOT analysis is to list perceived company strengths, weaknesses, opportunities and threats under each of these headings. Ensure that no weaknesses cancel out company strengths and potential threats to the company strengths or opportunities that could arise out of correcting weaknesses.

On the above list, highlight key areas of concern or areas that require action. These become the focus for future planning.

This approach is preliminary – as it does not evaluate the relative importance of each issue. A further approach is to list key aspects in a table – and score them out of 5, where 5 is a major strength and 1 a major weakness. Scoring can be based on the following factors

  • relative to the overall industry
  • relative to major competitors or the next largest competitor
  • relative to expected performance
  • relative to previous performance.

An item that was better on all 4 categories would be a major strength and vice versa for weaknesses. Areas where the company has better performance than competitors, but where performance is below expectations would receive a higher score than where performance has improved but still is weaker than competitors.

The following is list of some of the things that can be considered:

Marketing Aspects

  • Market share and market segments addressed
  • Competitive Structure
  • Customer base (quality, size, loyalty, etc.)
  • Demand forecasts
  • Product range and quality.
  • Services provided
  • Distribution capabilities and costs
  • Sales effectiveness
  • Promotional effectiveness. Image and reputation
  • Pricing options
  • Speed to market
  • Customer service
  • R&D and Innovations / new products
  • Marketing skills and experience
  • International / export market capabilities

Operational / Manufacturing Aspects

  • Production / Manufacturing facilities (age, quality, speed…)
  • Economies of scale
  • Skills (Employee, technical, etc.)
  • Product failure rate
  • Flexibility
  • Costs
  • Supply / raw material availability

Human Resource Aspects

  • Employee skills, motivation, dedication and experience
  • Employee satisfaction
  • Employee costs
  • Work environment
  • Staff turnover rate
  • Management and Organisational Aspects
  • Management skills and experience
  • Leadership and team skills
  • Ability to respond to market change
  • Flexibility and adaptability

Financial Aspects

  • Cost of capital
  • Profitability / Return on investment
  • Financial Stability
  • Sales / Employee
  • Cash availability

This scheme allows the company to identify where it is strongest against competitors – the company’s competitive advantage – and against previous and expected performance.

For each aspect, rank the items against performance prior year, against your industry and against your own company. Give a rank for 5 for much better, 4 for better, 3 for the same, 2 for worse and 1 for much worse. Ignore all aspects with a 3 rating. This is neither a strength nor weakness. Examine all the 5 ratings – these are major strengths – and 1 ratings, which are major weaknesses.

If you are comparing against your company, a 1 in a competitor means that you have a major opportunity to use your strength against the competitor. A rating of 5 means the competitor is MUCH better than you. You need to focus on improving – but this area will be difficult to attack as the competitor should view this as key strength and protect himself. So until you can improve – you can’t attack here. The 4 ratings however can be attacked – especially as it should be easier to improve your performance.

Similarly, compare yourself or competitor to the industry as a whole. Strong weaknesses can be attacked but strong strengths lead to industry leadership. So these are areas where you need to improve. Looking at the relative position for prior years gives an indication of strategy as it may show where the competitor has prioritised.

Finally after compiling the list, management should start to consider whether action is needed regarding each identified item. A way forward here is to rank each item on importance to the company.

Low performance (i.e. a score of 1 or 2) and high importance should be the major priority. Similarly, high performance (4 or 5 score) and high importance indicates areas where performance needs to be maintained.

Conversely, low importance and low performance can be given a low priority, while low importance items that are viewed as strengths can be ignored. It is better to spend time and money improving or maintaining areas that matter to the company than worrying about perceived strengths that do not add anything worthwhile to the company. This can be summarised as:

  • Low priority – monitor for changes. Focus on only if finances and time allow.
  • Medium priority – focus on after the high priority items have been looked at, or if finances allow.
  • High priority – main focus. Ensure adequate finances to address issues.

The results of this analysis then feed into a marketing or organisation strategic plan.

To find out more:

Most standard management texts contain sections on SWOT & PEST analysis. Some texts that may be useful include:

  • Marketing Management Philip Kotler & Kevin Lane Keller. Prentice Hall. (UK version / US version)
  • Marketing Plans: How to prepare them: How to use them Malcolm McDonald. Butterworth Heineman (UK £ / US$)
  • Exploring Corporate Strategy: Text & Cases Gerry Johnson, Kevan Scholes, Richard Whittington. Prentice Hall. (UK £ / US$)

(Note: There may be later editions for some of these – and also the earlier editions are often cheaper with little difference in the basic content).

PEST analysis is also discussed and covered in books on scenario planning such as excellent The Art of the Long View by Peter Schwartz (UK £ / US$).

We’ve led workshops on both PEST and SWOT analysis at competitive intelligence conferences in Europe and the USA. We have also prepared a more in-depth white paper on both PEST and SWOT analysis. The key thing when carrying out either a PEST or SWOT analysis is to ensure that the results are objective – and often a perspective external to the organisation can help with this. For help with either PEST or SWOT analyses, contact us.

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Note: This FAQ is based on an article originally published in the Strategic & Competitive Intelligence Professional‘s membership magazine (Competitive Intelligence Magazine – Jul-Aug 2002)