A SWOT analysis compares internal strengths and weaknesses with external opportunities and threats to create an action plan. A SWOT analysis is most commonly used as a business planning tool, but it also is helpful for personal development.
For small businesses, a SWOT analysis can be used as:
- A quick way to examine a small business idea.
- A springboard for annual business planning.
- The basis of a marketing action plan.
- A starting point for business contingency planning.
- A tool for involving staff/employees in business planning, for example, solving particular problems or achieving certain business goals.
- A self-evaluation tool to gauge how you're doing managing staff or running your business.
How to Do a SWOT Analysis
A SWOT analysis is organized in a matrix or table form with two rows and two columns.
The first row represents factors internal to your organization over which you have some degree of control. Strengths are listed in one column and weaknesses in another. Factors to consider include:
- Your financial situation (income, cash flow, debt, investments, etc.).
- Your market share.
- The relative skills of your employees and/or contractors.
- Your physical premises, location, and equipment.
- Assets such as patents or copyrights.
The second row represents factors external to your organization over which you have little to no control. Opportunities are listed in one column and threats in another. Factors to consider include:
- The state of the economy and your particular industry.
- Your market share and the possibility of increasing or decreasing competition for your products/services.
- Your ability to retain or hire employees or contractors as needed.
- Regulatory changes that may affect your business.
- The ability to obtain financing (changing interest rates, increased loan requirements, etc.).
Fill in the boxes in your table, according to the specific purpose of your SWOT analysis so it looks something like this:
Internal strength 1
Internal strength 2
Internal weakness 1
Internal weakness 2
External opportunity 1
External opportunity 2
External threat 1
External threat 2
SWOT Analysis Process
Always choose a specific purpose for your SWOT analysis. Otherwise, you'll just end up with a bunch of generalizations that won’t provide specific direction for an action plan.
Because a SWOT analysis is a subjective process, different groups of people or individuals may come up with different results for the same stated purpose or topic. One of the best ways to take advantage of this is to use an outside facilitator. Employees, customers, partners, and other stakeholders are more likely to give honest feedback to a consultant who is not part of your orgnaization. If management oversees the process, feedback might be limited to wehat stakeholders think management wants to hear.
Remember that a SWOT analysis is not the be-all and end-all of business planning. It works best as a starting point for small-business planning used in conjunction with other business-planning tools, such as PEST (political, economic, sociocultural, and technological) analysis. This ensures that you don't overlook critical external factors, such as new government regulations or technological changes in your industry when you're looking at opportunities and threats.
Using the SWOT Analysis
Once you have completed the table, use it to create a strategy or strategies that will make your business more competitive. Four questions to use as a thinking/discussion guide include:
- Do strengths open any opportunities?
- How can we convert weaknesses to strengths?
- What do we have to do to take advantage of opportunities?
- How do we best neutralize threats?
Management and employees can come together to answer these questions developed from the SWOT analysis. Again, continuing to use an outside facilitator can help everyone stay focused and perhaps introduce perspectives those inside the organization are less likely to consider.