SWOT analysis is a tool that is used to evaluate the strengths, weaknesses, opportunities, and threats of a business or organization. It is a strategic planning method that helps organizations to identify their internal and external factors that can affect their success.
The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal factors, while opportunities and threats are external factors.
To conduct a SWOT analysis, a business or organization will first identify its strengths, which are the things that it does well. These could include things like a strong brand, a skilled workforce, or a unique product or service.
Next, the business or organization will identify its weaknesses, which are the things that it does not do well. These could include things like a lack of innovation, a high cost structure, or a weak customer service.
The third step in a SWOT analysis is to identify opportunities, which are external factors that the business or organization can take advantage of to grow and succeed. These could include things like new market trends, changes in consumer behavior, or the emergence of new technologies.
Finally, the business or organization will identify threats, which are external factors that could harm the business or organization. These could include things like competition, regulatory changes, or economic downturns.
Once the strengths, weaknesses, opportunities, and threats have been identified, the business or organization can use this information to develop strategies to capitalize on its strengths, address its weaknesses, take advantage of opportunities, and mitigate threats. SWOT analysis is a useful tool for businesses and organizations to understand their internal and external environments and make informed decisions about their future.
The following are examples of threats…
The potential actions of a competitor are the most common type of threat in a business context. For example, a competitor who copies your new product thus decreasing its unique value on the market.
Loss of talent or an inability to recruit talent. For example, the potential to lose employees that are holding your business together.
The potential for new competitors to enter your market. For example, the only hotel close to a popular beach may see declining occupancy if a competitor opens a location nearby.
Changes to market prices or a price war with a competitor. For example, a farmer who identifies a threat that per-barrel prices for cranberries could fall.
Changes to costs. For example, a student who identifies a threat that tuition could go up.
The chance that something will not be approved. For example, a threat to a construction project that building permits will not be approved by local government.
The potential for suppliers to fail to meet their commitments to you. For example, a solar panel manufacturer that is thrown into disarray when a key supplier suddenly goes out of business.
Weather risks such as a ski resort that identifies a warm winter as a threat.
Disaster risks such as a beachfront hotel that identifies a storm surge as a threat to property and operations.
A customer service failure such as a representative who is rude to a customer with the customer then posting evidence and complaints to social media.
Quality failures such as defective products.
The potential for knowledge shortfalls or for trade secrets to flow to a competitor.
Threats to a brand such as a competitor with a successful advertising strategy who gains top of mind.
Customer perceptions such as a perception that a key ingredient in your food product is unhealthy.
Changing customer needs such as a generation of commuters who live closer to work and prefer bicycles and public transportation to buying a vehicle.
Changing customer preferences such as a popular fabric pattern for men’s shirts that suddenly is viewed as out-of-style.
Changing financial conditions such as recessions, increasing interest rates and exchange rate fluctuations.
Information security threats such as an advanced persistent threat.
The threat of new regulations such as a taxi cab startup whose business model could be invalidated by transportation regulations.
Changes to taxation that impact your profitability or business model.
The potential for you to break rules and regulations. For example, an employee who fails to follow procedure who leaves you open to penalties and reputational damage.
Environmental damage such as a beachfront hotel that suddenly has dangerous items of garbage washing up on shore at all hours of the day.
Quality of Life
Changes to quality of life or perceptions of quality of life. For example, a firm located in a city that gains a reputation for low quality of life due to factors such as air quality that finds it more and more difficult to recruit talent.
The potential for a competitor to dramatically improve processes, methods, products or services. For example, a competitor who develops a more useful, energy efficient and environmentally friendly form of transportation that threatens various business models.
The following are examples of opportunities…
The local competition of a sandwich shop use low quality bread in their sandwiches, there is an opportunity for the shop to be the only place in town with decent bread.
Customers perceive a common ingredient in peanut butter to be unhealthy. This represents an opportunity for a peanut butter manufacturer to formulate products that are perceived as more healthy.
Underserved customer needs. For example, a lack of charging stations in an environment of high sales of electric vehicles.
Customer preferences such as an opportunity to open a restaurant that offers healthy food at an airport that currently only sells junk food.
Changing demographics such as an aging population that represents an opportunity for accessible, easy-to-use and simplified technology products.
Customer service failures of a competitor are an opportunity to offer customers something better. For example, a telecom company with an antagonistic relationship with customers and a broken service culture is vulnerable to competition that is more friendly and easy to deal with.
A competitor that charges high prices such that they are vulnerable to price competition. For example, an event ticket distribution company that charges high fees may be an opportunity for technology companies to offer a similar service at a lower price.
An opportunity to reduce costs below that of a competitor. For example, an organic farmer who is able to produce at greater scale and improve yield using techniques such as companion planting may achieve lower unit costs than all competition. In a commodity industry, lower cost is the primary type of competitive advantage.
Hiring or developing talent. For example, a graphic design firm that opens in a town where most of the competition aren’t very creative, skilled or innovative may have an opportunity to dominate the market based on superior talent.
Developing know-how such as a sales team that develops a process for detecting prospects who will make a significant purchase in the next 6 months. This may be a competitive advantage if the competition use less accurate methods for evaluating prospects.
Innovation is a leap forward that disrupts the status quo. These are usually non-obvious and difficult to identify. Opportunities for innovation occur where an industry hasn’t changed in a meaningful way for many years and is vulnerable to innovation due to inefficiency, economic bads or customer satisfaction issues.
An opportunity to use brand recognition and image to make gains against a competitor with a weaker brand.
Using promotion techniques such as advertising to build brand recognition and image. For example, an organic food products company finds that the competition don’t advertise such that there is an opportunity to establish top of mind brand recognition with advertising campaigns.
If a competitor has a toxic organizational culture, there may be an opportunity to provide a more pleasant and creative environment that attracts talent and improves productivity.
An opportunity to reach more customers. For example, a competitor goes out of business and there is an opportunity to expand into markets that are newly underserved.
The opportunity to create and leverage new relationships. For example, an opportunity to distribute your products in Germany with a sales partnership.
Technological advancements that make new things possible. For example, advancements in robotics and computing that make it possible to automate processes and tasks.
An opportunity to do things in a more environmentally responsible way than the competition. This is an increasingly common and valuable form of competitive advantage that can improve the perceived value of your products.
An opportunity to enter new markets such as a restaurant owner who considers opening a cafe to compete on food items.
Mergers & Acquisitions
An opportunity to buy or merge with a competitor. For example, a farmer who buys an adjacent farm to scale up production.
Advantageous financial conditions such as a growing economy, low interest rates and a low exchange rate. For example, a farmer in Korea who buys a German machine for sorting apples when exchange rates are usually good for making a purchase in euros with won.
Opportunities to put money to work such as investing in capital improvements to a business. For example, a farmer who buys more efficient equipment to boost output.
Opportunities to improve your reputation or leverage a good reputation. For example, a bicycle helmet brand that is known for its safety may advertise their commitment to safety to capitalize on bad publicity surrounding the safety of a competitor’s product.
The following are examples of weaknesses…
Missing skills and abilities such as an advertising team that lacks capabilities in digital advertising.
A lack of know-how such as a solar panel manufacturer that doesn’t know how to make their products as durable as the competition.
Higher overhead or unit costs than the competition. For example, an organic farmer who produces apples for $8 a bushel when the average competitor achieves a cost of $7.
Prices and price structures that aren’t as attractive as the competition. For example, a telecom company that charges for bandwidth when the competition offers attractive unlimited plans.
Suppliers and supply chain competition. For example, a company that requires at least 3 business days to deliver an order when a competitor can deliver in 24 hours.
Your ability to reach the customer to sell to them and deliver your obligations. For example, a sushi restaurant that is 4 blocks from a busy shopping street when a competitor has three locations on the street itself.
Poor brand recognition and brand image as compared to competitors. For example, an electronics manufacturer with a high quality product but a brand that the target market do not recognize such that they are hesitant to buy.
Customer service shortfalls such as a firm that doesn’t measure customer satisfaction at the interaction level such that employees who consistently displease customers aren’t detected as low performers.
Customer relationship issues such as a sales team that has seen significant turnover such that sales representatives are strangers to major accounts.
The quality of your products and services. For example, a non-alcoholic beer that tastes bad versus one that tastes good.
Negative customer perceptions such as a technology brand that is associated with a legacy technology such that the brand sounds outdated to many customers in its target market.
The valuable uniqueness of your products relative to the competition. For example, an organic coffee product that has nothing special about it as compared to the other product’s on the shelves of supermarkets.
Competitive weaknesses related to your target market such as a demographic that is shrinking. For example, a sporting goods company that is heavily associated with a sport that is less popular with younger generations.
The productivity of your employees. For example, a graphics design shop that consumes an employee month to deliver a logo when a competitor delivers logos of similar value with less than a week of effort.
The efficiency of your operations. For example, a gold mine that consumes 25 kW·h of electricity used to produce a gram of gold when a competitor consumes only 5 kW·h of electricity per gram.
The systems and applications you use and their impact on things such as productivity, efficiency, customer satisfaction, cost and the turnaround time of processes. For example, an aging technology company that uses systems that are more costly to maintain and difficult to use than the competition.
Information security vulnerabilities such as employees who are unaware of basic defensive computing techniques.
Infrastructure are basic services such as an internet connection or road. For example, a wholesaler located in a remote location on a road that is prone to traffic jams may have a competitive disadvantage to a wholesaler located near a major port with significant transportation infrastructure in the area.
Economic bads are the negative impacts of your business on the environment and communities in which you operate or sell. For example, an industry that produces $4 billion in economic goods but costs society $400 billion in economic bads might reasonably expect that they will eventually be regulated or asked to pay these costs.
Organizational culture issues such as resistance to change.
The capability to change and to develop new value that is non-obvious. For example, a technology company that is often trying to copy the competition as opposed to doing anything that creates new types of products, markets and business models.
Weaknesses of partners or relationships with partners. For example, a manufacturer of air conditioning units has a large number of quality control failures due to low quality parts from a supplier.
The financial position of a business. For example, an electric car manufacturer with a large debt that will have difficulty refinancing this debt if financial conditions tighten.
Business processes that fall behind the competition. For example, a university that takes a minimum of 6 months to recruit a professor when the competition can do it in 2 months. This may lead to talent flowing to competing institutions.
Concentration risk such as a farmer who only produces one commodity crop such that they are vulnerable to price swings.
Barriers to Entry
A firm with a successful business model, product or service that is easily challenged by newcomers. For example, a small electric bus company that produces innovative vehicle models that are easily emulated by far larger competitors with more mature manufacturing capabilities.
A flawed business model such as a company that is able to grow revenue but is not able to become profitable. This typically occurs because growth was fueled by the company offering value that exceeded price with no ability to obtain a price that’s higher than cost.
A poor reputation due to factors such as leadership, ethics and quality.
The following are examples of strengths…
Talent such as a architect who produces more creative and valuable designs than their peers.
Knowledge such as an organic tea farmer who knows how to use unique companion plantings to increase yield, decrease cost and improve quality.
Productivity is how much you produce in an hour of work. For example, a talented software developer who produces more code than an average team of 12 people.
Efficiency is how much output you create for each unit of input. For example, a data center company in a cool climate that uses far less power for cooling than most of the competition.
Producing at greater scale than the competition to reduce unit costs. For example, a cosmetics company that produces millions of units a week may have a significant cost advantage over a competitor that produces thousands of units a week.
The ability to do things quickly including the turnaround time of business processes. For example, a bank that completes most transactions in seconds has an advantage over a bank that takes 3 business days to do anything.
The ability to change to achieve strategy. For example, a manufacturer that implements more than 10,000 improvements to IT systems and tools each year when a major competitor delivers less than 100 improvements a year.
The ability to do more than copy the competition by finding new business models, methods and products that are non-obvious and valuable.
Business capabilities such as an engineering firm that can accurately measure project risk where the competition often develop poor risk estimates.
An ability to do something of value that is unique in the market. For example, an architect who is a master of daylighting techniques such that they can design large structures that require little or no electric lighting during the day.
Bargaining power such as a large company that is able to push delivery companies for steep discounts that aren’t available to smaller competitors.
Financial position such as a technology company that generates large amounts of cash flows from operations. This can be used to do things such as preventing competition by purchasing all the promising startups in your industry.
Location such as a software sales team that is located in a financial district close to major customers when the competition is out in the suburbs.
Brand recognition and brand image are common types of competitive advantage. For example, a fashion brand that is perceived as luxury and premium such that there is social status attached to products.
Quality is the fitness for purpose of something. For example, a baseball bat design that is lighter and stronger than alternatives on the market due to the use of a new composite material.
Barriers to Entry
Controlling something or knowing something that makes it difficult for new entrants to challenge you. For example, a railway that owns land stretching great distances through urban areas that would be impossible to purchase today without an act of government.
Superior systems, applications and machines such as a train manufacturer with an automated assembly line that reduces costs, disruptions and quality issues.
Access to superior infrastructure. For example, a data center directly connected to a major internet backbone may have a latency advantage over a data center that has several hops to reach a backbone.
Relationships such as an information security consultant who knows more people in the industry than their competition.
Reputation such as an energy company with a reputation for environmental stewardship, quality products and responsible management of resources. In some industries, a positive reputation is somewhat rare such that is potentially a valuable asset.
Offering a broad range of products and services can protect a firm from price swings and other disruptions to an industry. For example, an electronics manufacturer that produces hundreds of products may be able to survive a price war in one product category that takes out competitors that are less diversified.
A valuable position in a competitive market. For example, the solar panel company that makes the most efficient and durable product.
Some services become more valuable as more people use them. For example, the value of a social media tool mostly comes from the number of people who are using it.
An established ability to develop and sustain positive relationships with customers by being helpful, diligent and friendly. In some cases, firms struggle for decades to try to improve customer service without much success. As such, a positive service culture can be an extremely valuable asset.
The end-to-end customer experience offered by a business. For example, a restaurant with diligent service, a stimulating environment, beautiful decor and delicious food.
The ability of a business to survive stress and problems. For example, an IT consulting firm that learns from unhappy clients and failed projects verses one that pretends every engagement was a success.