Teamleader Blog Article

How a SWOT analysis helps your business make better decisions

Cedric Auman Cedric Auman on 10-Apr-2019 12:26:00 in Sales & Marketing

How a SWOT analysis helps your business make better decisions

Looking for a powerful tool to outline the best strategy for your SME and/or your marketing? Perform a SWOT analysis. While this thinking exercise may require some effort, it will enable you to perfectly play every trump card your company has at its disposal, and eliminate any weakness or threat.

In a strategic SWOT analysis, you map the Strengths, Weaknesses, Opportunities and Threats of your company.

The strengths and weaknesses are characteristics of your company itself: matters that you control to a certain extent and that you can change if they are too weak, such as the members of your team, your patents and your location.

The opportunities and threats are matters that take place outside your company, in your market segment or environment, but do have an influence on your organisation. You can seize the opportunities or protect yourself from the threats, but you cannot change them. Examples are activities of your competitors, raw material prices, buying trends …

Swot analysis what isWhat can your business use a SWOT analysis for?

By mapping, juxtaposing and studying the above issues, you miss as few chances as possible to exploit opportunities, optimally deal with threats, better use strengths and circumvent or remove weaknesses.

With a SWOT analysis, you can therefore determine the best possible business strategy, taking into account as many factors as possible. The findings of this exercise are also indispensable as the basis of your marketing plan. For a start-up, the analysis provides the foundations of a business plan with which the company will immediately get off to a flying start.

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Who should best perform the SWOT analysis?

Regardless of whether you make a SWOT analysis as the basis for your marketing plan, or to establish a well-founded business strategy, it is always important that the company's founders and leaders are closely involved in the process. Having said that, they cannot perform this job on their own.

So always map the strengths, weaknesses, opportunities and threats with a group of employees who each have a different view of the company. This way, you can be sure that you will not miss out on anything by restricting yourself to your own, inevitably limited perspective. Put the group together with a representative from each department of the company: from sales and customer service to marketing and product development.

Innovative companies also dare to attract votes from outside the company for their SWOT analysis, such as customers, with their own unique views on the matter. If you’ve only just started or if you’re running your business alone, you have no choice but to attract external people. Then put your ‘SWOT team’ together with acquaintances who know little about your activity, your accountant, vendors and suppliers.

The downsides of a SWOT analysis

Keep in mind that a SWOT analysis is no holy grail. It entails just one stage of the business planning process, and for complex issues, will often call for additional analysis or research.

The downsides of a SWOT analysis:

  • Not easy to pinpoint factors that are both strength and weakness (e.g. an ideal location with a high rent)
  • Doesn’t offer actionable solutions
  • Doesn’t prioritise issues
  • Generates a lot of ideas, but doesn’t help you choose which one is best
  • Produces a lot of information, of which not all is useful

That said, a SWOT analysis can often be a powerful tool to engage in structured brainstorming, helping you define strategic and operational business goals.

How do you perform a SWOT analysis?

Before proceeding with the actual SWOT analysis, you must carry out some preparatory analyses to spot external opportunities and threats and internal strengths and weaknesses. We focus here on 'you', but this study work can obviously be delegated. The SWOT analysis itself cannot: you will do this later in a group.

Step 1: External analysis

You start with your buyers, by performing a customer analysis. Who are your current and potential customers? What do they do with your products? Where and when do they buy them? Why do or don't they buy?

You identify market opportunities and threats through an analysis of the industry, using the DESTEP method. You describe relevant (!) demographic, economic, social/cultural, technological, ecological and political external factors, and their possible effects on your organisation. Also describe market factors such as trends and the economic climate. Score each factor, so that you quickly know how crucial it is.

Then, you analyse your competitors to identify opportunities and threats. Describe for yourself and five competitors the general business objective and strategy, the distinctive capability, the prices (being more expensive is not a problem, as long as you excel at a different level), the marketing (what can you do differently or better?), the range and the service (in both cases: in which way does it differ from your offer?), the customers (e.g. target groups to which you do not yet sell)...

Next, research the competitiveness of:

  • Suppliers (few suppliers with a lot of bargaining power lead to higher prices and vice versa);
  • Customers (may buyers, who are not critical, have little bargaining power and vice versa);
  • Substitutes (if your product or service is easy to replace, is there a substantial threat from companies entering the market, and vice versa);
  • Potential entrants (the threshold to join the market is low, competition is rising and margins are falling);
  • Existing players (many competitors with the same offer lead to low margins).

You end with a distribution analysis. How do you deliver the products or services: which methods exist and which do you use? Can physical deliveries be more flexible and efficient? How do you respond to the wishes of your customers? How powerful are you in the distribution channel, to what extent do you depend on it, how much access do you have to the channel compared to your competitors, and to the end user? Maybe you should tap into other channels for more sales?

The purpose of these analyses is not making strategic choices. The most important findings are to be included in the SWOT analysis. For example, if all your competitors use a lower price with a better service, then you put the words 'higher prices' in the SWOT analysis under 'threats' and 'lesser service' for 'weaknesses'.

Step 2: Internal analysis

Now you have to map the competitive advantage of your own company. Set up your value chain for that. For each activity of your company, determine:

  • what value it creates for your customers
  • what the margin is (the difference between the value and the cost of the activity)

The total value of all your activities determines how much customers are willing to pay for your offer. You may, for example, distinguish yourself by means of service, which means you can ask for a higher price.

Next, explore the marketing and sales activities of your organisation: the marketing mix, the segmentation and positioning and your portfolio. Also take a look at the sales funnel. Are the marketing and sales funnels well-coordinated, so that they can optimally tempt customers to purchase?

Finally, create a customer pyramid by ranking your customer base according to turnover. This gives you insight into your best customers and allows you to better tailor your marketing and sales activities. Finally, analyse the finances of your company.

HQ_Blog_SWOTAnalysis_HowToSWOT_inline2Step 3: SWOT analysis

Now it's time to get together. Approach the analysis like a brainstorm session: give everyone a stack of sticky notes, upon which they can jot down, in silence, their own set strengths, weaknesses, opportunities and threats. By first letting them work separately, you avoid group thinking and ensure all voices are heard. Make it clear in advance that everything can be said: only in this way will you get  an idea of what the strengths, weaknesses, opportunities and threats really entail, and you can fully grasp where the company stands. This is not the time to beat about the bush or to remain silent.

After ten minutes, position all used sticky notes on a board upon which you drew a confrontation matrix . Give everyone the chance to add extra notes, when a fresh idea offers them new insights.

Then it is time to pick out those notes that are a priority. Give everyone ten votes in the form of smaller sticky notes with their own color, which they can award freely. Then arrange the quoted points according to decreasing priority, per quadrant of the matrix. These lists are of course open for discussion, until someone takes the decision: usually, this is the CEO.

What questions can you ask yourself, for inspiration?

About the strengths of your company:

  • Which business processes run smoothly or even successfully?
  • What advantages does your team have: knowledge, a strong network, a lot of experience ...?
  • What physical assets do you have: satisfied customers, a lot of resources, good offers, name recognition ...?

About the weaknesses of your company:

  • Which business processes should improve?
  • Which areas could use strengthening, so you can help more customers better?
  • Does your company lack anything it needs, such as resources and equipment?
  • Does your team lack experience?
  • Is your location optimal for doing business successfully?

About the opportunities for your company:

  • Does your market segment grow and do you see trends that can make your offer more profitable?
  • Is there legislation in the making that can promote your sales?
  • Are your b2b customers growing, and can you quickly respond to that so that your own business can grow too?
  • Are your b2c customers 'fans' who are willing to promote your brand?

About the threats for your business:

  • Do new competitors appear, even from outside the sector?
  • In line with this: does digitisation change your business?
  • Can you continue to purchase the raw materials or semi-finished products at your required price?
  • Is there a risk of customer behavior changing to the detriment of your activity or offer?
  • Do you see market trends that you cannot react to in time?

What is an SVOR?

A SVOR analysis is a technique similar to the SWOT analysis, but serves to analyse the context of a project and the resulting Strengths, Vulnerabilities, Opportunities and Risks. The first two are internal, the other two are external.

A project is most likely to succeed if the Strengths can fully respond to the Opportunities, while you can keep the Risks and Vulnerabilities under control or – even better – out of the picture. However, many interactions between the Strengths, Opportunities, Risks and Vulnerabilities play a role worthy of a hefty blog post in their own right.

Let your business grow with a SWOT analysis

Contrary to what you sometimes read, a SWOT analysis requires a reasonable amount of preceding analysis work. And it does not offer solutions by itself. But it shows you the best route to follow strategically, for your entire company and/or for marketing, where you can play the right strengths and seize every opportunity, while neutralising weaknesses and expertly avoiding threats. On the road to more success for your SME.

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