The SWOT analysis is a technique used strategic direction to help individuals or businesses to identify Strengths, Weaknesses, Opportunities and Threats related to business competence and project planning.
Definition
The expression SWOT (SWOT analysis in English) is made up of
the acronym of the words: Weaknesses, Threats, Strengths and Opportunities .
The Strengths and Weaknesses correspond to internal factors while the
Opportunities and Threats, to external ones.
Target
With the help of SWOT analysis (or SWOT), you can develop
strategies, define budgets and optimize resources. At the same time, strategic
planning can help initiate business action and enable informed decisions. The
SWOT is often necessary in the course of business analysis for the preparation
of business plans for financing start - ups, control or capital increase of
companies.
Internal factors
In order to identify your own strengths and weaknesses, it
is necessary to analyze the situation of your competitors and compare the data
obtained from the previous analysis with the data of your company. This is the
simplest way to discover in which aspects your company is a leader and in which
others it is not, in order to be able, in this way, to define the strengths and
weaknesses.
Strengths
Strengths are those characteristics of a company that
position it at an advantage in relation to its competitors and can be found
with the USP analysis . That is, they are aspects that allow the company to
stand out from its competitors:
To identify strengths, you need to check how successful
situations have been achieved in the past, and what are the differences between
your company and your competitors.
Weaknesses
The weaknesses of a company are the characteristics that
could put it at a disadvantage compared to its competitors. Possible examples
are:
• Dependence
on a provider
• Reduced
clientele
• Bad sales
position
• Low
quality
• High
prices
• Outdated
IT system
• Very
frequent changes in staff
• Low brand
awareness
To discover what your weaknesses are, you can ask yourself
the following question: Why have my potential customers preferred to buy from
my competitors and not from me?
External factors
In this section of the SWOT factors external to the company
are analyzed. This external analysis helps the company to know opportunities
and threats that may arise in the future. Some examples are: changes in
markets, legal changes and changes in trends.
Opportunities
Opportunities are external changes that could be turned into
benefits for the company. Some examples are:
• Change in
trends and development of society
• Changes
in consumer behavior
• Technological
progress
• Market
niches
• Great
market potentials
• New
distribution channels
Threats
Threats are external changes that can turn a business to a
disadvantage. For instance:
• Negative
legal changes for the company
• Negative
changes in the stock market or exchange rates
• New
Competitors
• Cheaper
competitors (from very low-wage countries)
• Fall in
prices due to excess supply
• Little
economic activity
Analysis procedure
To carry out a SWOT analysis , it is necessary to carry out
an internal analysis (company analysis) and external (environmental analysis)
of the company.
Company analysis
It consists of internally analyzing the company. Discover
the strengths and weaknesses that lead to advantages or disadvantages from a
competitive point of view. It is also known as internal analysis.
To do this, we will have to ask ourselves the following questions:
Strengths :
• What
decisions that have been made in the past have been successful?
• What have
been the deciding factors of success so far?
• What are
the strengths of the company / product?
Weaknesses :
• What went
wrong in the past?
• What can't
the company / product do as well as the competition?
• What are
customers complaining about / What are the reasons for the loss of customers?
All this analysis leads us to ask ourselves questions about
the departments of the company:
• Production
: manufacturing costs and processes.
• Marketing
: sales team, products, positioning, market share, prices, distribution,
customer service .
• Organization
: organization chart, company culture, senior management.
• Personnel
: recruiting and compensation process, worker training, team motivation.
• Finances
: financial ratios of the company, R&D.
Environmental analysis
The second step of the SWOT is to identify the factors that
can affect the company in a positive or negative sense. Typical examples are
movements in the markets, legal changes or trends. This environmental analysis
is also called an exogenous / external factors. To carry out this analysis we
must ask ourselves the following questions:
Opportunities :
• What are
the real possibilities for growth?
• What are
the current trends?
• Where
does my competition fail?
Threats :
• Where is
there danger / risks for the company / product?
• What
changes in the market can have a negative effect?
• Are there
new competitors?
In summary, we must look at the environment of our company:
• Market :
Define our target audience and its characteristics. Market size, segmentation,
and supply and demand.
• Sector :
Analyze the environment that surrounds me, as well as the suppliers, or
distributors in my sector.
• Competition
: carry out an analysis of my current competition. Your prices, positioning and
products.
• Environment
: factors that surround us that we cannot control (political situation, legal
situation...
SWOT matrix
Following the internal and external analysis, the
information is combined in the so-called SWOT matrix . This presentation allows
you to quickly identify strengths, weaknesses, opportunities and risks. The
goal is to use existing strengths to compensate for weaknesses and to seize
opportunities to offset potential risks.
Strategies
All strengths, weaknesses, opportunities and threats are
presented in an organized way in the SWOT analysis . In this way, connections
are created in a very visual way. With these results, strategies are carried
out to improve the positioning of the company in the market and define the
measures to be taken. The most important strategies are:
• Offensive
strategy : It is the most desired by companies. It combines opportunities and
strengths, and is achieved by taking advantage of the environment that
surrounds the company, trying to eliminate all weaknesses and threats.
• Defensive
strategy : Refine strengths to minimize threats. With this strategy, companies
prepare to better face the future.
• Reorientation
strategy : Take advantage of opportunities in the environment to improve
weaknesses.
• Survival
strategy : It consists of avoiding threats and minimizing weaknesses. In this way, an attempt is made to reduce
market threats and, at the same time, internally reduce weaknesses. This
situation should be avoided as much as possible.
Graphically, we can see the strategies in the SWOT Matrix as
follows:
Common mistakes[ edit ]
In practice, companies make mistakes that severely limit the
importance of SWOT analysis. As a result, sometimes the wrong decisions are
made or important changes are not recognized. Typical errors are:
• Subjectivity
: not only the selection but also the evaluation of the factors do not follow
an objective pattern. There is a risk that important factors are not given
enough weight. Strengths and opportunities may also be given greater
consideration to sometimes justify decisions that have already been made.
• Downplaying
Competitors - Although competitors are indeed part of the analysis, they
sometimes go unnoticed in the Opportunities and Threats categories. It is very
important to react in time to changes in competitors and the market with
appropriate strategies.
• Absence
of reference points : there are no standard references that facilitate the
evaluation and comparison of the data obtained with this analysis.
• Much
effort and time : for the analysis to be relevant, as much information as
possible is required. This takes a lot of time and effort.
critics
The SWOT analysis has some weaknesses that question its
relevance: An important criticism is that there is no standard for quantifying
and evaluating the four areas and the strategies derived from them. This leaves
the evaluation in the hands of the companies themselves, which can lead to
wrong decisions.
Another problem with this analysis is effort: the more data
that is available, the more meaningful the SWOT analysis will be. However,
obtaining it can involve a very high research effort. So often, companies save
time and come up with incomplete analyzes, which in turn are less meaningful.
SWOT analysis in online marketing
In long-term planning of online marketing campaigns, a
detailed SWOT analysis in advance can help avoid potential mistakes. But in a
dynamic environment such as online, all those involved must be aware that their
actions and the measures taken must be readjusted regularly. For example,
search engine optimization rules may have changed again since the strategic
planning was developed based on the SWOT analysis. In this case, the individual
aspects within the matrix may change. Therefore, the model must be updated over
and over again when planning for the long term.