This simple tool is a great way to evaluate problems in your organization through an objective lens. Grace will explain how to identify your Strengths, Weaknesses, Opportunities, and Threats, when to use the PESTEL tool, and which steps you can take to get the most out of this tool.
Keep reading for a full transcript of this episode (with bonus images and links!)
WWB 008: SWOT Analysis [Podcast]
06/04/2020 – 19 minutes 11 seconds
Highlights and Take-Aways
Of all the strategic risk tools you could use to solve problems in a business, the easiest and simplest is the SWOT Analysis, which stands for “Strengths, Weaknesses, Opportunities, Threats.”
Although it’s a common tool in strategic planning, it can be applied to any problem-solving situation. In this episode, I explain how to use a SWOT Analysis and some examples.
Anatomy of a SWOT
First, let’s talk about the basics of using this diagram. The main idea is that we’re looking at both internal causes of problems and growth in a company (top quadrants), and also the external contributors to problems or growth (bottom quadrants). We’ll also look at positive impacts (left quadrants) and negative impacts (right quadrants).
As a leader, you can use this tool to review your strategic goals and evaluate how to stay relevant as the landscape changes. The SWOT is both a marketing tool and is useful for strategic planning.
Here is what the diagram looks like:
In each square you can list the benefits, goals, or actions that are generating profit and outcomes in your business.
At the top of this diagram are Internal contributors or causes. On the bottom are External contributors or causes. The left side includes Positive contributors (Strengths and Opportunities); and on the right are the Negative contributors (Weaknesses and Threats).
The point of risk management is to realize what is impacting your company both from the inside and the outside. By identifying what is causing the outcomes, you can adjust your actions in order to achieve your strategic goals.
Strengths (top-right quadrant) are things that happen internally and create a positive outcome. Your list could include things that set your business apart from competitors, make you strong, and showcase your ability to bring value to your customers.
I recommend that you define your organization’s strategic objectives. What are your goals? Make sure they are clearly defined and SMART:
When you’re comparing quantitative and qualitative outcomes of your goals (what you want to achieve) compared to the results (what you are actually achieving), this can immediately reveal the strengths and weaknesses in your organization. Areas to evaluate include customer satisfaction scores, profitability, and other metrics you’ve determined to be essential for achieving your long-term goals. Qualitative metrics include emotional outcomes, and list those in your strengths and weaknesses. Setting these goals will make it easier to develop an effective SWOT diagram, rather than relying on your perception and trying to guess what the answers are.
The weaknesses (top right quadrant) are things that happen internally that cause a negative outcome.
These are things you are not achieving, or ways your business is failing to perform. Where are you failing as a business? How are you not achieving your goals? What is causing you to fail? Overspending, wasting time and resources, seeing losses and low profit margins. Conflicts, problems, and difficulties are qualitative weaknesses.
Quantitative weaknesses, such as high percentage of staff turnover, could result in qualitative effects such as low morale.
To fully understand business weaknesses, I recommend using another evaluation called the PESTEL analysis, which will help you see external factors that impact business growth and barriers.
Read more: How to Complete a PESTEL Analysis
The opportunities (bottom left quadrant) are external contributors that have a positive outcome.
What can you do to improve your company? How can your business outcomes be better than last year? What are some untapped markets? How can you add value to your customers?
This can also include a review of unmet customer needs and new ways to generate sales. Opportunities are ideas for how to bring your company into a higher threshold of growth. It also includes the ways you can grow the 4 areas of a Strategic Growth Sphere (based on the Balanced Scorecard) –
- Processes (internal workflow)
- People (customers and employees)
- Profit (economic and financial drivers)
- Proficiency (learning and development)
Another great area of opportunity is media content. It may seem strange to include this in a discussion about strategic planning in business, but marketing your company by creating easily consumable information is a fantastic way to connect with potential ideal customers. They want to read, hear, see, and understand the story of how you solve problems.
If you already content, keep looking for new ways to do it more effectively and to streamline your processes. And if you don’t like to write, record videos, or create graphics, consider budgeting for someone else to do this for you, or hire interns who want to grow their portfolio.
Developing unique and compelling content should be a top priority in this digital age; yet for many business owners, it’s a missed opportunity.
Make sure you’re measuring the quantitative output by consider the ROI (return on investment) of the opportunities. As an owner, you need to determine which opportunities are worth investing in, rather than trying to do them all at once.
Your business threats (bottom right quadrant) are external contributors that can have a negative impact. These issues need to be controlled before they get worse.
Additional insights into both opportunities and threats are possible by using the PESTEL analysis, which reviews Political, Economic, Social, Technological, Environmental and Legal contributors. Consider any shifts in the market. What changes are happening in your industry? What changes will impact your ability to serve customers? Where are you losing revenue? Are your overhead costs increasing? Hidden losses may only be obvious when you dig down further.
I recommend calculating your net profit on all income sources, and consider building multiple streams of income. Because if you only have one way to generate income and there is a market shift, that can be a serious problem.
Also, consider threats to the 4 areas of your Strategic Growth (all of which need to grow in tandem to effect long-term success):
- Processes (inefficiency)
- People (loss of customers, turnover of employees)
- Profit (low economic or financial drivers)
- Proficiency (neglected learning or development)
Threats to any of these areas can derail a company that seems to be doing well on the surface, but could be experiencing hidden problems.
The point of conducting a SWOT analysis is to uncover areas that you may not have been aware of before. It will help you to understand, objectively, the strengths that make your company stand out, the weaknesses that need to be address, opportunities to grow, and threats that could cause you to fail.
Leaders who aren’t aware of threats and don’t realize areas of opportunity and which to put into action will be less capable of adjusting to change.
When Do You Need to Use a SWOT?
The answer is that it can be used in any planning situation:
- Looking ahead to the future of your business
- Responding to a current problem
- Learning from an event that already occurred (also called a Post-Mortem Evaluation)
- Wanting to add on to your business
- Considering a big change or adjustment (management or staffing turnover, partnership, merger, etc.)
- Develop a more effective processes that deliver more value to customers at a lower cost
Is the SWOT a “Last Resort” Tool?
I have heard from some people that they see the SWOT as an exercise that is only used after problems have happened, as a “last resort.” But I don’t agree. I think a SWOT can be used multiple times a year, because it provides a deep dive into the mechanisms behind how your business provides value. Each of the quadrants helps you to see where your company is (or is not) effectively delivering value to customers, and it will also reflect back their changing needs.
As a result of COVID-19 and social responses to racial disparities, business owners can recognize how their customers are experiencing these situations and demonstrate that their services and products can solve a particular problem for those needs. Regardless of what you sell, you need to connect with your customers; and to do that, you need to know what is going on from their frame of reference and what problems they’re trying to solve.
To fully understand your customers’ needs, provide the best value, and set your company apart in a competitive market, the SWOT can help. It’s a fantastic way to get a full-scope view of the problems, ideas for how to overcome them, and where to make adjustments so your business can thrive.
That is a basic overview of the SWOT; but there’s a lot more you can do with this. Check out these other blog posts that explain how to apply this tool to deepen your understanding and management of risk.
Here’s how to use the basic tool:
To go much deeper, the next step is to rate the impact (degree of severity and importance) and probability (likelihood that an event will happen). Find more in this article:
Or you can take an additional step by combining all four quadrants, which provides deeper risk intelligence:
Here’s a corollary tool that is really helpful:
Do you have a question you’d like answered on an upcoming show? Record your message at https://anchor.fm/laconteconsulting/message
Interested in hearing how you can reverse staff turnover and increase your profit margins? Find out more here.
Grace LaConte is a business strategist, writer, and workplace equity advocate whose risk management graphics are used around the globe. She specializes in finding hidden threats and opportunities in organizations that employ working parents. Grace is the host of the What’s Wrong with Your Business? Podcast, which provides tools to adapt in a rapidly changing market.