Businesses require periodic evaluation to remain on track to achieve their big-picture goals. The new year is an ideal time to reanalyze, reassess, and reprioritize moving forward.
A SWOT (strengths, weaknesses, opportunities, and threats) analysis provides a tried-and-true framework for evaluating both internal and external factors that affect a company’s competitiveness. The results of a SWOT analysis can be used to evaluate where a business stands in the marketplace and guide strategic decision-making.
To get the most out of a SWOT analysis, seek input from a wide range of team members. You might also want to bring in an outside voice to identify institutional blind spots that might escape internal stakeholders.
What Is a SWOT Analysis?
Every business does well in some areas but could improve in others. There are also areas that a business can capitalize on and factors that impede the business’s success.
It is useful to evaluate these four factors—strengths, weaknesses, opportunities, and threats—for a high-level view of market position. You must know where you are before you can figure out where you want to go. And you need a roadmap for getting there.
Enter the SWOT analysis. In the 1960s, Albert Humphrey of the Stanford Research Institute created this method to help identify why corporate planning often failed. However, first-time business owners and corporate giants alike can benefit from using this tool. A SWOT analysis considers two internal factors (strengths and weaknesses) and two external factors (opportunities and threats).
- Internal factors are the resources a company currently has at its disposal, including tangible assets such as financial resources, physical and human resources, intellectual property, management processes, and software. These factors can be either strengths or weaknesses. A company might have a good physical location, talented hires, and a well-established brand that give it a competitive advantage but suffer from a competitive disadvantage such as lack of funding, outdated business analytics software, or a negative company culture.
- External factors are the forces outside a business’s direct control that provide an opportunity or pose a threat. Market, economic, and demographic trends are external factors that can work for or against a business. Many companies were blindsided by the COVID-19 pandemic and could not successfully run their businesses during it. But some were in the right place at the right time and pivoted to newfound success. Actions taken by governmental bodies and business vendors are other external forces that may positively or negatively impact a company’s
In the modern business environment, rapid change and continual disruption are the norm. Businesses may find that they have to shift course on a dime but are unsure of how to navigate the prevailing conditions. A SWOT analysis can help by providing a means to unlocking valuable insights, making informed decisions, and facilitating strategy.
How Is a SWOT Analysis Performed?
Critics of SWOT analysis say it relies on an overly simplistic and formulaic approach that might lead to misunderstandings and misapplications.[1] These limitations can be overcome by using a group approach and understanding that the results of a SWOT analysis capture a moment in time. Rather than using a SWOT analysis to arrive at a sweeping overhaul plan, consider applying it to a single company objective or decision.
Here are some tips for performing a SWOT analysis:
- Choose an objective for the SWOT analysis (e.g., whether to introduce a new product or undergo a company rebrand).
- Decide who should be involved in the analysis (Sales department? Manufacturing and sales? Upper management only or rank-and-file employees as well?) A team approach is recommended, but having input from too many team members could spoil the broth.
- Identify the information that needs to be collected, by whom, and from which data sources.
- Gather the information, keeping in mind that data limitations may exist. Internal information is generally more reliable than data from external sources.
- Refine the initial findings to identify those that are most relevant to the original objective.
- Produce a final report that describes the findings and options.
- Have a discussion among key stakeholders and decision-makers.
- Turn the SWOT analysis into a strategic action plan to achieve the objective.
For a real-world example, consider a SWOT analysis performed by Coca-Cola, which found obvious strengths—global brand recognition and a vast distribution network—alongside weaknesses such as a growing interest in healthy beverages. Not long after the analysis was performed, Coca-Cola invested heavily in a new line of healthier drinks and today remains one of the strongest brands in the world.[2]
As another example, a SWOT analysis of Home Depot determined that the company should expand internationally to mitigate issues related to US-dependent operations facing increasing competition.[3] Home Depot successfully expanded into Canada and Mexico, but it notably came up short in China because of a failure to factor in local consumer needs and culture.[4] This failure demonstrates the importance of obtaining good information and constant reevaluation. Experts say Home Depot missed what appeared to be a great opportunity because it did not do its due diligence on the Chinese market.
Analysis and Strategy for Small Businesses
From Fortune 500 companies to small businesses generating $500,000 in annual revenue, a SWOT analysis can be a powerful framework for assessment and action.
A collaborative approach is also more likely to deliver a better outcome. However, a company that has been struggling to see around corners may benefit from a SWOT analysis performed by an independent business consultant. Even if you have good information, you might be overlooking valuable insights to improve business tactics.
No business can succeed without having the proper legal planning and documents in place. Our business planning attorneys can help you address your business’s legal needs to facilitate the achievement of your goals. Give us a call today to schedule a meeting.
[1] Dac Teoli et al., SWOT Analysis, in StatPearls, https://www.ncbi.nlm.nih.gov/books/NBK537302/ (last updated Sept. 4, 2023).
[2] Kenneth J. DeFranco, Jr., The Coca-Cola Company: A Short SWOT Analysis, Seeking Alpha (May 21, 2015), https://seekingalpha.com/article/3202166-the-coca-cola-company-a-short-swot-analysis.
[3] Edward Ferguson, Home Depot SWOT Analysis, Panmore Inst. (Nov. 14, 2023), https://panmore.com/home-depot-swot-analysis-recommendations.
[4] Karin Shedd, Why Home Depot Failed in China, CNBC (June 14, 2019), https://www.cnbc.com/2019/06/14/why-home-depot-failed-in-china.html.
