In a competitive environment and a constantly changing market situation, you need to adapt in a timely manner, think over every step aimed at business development. But before making changes, it is important to analyze the consequences, as well as the weaknesses and strengths of the idea. It is necessary to clearly understand the company’s position in the market, possible prospects and existing problems. And there is hardly anything that will help to understand the situation better than a SWOT analysis.
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What is SWOT Analysis?
For more than fifty years, SWOT analysis has remained one of the most effective strategic planning tools. This method owes its origin to a group of authors of the book “Business Policy, Text and Cases”, published in 1969.
The name of this method was formed as an abbreviation of four English words: Strengths, Weaknesses. Opportunities, Threats – SWOT. Translated, this means “strengths and weaknesses, respectively, and the possibility of the threat.” Swot analysis is a flexible tool that allows you to study all the factors that help or hinder the development of a company. Its result will depend on various indicators and determines the specifics of strategy planning. It is a powerful model for evaluating and promoting a business online. With minimal investment, SWOT analysis will pay off the time spent thanks to the data obtained, which will help in developing a development strategy for several years.
Features of SWOT analysis
SWOT analysis allows you to build a strategic balance and analyze possible changes in business behavior in the market environment. Strategic balance is a combination of negative and positive factors that affect the company’s activities both from the outside and from within. This helps to correctly assess the opportunities that open up for the company in the future.
In addition, SWOT analysis is aimed at determining the corporate strategy of the company, taking into account the influence of the external and internal environment at the same time.
When choosing the best strategy for a firm, analysts use two approaches:
- from internal factors (strengths and weaknesses) to external (development opportunities and threats) – the SWOT analysis itself;
- from external to internal factors – TOWS analysis.
Both approaches complement each other. When applying them, two strategies are formed: the strategy of adaptation to the environment and the strategy of formation of the environment. If the first approach allows you to find out how a company can influence the external environment, then the second approach shows the opposite situation, when environmental factors affect the level of development of the organization, Internet marketing and the purchasing power of products.
How is a SWOT analysis done?
The SWOT analysis provides an assessment of the risks and opportunities of the company. At the same time, there is no need to carry out expensive special studies and will not take much time. First of all, a SWOT matrix is compiled, which looks like this:
Do the strengths provide the necessary profit for the company using this opportunity?
Will the strengths avoid a particular hazard?
Do these weaknesses prevent you from taking advantage of this opportunity?
Do these weaknesses inhibit hazard avoidance?
The table reflects the basic principles of the analysis. The analyst who performs the analysis is most interested in the information that is located in the upper left and lower right squares
All factors that determine the prospects for the changes that are aimed at the successful development of the company should be located in the upper left square. In the lower right quadrant of the table, there will be indicators that deserve close attention of managers. They can lead to problems and even create insurmountable barriers to change in the company.
There are a number of principles that a SWOT analysis must comply with:
- take into account the goals of the company;
- focus on developing a strategy to achieve success;
- focus on the consumer;
- be focused on developing a strategy for achieving success;
- be based on an analysis of the environment where the company operates.
Questions should be as specific as possible. It is important to focus on the key issue while excluding irrelevant material. In order to organize information, you need to group it into certain blocks:
- Specific consumer groups.
- Product market.
- Threats from competitors.
- Pricing policy.
- Connections with consumers, potential and existing.
- Pre-sale preparation and sale of goods or services.
If the company has divisions, you need to organize general data. This will help to find potentially dangerous disagreements, as well as help to bring working groups together to achieve common goals.
Another important point is customer orientation. By analyzing the strengths and weaknesses of a product or service, you can get a real idea of its qualities. You can interview manufacturers, sales department. But the main thing is to look at it all from the point of view of the consumer. It is the consumer who will be able to identify the strengths, weaknesses, advantages and disadvantages of the product being sold.
Advantages and disadvantages of the tool
SWOT analysis has both advantages and disadvantages that you need to know and consider. The positive features in most cases still outweigh the negative ones, which determines its popularity in the field of strategic management.
The benefits include:
- Systematization of knowledge about internal and external factors influencing the strategic planning process.
- Determination of competitive advantages and formation of strategic priorities.
- Periodic diagnostics of the market and the firm’s resources.
But there are also disadvantages, including: weak support for making specific management decisions, subjectivity in the choice and ranking of external and internal environmental factors, poor adaptation to a constantly changing environment.
Based on the analysis, a specific decision is made that will help strengthen the position of the company. You may have to invest more in online website promotion or expand staff, pay attention to the quality of service or increase the range. It is important to emphasize to customers the advantages of products and cooperation with the company.
A SWOT analysis will help to understand what factors hinder the development of the company, reduce its income and pose a threat in the future. And having seen the opportunities that are in the market, the company will be able to focus its strengths and advantages to expand its own niche.
The group of factors related to internal ones includes weak (W) and strong (S) moments in business development, it is with their study that the analysis begins. Internal factors are determined by the resources that a company has at its disposal, as well as the processes over which it has a direct influence.
The positions of the object of analysis will be evaluated according to the following criteria:
- physical resources: company location, equipment, real estate;
- financial sources: opportunities for profit, investments, sources of financing;
- human factors: employees, volunteers, target audience;
- availability of copyrights, patents, licenses, access to natural resources;
- internal processes: motivational programs for personnel, training, loyalty programs for clients, and the like.
To unlock strong directions, you need to find answers to a number of questions: What advantages does the company have from the point of view of its customers? What are we doing better than our competitors? Availability of a unique selling proposition. To identify weaknesses and eliminate them, you need to honestly answer the following questions: What can be improved in the service and the products offered? Are there things that competitors do better? Negative customer reviews can also help open your eyes to key issues.
You need to assess the situation objectively. If products or services are of good quality, but do not stand out from competitors, are not in demand, it is difficult to call this plus a strength.
After assessing and analyzing external factors, you can evaluate internal factors, proceed to the analysis of opportunities and threats that directly or indirectly affect the business. the company is not able to control these processes, but must know them and take them into account when developing the marketing strategy of the enterprise
External factors include:
- external financing;
- demographic indicators: purchasing power, population size and age, values;
- economic factors: competition, globalization or protection of national producers, changes in global demand;
- relationships with suppliers;
- market trends: the emergence of new products or technologies, changes in consumer preferences of the target audience;
- political, environmental, economic restrictions – licenses, quotas and others.
Threats to the company can be prevented by answering the following questions: What external barriers are in your way? Are your competitors using more modern technologies, offering better service? How much the success of your company depends on external factors (funding cuts, changes in quality standards, sales restrictions, etc.). How much do your weaknesses undermine the company’s position in the market?
There are a number of important questions and directions for identifying opportunities: What political, economic, demographic or social changes will benefit your business? Opportunities and directions for business development, modern trends have appeared in your market niche.
Having identified external and internal factors, it will be much easier to make a decision: to strengthen the company’s weaknesses using available resources or to abandon a risky direction of development, while reducing potential external threats.
When should you do a SWOT analysis?
The most important task of a SWOT analysis is to help an organization see and evaluate all the factors that influence decision-making, as well as identify opportunities for development. The development of an enterprise’s marketing strategy should be focused on the accumulation of strength and the use of opportunities, which will avoid or overcome external and internal threats to the enterprise. There are many situations where it is especially important to use a tool such as SWOT analysis:
- launching startups, new lines of business;
- considering options and opportunities for business restructuring;
- revision of the company’s internal policy;
- improvement of business processes;
- checking the correctness of the given course of development;
- for a general understanding of the market situation.
Some executives prefer to do the SWOT analysis alone, because they usually see the big picture and determine the direction of business development. However, it is better when a team of specialists is involved in the proceedings. This helps to identify and explore blind spots that can negatively impact business health or customer relationships.
In order to make balanced and sensible decisions, you need a comprehensive understanding of the situation within the company, knowledge of the market, economic, political and social trends, for this you need a SWOT analysis.
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