What are the areas of application of SWOT analysis that are good? How is the SWOT analysis carried out and what should be considered?
SWOT analysis is a common and quite popular tool that helps companies better organize their planning and explain their weaknesses and strengths. It is a first step on the way to corporate planning and enables companies to work out the right strategy for their own development. SWOT analysis depicts current conditions in the company and clearly shows where the opportunities and risks for the company lie. In addition to the company itself and its internal conditions, external factors are also taken into account, e.g., the competition, the environment, etc.
SWOT Analysis
All internal characteristics of the company are described and then evaluated as to whether they represent a weakness or a strength. Based on this, they are classified accordingly. Furthermore, one looks at the environment of the company, in which the individual trends, tendencies, competitors, etc., are assessed as opportunities or risks. This division of all aspects into positive and negative results in a complete overview of the current conditions.
The collected and analyzed data is compiled into a matrix in order to present the results clearly and in a compressed form. These serve as a basis for further strategy development for the management.
SWOT Categories
Strengths
A strength is a characteristic of a company from which results in a clear advantage for it. This is the case, among other things, if a company stands out particularly strongly from the competition. Innovative, motivated, committed and highly qualified workforce, new technologies, good location and low production costs are always among the strengths.
Weaknesses
Unlike strengths, these are disadvantages that a company has. These include scarce financial resources, unreliable partners, little to no innovation, unmotivated workers, etc.
Opportunities
This includes all the facts, developments, and factors that are supposed to be beneficial to the company and can take it to a higher level. These changes can be subjective and objective in nature. For example, the emergence of new products at the company, expansion of sales, introduction of innovations, and many other aspects can be seen as opportunities.
Risks (Threats)
These are the developments that can put a company at a disadvantage. These weaken the company and do not allow it any opportunities to develop for the better. These include, for example, the emergence of new competition, political upheavals, social change, etc.
Procedure for a SWOT analysis
Information gathering
In order to be able to successfully carry out a SWOT analysis, a lot of information is required, the research of which can be time-consuming under certain circumstances. First and foremost, one asks what customers expect from the company's products, what the competition has to offer, what the legal situation on the market is, what shapes the current trends in the market, and much more. In addition, the core competencies of the company itself also come into focus. You ask what the company's know-how is, what added value you offer customers, and many other questions. Below you will find an overview of possible questions that must be considered in a SWOT analysis:
Strengths
What used to be good?
What has caused previous successes?
What are the company's main achievements?
What sets the company apart from the competition?
Weaknesses
What is difficult for the company?
Which weak points can be identified?
Is something missing?
Why are the competitors more successful?
Opportunities
What possibilities are currently available?
What is the situation likely to look like in the future?
Are there positive economic cycles?
Which developments can have a positive effect on the company?
Risks (Threats)
What are the risks of the current business model?
What has a negative impact on the company and weakens its competitiveness?
What can you expect from the competition?
SWOT Matrix
All information found on these four points is displayed graphically in a matrix. All aspects are juxtaposed with each other and can thus be conveniently interpreted.
Analysis of correlations
The presentation of the results in the form of a matrix helps to recognize connections between individual data and facts. The strengths and weaknesses as well as advantages and disadvantages for the company relate to each other, which is why it is possible to recognize a general developmental direction of the company.
Interpreting the matrix is not an easy task, and you may have difficulty doing so. In order to avoid incorrect and incomplete interpretations as far as possible, we recommend that you keep the following questions in mind during the analysis:
Strategies:
"Expand"
Which strengths match the opportunities?
How can the strengths strengthen the opportunities?
Where is there growth potential in the company?
"Catching up"
How can the weaknesses generate new opportunities for the company?
How do you turn the weaknesses into strengths?
What can be improved?
Where exactly is there a need to catch up?
"Securing"
Which strengths can minimize the existing risks?
How can strengths be used to prevent the occurrence of risks?
Where is there a need to protect oneself?
"Avoid"
Is there a convergence of risks and weaknesses?
Does this create a specific danger for the company?
How can damage be minimized?
What activities should the company abandon?
Example strategies based on SWOT analysis
After creating a SWOT analysis, it is possible to start developing a concrete development strategy for the company. How such a strategy works is illustrated in the following examples.
"Expand"
Initial situation: Environmentally friendly production is becoming increasingly important and can be marketed well. Solution: You take marketing measures to present your own brand as environmentally friendly. In addition, new innovative and environmentally friendly products should be developed that can appeal to customers. These are specifically promoted through various campaigns.
"Avoid"
Initial situation: The products offered have a poor quality, which is also clearly visible to customers. Therefore, there is a risk that they will switch to the competition. Solution: In order to counteract this, the entire production process needs a complete modernization. The reasons for the poor quality must also be found. Particularly defective goods are to be removed from the range.
"Catching up"
Initial situation: The products sell well, but are expensive to produce, which is why the competition can offer cheaper prices. Solution: The good reputation of the company should be used as an opportunity to expand the premium area so that fewer goods can be sold at higher prices. This should be supported with all necessary marketing measures.
"Securing"
Initial situation: The product can sells well, but there are problems with cooperation partners, without whom there is a threat of stoppage to one’s own business. Solution: To prevent this from happening, new cooperation partners must be found in good time who can actually fulfil their obligations.
Stumbling blocks and errors in SWOT analysis
Underestimation of the research effort
Research is an integral part of any SWOT analysis, which is why this step should not be taken lightly or skipped. The research should take enough time and be profound in order to be able to shed light on all aspects. Only in this case can reliable results be obtained.
No decisions
It is sometimes difficult to distinguish between opportunities, risks, advantages and disadvantages, as this assessment is very often based on subjective evaluation and depends on perspective. When that happens, decisions can no longer be made because the analysis was not done correctly.
SWOT analysis does not replace a strategy
This type of analysis does not yet lead to a functioning strategy. As a result, only the current conditions are recorded, and it is estimated what the situation should look like in the future. The future development looks only very schematic, which is why further efforts are necessary to work out a precise strategy. However, this is a step that is only taken after the SWOT analysis.
Misuse of SWOT analysis
This is the case when one tries to artificially embellish the image and only considers aspects that are intended to subsequently confirm certain decisions. Start mastering strategic frameworks with our Scrum courses.
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