SWOT Analysis Guidelines

SWOT is the acronym of Strengths, Weaknesses, Opportunities and Threats. This Analysis is a simple tool for identifying the areas of your business that will be the priority for your efforts and actions.

The review of Strengths and Weaknesses focuses on the internal operations of the business.  The analysis of the Opportunities and Threats looks at the external market and outside factors that impact on your business.

We complete the SWOT Analysis prior to reviewing each of the ten FORMIDABLE steps to compare the status of your business as it is today against the initial set of business outcomes you established. 

When conducting the Analysis your ultimate objective is to;

•   Capitalise on your strengths,
•   Overcome and minimise your weaknesses,
•   Grasp opportunities and,
•   Minimise or eliminate threats.

It will take approximately 75 minutes to complete.  You need to involve other people who can provide feedback on the four criteria for your business.  The participants can be employees, suppliers, (appropriate clients – always err on the side of caution), your accountant and others with knowledge of your business.

The SWOT Analysis requires you to conduct a brainstorming session on each of the four topics and how it applies to your business.  Essentially you are answering the following four questions;

•   ‘The strengths of my business are…’
•   ‘The weaknesses of my business are…’
•   ‘The opportunities for my business are…’
•   ‘The threats to my business are…’

This is a very straightforward process, but it produces powerful results, particularly if you involve other parties in the brainstorming session.

Don’t do it once!

You need to have an ongoing strategy for ensuring your business is reviewed on the key four criteria.  I recommend to my clients that they have at least one formal review per year and include a SWOT Analysis.  The ideal time is just prior to the beginning of the new financial year.  At the same time ensure you have an ongoing process for capturing this information, for example, if you have sales representatives make reporting on the Opportunities and Threats part of their weekly reporting.

The SWOT Analysis can also be used on specific operations of your business.

Strengths

The Strengths of a business are the assets and resources that provide it with a competitive advantage or benefit. The traits of a business strength are:

•   It is ranked in the top quartile for the industry
•   Provides a distinct competitive advantage
•   Is a reason why customers choose to use the business or its product/ services
•   Generates a positive income stream and/or adds real value to clients

Examples of Strengths are:

•   Profitable client relationships
•   Accurate client information and databases that are up-to-date and ‘marketing friendly’
•   Profitable cash flow
•   Infrastructure and facilities
•   High performing employees
•   Excellent business reputation and strong branding
•   Product/ service knowledge and technology
•   Favourable access to distribution channels

Weaknesses

The Weaknesses of a business are the deficiencies that compromise its ability to achieve its goals. To be a weakness the deficiency must:

•   Be ranked in the bottom three quartiles for the industry
•   Not provide the business with a competitive advantage
•   Be sought by your ideal clients but you are not able to deliver
•   Is used by competitors as a point of differentiation against your business
•   Be a reason why customers do not do business with you
•   Generates a non acceptable rate of return or a potential loss

 Examples of Weaknesses are:

•   Product/ service limitations
•   Volume restrictions and relatively high costs of production
•   Poor brand name/ recognition
•   Limited financial resources/ cash flow
•   Over dependence on key employees (if they leave the business it loses vital knowledge or relationship contacts)
•   Inconsistent delivery of services or poor quality control
•   Lack of documented systems or processes

Opportunities

Opportunities for the business are those favourable outcomes that currently are not being developed or taken advantage of. The traits of an opportunity are:

•   Provides scope to build the sales/profits/income of the business
•   Provides access to new clients or to develop existing clients further
•   Is a technological breakthrough
•   Enables you to distribute products/services more efficiently to markets

Examples of Opportunities are:

•   New clients
•   New geographic markets
•   New technologies
•   New methods of distribution and Internet sales
•   Acquisition of competitors
•   Additional referral sources

Threats

The Threats to the business are those events or outcomes that threaten the existence of the business or may reduce its income or the value of its assets. The traits of a threat are:

•   A danger to the existence of the business
•   Is a risk to the profitability/ income of the business
•   Is a risk to the viability of a product, service or operation
•   Could reduce the capital/sales value of the business

Examples of Threats are:

•   Competitor activity – discount pricing/ new product releases/ cheaper imports
•   Economic downturn/ interest rate rise
•   Problem with supplier deliveries
•   Non-renewal of a franchise agreement or loss of the distribution rights for a key product

Conducting a SWOT Analysis is a straight forward task.  It requires no specialist skills – just a commitment to following the brainstorming guidelines listed below. 

Key Action 1: How to conduct a SWOT Analysis using Brainstorming

What you need;

• A group of participants who can provide informed feedback on your business.  The ideal number is at least 4 and up to 8.  (Ideally conduct the analysis with your employees or a trusted group of individuals who understand or have a good knowledge of your business.)
• At least 4 large pieces of paper, or a whiteboard, and a marker pen.
• A person to facilitate the session in accordance with the guidelines listed below.  If you have a business coach, mentor or an accountant, they can play an important role in facilitating the process.
• A copy of the SWOT Analysis guidelines.
• A copy of the business outcomes.  (If you are uncomfortable with discussing some of the outcomes, for example the amount of profit in dollars, then mention percentages or focus on sales.)

Conducting the Analysis –Brainstorming Guidelines;

The objective is to maximise the contribution of each participant by encouraging suggestions and ideas.

As the business operator it is important that you do not restrict discussion by what you say or through your actions.  You want your employees in particular to - “Tell it as it is – not what they think you want to hear.”

The first step is to state the guidelines to the participants.

Tell them in broad terms what the goals of the business are.

Given these goals, you then work on what the strengths of the business are to achieve these goals.

Participants must be advised that there are no wrong answers and that each person is free to make a contribution, regardless of how ‘left field’ it may be.  Encourage as many suggestions as possible. Don’t be judgmental – seek as much input as possible.

The facilitator (or their assistant) writes down every point that is said – even if you view what another person sees as a strength as a weakness.  The goal is to write down as many points as possible and then to conduct the analysis.  The facilitator keeps the interaction fast paced.  Always ask for more suggestions.

Each of the four topics is discussed individually starting with Strengths.  Do not move to the next topic in the SWOT sequence until the current topic has been fully discussed and there are no further contributions.

After writing all of the suggestions down – rank the top five for each topic.

At the end of the analysis you want to be able to summarise the key strengths for your business, etc.

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COMING SOON - We will be launching a dedicated website for completing a small business SWOT Analysis. This will be available during September 2008 at www.swotanalysis.com.au