Most people in the business world are familiar with SWOT analysis – Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is useful in many life and business decision-making situations. It is an important part of the strategic planning process. Despite being familiar to most people, it is not always used effectively in the planning process. This article presents a reminder of how SWOT should be used in the strategic planning process.

The Strengths and Weaknesses portion of SWOT is an inward view. They present the advantages or disadvantages of the organization, Strengths providing the advantages and Weaknesses describing the disadvantages. They are considered relative to the capabilities of competitors and in the context of customer needs. As an example, a new building or a certain manufacturing process is not a strength. Being more efficient because of a new, more organized building or a new manufacturing process could be a strength if it provided an advantage of faster delivery or lower costs, assuming that this was important to customers. The strength is actually then faster delivery or lower costs due to ….. Or another example, the ability to make our product a brighter blue is only an advantage or a Strength if customers actually would prefer a brighter blue. If any shade of blue is acceptable or if the customer would not pay more or switch suppliers for a brighter blue or if competitors already have a brighter blue, then there is no advantage or Strength.

Sometimes in evaluating Strengths and Weaknesses, organizations might ask the question “What do we do well or not so well?” But this question is too vague. In identifying Strengths it is better dig deeper and to answer questions such as the following. Imagine just the opposite to understand Weaknesses.

• What would our customers say is our strength or advantage?
• Why do we get the order?
• What resources do we have or have access to that give us an advantage?
• What knowledge or intellectual property do we have that others might not have?
• What processes are we skilled at that give us an advantage?
• What do we have, know, or do that our competitors wish they had?
• What are the major reasons for our profitability or market share?

The Strength or Weaknesses needs to precisely defined, such as a $10 cost advantage due to specially-designed production advantage or 20% advantage in signal attenuating performance due to patent #99999.

Opportunities and Threats are the result of external factors. Opportunities are elements in the market environment that could be exploited. Threats are elements in the market environment that could present risk or cause trouble for the business. The market environment in Threats and Opportunities must be thought of broadly. It is more than current customers or current markets. Threats and Opportunities are affected by the entire value chain, by world politics and economics, by social changes, by environmental or resource impacts, by technologies of various sorts, etc. as well as factors impacting customers and competitors.

The questions that might be asked relative to identifying Opportunities are endless but here are a few examples:

• Do our customers have unmet needs relative to our products or services?
• Are there similar customers or markets that have similar needs to our markets or customers?
• Are there particular segments of the market that are underserved or where competition is thin?
• Are there competitors that might be exiting the market or leaving opportunities for us?
• Are there potential changes in economics, politics, societal norms, regulations, or technologies that could result in opportunities for our products or services?
• Are there changes in technologies or other factors that could present opportunities to improve or greatly change the way that we produce products?

Similarly, there could be a long list of questions regarding threats. Here is a sampling:

• How healthy are our customers and is there risk of an industry shakeout?
• How likely is the potential for new competitors entering our market?
• What current or potential activities could lead to more aggressive action from our competitors?
• Is there a potential for changes in the value chain that could adversely affect our customers or their need for our product or services?
• Are there potential changes in economics, politics, societal norms, regulations, or technologies that could present risks for the market for our products or services?
• Are there changes in technologies or other factors that could threaten our ability to produce products?

To get the full value of SWOT analysis in the planning process requires a rigorous effort. The items listed should be precise and definable. The list in each section should be realistic and prioritized. The analysis communicates best with only a short list of the most important factors. The purpose of the SWOT analysis is to increase the understanding of the business and to drive the implications into strategy and action plans.

Once you understand how to compile a good SWOT analysis, the results should provide a deeper view of your business. The SWOT analysis tool provides a means to explore new opportunities and improve your decision-making process.

Is your SWOT analysis clear enough to impact your strategic direction?