SWOT Analysis is a strategic management tool to help individuals and businesses identify their Strengths, Weaknesses, Opportunities, and Threats. These help identify the viability of a new project, business venture, or the existing competitive environment.
The SWOT analysis itself identifies the pros and cons of both internal and external factors. Strengths and Weaknesses identify internal factors, whilst Opportunities and Threats identify external ones.
By identifying all the positives and negatives, the SWOT analysis makes it easier to decide the best option. It identifies what is working well, and what is not working well – which helps the business correct areas that it needs to improve on.
Part of the process involves identifying the negatives in the form of weaknesses and threats and seeing how they can turn into a strength or opportunity. For instance, media is increasingly being consumed via the internet and social media platforms. This poses a significant threat to newspaper outlets. Yet it can also present an opportunity to grow and diversify into online media – thereby capturing a greater audience.
Strengths are things the company does well and that sets it apart from other companies. For instance, what are the company’s core competencies? What is the company’s competitive advantage?
These strengths are crucial to the success of the company. So for this part of the SWOT analysis, we need to look at why the company is successful, or at least what it is doing well.
We can ask questions such as:
What is the company’s Unique Selling Point (USP)?
Does the company produce at a lower unit price than competitors?
Why is the company’s product popular?
Does the company offer a better service than competitors?
Is the company’s marketing strategy more effective?
The idea of these questions is to really dig into the daily activity of the company and find out what it is doing well. So think about all the parts of the company such as finance, advertising, sales, research and development, and the front-line staff.
Another useful way of identifying strengths is to look at it from a competitor’s point of view. What would a competitor see as a significant obstacle to overcome? It might be brand loyalty, cost efficiencies, or something else.
Once the strengths have been identified, it is then important to leverage these. For instance, the business may offer a top of the class service, however, this is not being included in its marketing campaign. Alternatively, the firm may have higher profit margins than competitors due to better efficiencies. Could it use this strength to reduce prices and attract more consumers?
Weaknesses refer to internal factors that the company needs to improve on. Such factors may include the organisations people, resources, systems, or procedures.
We can look at the weaknesses as areas of the business that need improvement. What are other businesses doing better? For instance, a competing firm may offer a wider variety of products that fits with the diversity of consumers.
We can ask questions such as:
What could the firm do better?
Is there an area that the competition can take advantage of?
Are consumers entirely satisfied with the whole service and product that we provide?
Is the business as functional and efficient as possible?
Is the firm in an ideal location near resources or customers?
As with strengths, weaknesses refer to internal factors within the company. So when analysing, it is useful to look at internal factors such as:
Human resources—staff, volunteers, board members, target population
Physical resources—your location, building, equipment
Financial—grants, funding agencies, other sources of income
Activities and processes—programs you run, systems you employ
Past experiences—building blocks for learning and success, your reputation in the community
Within these parts of the company, where is it going wrong and what could it be doing better? What sets it at a disadvantage to competitors?
It is important for the firm to identify these early on before they hurt the business. Once identified, the aim is to then turn them into an advantage. For instance, staff may be unproductive. We then need to ask why they’re unproductive and find out what can be done to rectify it. Perhaps it is poor management or team spirit. One potential solution would be to provide training sessions for management or arrange a team day out.
An opportunity is an occasion or situation that makes it possible to achieve the desired outcome. In the business world, this means a chance to make a profit. For instance, there might be a new global trend. This can open up an opportunity to get on board and offer new goods and services that meet this trend.
These opportunities arise from outside of the organisaiton – so are known as external factors. They can cover factors such as changing technology, changing trends, changing economic conditions, or even changing political climate.
We can ask questions such as:
What are the latest trends in the market?
Is there an unfulfilled demand in the market? Perhaps a niche product?
Are there changing demographics? Is there an ageing population? Perhaps the firm can cater better for this population.
Is there strong growth in the economy? If the firm is financially sound, it might be an idea to buy assets in a downturn when they are cheaper.
Is the cost of borrowing low? It might be a good time to invest in new capital equipment.
Such questions allow us to find out areas where the company can be making more money. At the same time, these opportunities are not right for all companies. For instance, one opportunity may require heavy levels of investment, yet the company may not be financially strong enough.
To further help identify these opportunities, we can look at the following external factors:
Future trends in the market
Local, national, and international economies
Funding and investment (interest rates etc.)
Demographics – age, race, gender, culture etc.
Environment – weather, buildings, community.
Legislation – do new subsidies provide an opportunity?
Like opportunities, threats are occasions or situations that occur outside, or externally, from the company. These threats can cause significant damage to the business, whether financially, to the firm’s reputation, or to the efficiency of the firm’s day-to-day activity.
Threats cover external factors that may arise and cause an issue with the firm’s profitability. These generally occur in six areas:
Future trends in the market – are consumers moving towards different products?
Local, national, and international economies – is the firm in a stagnant, non-growth economy?
Funding and investment (interest rates etc.) – how exposed is the firm to an increase in interest rates?
Demographics – age, race, gender, culture etc. – is the firm being inclusive to all demographics?
Environment – weather, buildings, community – is the local environment a detriment to staff retention?
Legislation – is there new legislation that may affect sales?
Threats are external factors that can play out over many years, slowly damaging the company in the process. It is therefore critical that they are addressed before the damage is done. For instance, Coca-Cola has seen consumers shift towards healthier beverages, so in turn, expanded its offering to cover for this threat. It now offers a variety of low-sugar options, but also a selection of juices, ready-to-drink coffees, organic tea, and coconut water.
Coca-Cola identified a threat to the company and took the necessary steps to reduce its impact and turn it into an opportunity.
We can identify such threats by asking questions such as:
Are competitors offering new products – perhaps there is a trend?
How is the economy doing? Are there growth economies that would be better suited for product growth?
What are interest rates likely to be going forward? Future high rates may present a threat.
What’s the birth rate of the current population? A low birth-rate may affect companies that sell nappies for example.
Are there new laws that place restrictions on how the company does business? This may place additional costs in order to comply.
The hardest part of a SWOT analysis is avoiding the subconscious bias that can occur. When management looks at their own company, it is difficult to identify factors that they could be doing better. After all, why weren’t these addressed already? It looks like a failure on their part.
There are some tips that can assist with not only overcoming any bias but also in incorporating all the points that need to be highlighted. They are:
This makes it easier to read as well as less time-consuming. The point of the SWOT analysis is to get all the points down on paper and then look in more detail after.
Whatever angle the SWOT analysis is being done from, there are other perspectives that can provide a new outlook. The consumer will have a different opinion to the staff and the staff will have a different opinion over management.
When going through a SWOT analysis, it’s easy to get sidetracked on a tangent, listing points that aren’t entirely relevant. By keeping the firm’s core objectives in mind, it will allow for a more efficient process.
When conducting a SWOT analysis, it’s very easy to get drawn into looking specifically at the firm itself. However, by looking at competitors, we can see what they are doing well and not so well and try and replicate and better these strengths.
Once the SWOT analysis is done, rank the factors in order of most important to least. That way the firm can action the most critical factors as a priority.
SWOT analysis is commonly used to analyse the competitive environment of the firm but is also a method to analyse strategic decisions or viability of a project. This might be to analyse the viability of a new marketing campaign, a joint venture, or the offshoring of a key part of the business.
Once the objective is identified, we can then move onto creating the SWOT grid with this in mind.
The next step is to create the template for the SWOT analysis. So create the four separate grids to allow you to write in the relevant points in the next step. We’ve included on below for you to use as an example.
Once the grid is created, we then fill out the relevant boxes. Remember to consider some of the key points highlighted in the section above. Keep the objective in mind and try and get other opinions that may offer further insight. The purpose is to gather as many actionable points as possible, so if other stakeholders can add to the list, the better.
Once the grid has been completed, it’s time to look at the most important factors and analyse them. At this stage, it would be an idea to review the strengths and opportunities and see if they outweigh the weaknesses and threats. If they do, then this would suggest that the objective is feasible. However, it may also be a sign of bias. The main way to help would be to engage with stakeholders to determine a thorough analysis.
Once the number of positive and negative factors look reasonable, it is then important to look at how weaknesses and threats can be turned into strengths and opportunities.
Amazon is one of the largest and most trusted brands in the world, which has only been enhanced by the development of next day delivery. It is reliable and efficient, providing the customer with a consistent level of service.
There isn’t anything quite like Amazon. Its prime innovation offers not only unlimited next day delivery but also a host of other services such as Amazon streaming. In addition, the firm has continued to add new products like Amazon Alexa, the Fire Stick, and the Kindle Fire.
Amazon relies on thousands of third-parties to sell their goods – similar to eBay. However, whilst eBay generally focuses on second-hand goods, Amazon primarily sells new products. By extension, the sheer number of sellers means it isn’t reliant on them.
Amazon doesn’t have the same high fixed costs as brick-and-mortar stores do – so it is able to charge lower prices to the consumer.
In the US alone, prime membership is over 112 million. That means that over 33 percent of the population has a membership. Not only does it offer next day delivery, but also streaming services, music, as well as free e-books.
Amazon has become the embodiment of tax avoidance – paying a lower percentage of their profits than many minimum wage workers. This inevitably does little to help the brand image.
Amazon operates under a model that focuses on selling large quantities at small margins. This has allowed it to undercut competitors and gain a large proportion of the market. Yet this would not be sustainable if its position was not so strong.
Whilst the market for online shopping has boomed, Amazon has taken advantage in all markets except clothing. It’s a multi-billion dollar industry, yet Amazon has been unable to penetrate.
Amazon’s core business model is around e-commerce. However, this can be easily replicated. There are some barriers to entry, but not any significant enough that would prevent competition in the next ten years.
Amazon is a well-established brand in many developed markets. However, emerging markets such as India and China offer a great opportunity to expand, diversify, and create new streams of revenue.
Fewer people are going shopping at brick-and-mortar stores. This is providing Amazon with an opportunity to attract consumers that are looking to get their products online. Markets such as electronics, clothing, and white goods provide an opportunity that the firm is yet to take advantage of.
Amazon relies on thousands and millions of third-party sellers. At the same time, they get a share of the profits. If it is able to integrate backward, it could establish greater control over supply and extend its profit margins.
Whilst the brick-and-mortar stores are in decline, it seems that there is still a niche market out there for them. In markets such as white goods, electronics, and clothing – some people prefer to go into the store and ‘try before they buy’. This could help capture a greater part of the market who don’t want to jump on board with online shopping.
Amazon is notorious for its tax avoidance and it is something that politicians can use to their advantage. They might introduce new legislation to clamp down on this, or, they may introduce other intrusive forms of legislation.
Amazon’s largest markets are in North America and Europe. Yet these economies are in slow growth phases and it may seem like there is little room for further growth. If Amazon sticks to its existing model, it may struggle to find future growth.
Time and time again, big companies have seen breaches in client data. This has ranged from the likes of Yahoo, to Sony, to Facebook. For instance, the total cost to Yahoo of its 2013 data breach reached $117 million
There are more competitors entering the e-commerce market – all offering something slightly different. This ranges from the Facebook marketplace to Alibaba and the renovation of eBay – which now relies more on new rather than second-hand goods.
How do you write a good SWOT analysis? Here are the five main points to write a good SWOT analysis:
What are the 4 parts of a SWOT analysis? SWOT analysis is made up of Strengths, Weaknesses, Opportunities, and Threats.
What are examples of opportunities? Some examples of opportunities include:
About Paul
Paul Boyce is an economics editor with over 10 years experience in the industry. Currently working as a consultant within the financial services sector, Paul is the CEO and chief editor of BoyceWire. He has written publications for FEE, the Mises Institute, and many others.
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