Importance of SWOT Analysis in Strategic Planning

An effective business planning without a SWOT is like a car without fuel.

Yes, you read that right!

SWOT is a great way to help organizations develop a robust business strategy. And conducting this analysis is actually fun. Moreover, it doesn’t take much time. SWOT forces organizations to think about their business in a whole new way.

But:

What actually is SWOT Analysis?

An acronym to Strength, Weaknesses, Opportunities, and Threats, SWOT analysis offers an overall view of the company’s current and future situations. With SWOT, businesses get a clear view of the benefits they have over their rivals and their probable vulnerabilities.

And:

What are its Benefits??

Each of its four pillars has certain advantages to the business analysis as a whole.

1. Strengths:

The strengths section is concerned with the competitive advantages of a company in the market and is centered to its operation and strategic planning. For example, companies with manufacturing and production quality strengths often promote them as high-quality brands. On the other hand, companies with strength related to efficient distribution system and bargaining power with suppliers can regularly leverage to offer low costs to buyers.

2. Weaknesses:

This section motivates a company to see advantages in its weaknesses and understanding them to overcome them easily. There are generally two ways for the companies to deal with weaknesses: Either they can look for ways to improve them if they tend to restrict the company from implementing its strategies towards achieving business objectives; or they understand that the weaknesses are simply a part of the entire business approach, where the top leaders try to overcome those weaknesses in their brand marketing.

3. Opportunities:

The opportunities section helps the company to determine ways of improvement and growth. By reviewing the market opportunities constantly, companies can take advantage of emerging markets or changes in the market according to the strengths it has.

Also Read: The Importance of Testimonials for Your Business

4. Threats:

Analyzing threats to your business helps a company to protect itself from internal as well as external threats. External threats for a company include factors like the environment, trends, regulations, and technology that can risk its viability and ongoing success. Hence, assessing these risks and challenges can help company leaders prepare better or decide how to respond from a strategic viewpoint.

How to Do a SWOT Analysis?

Conducting a SWOT analysis is similar to creating a list. Only the process is way more complicated. While performing a SWOT analysis, you get to create multiple lists at one go (strengths, weaknesses, opportunities and threats). When you complete these lists, you will get in-depth insights and come up with a strategy accordingly.

Here’s how you can conduct a SWOT analysis without getting confused!

Step 1. Create a SWOT matrix.

This is a 2×2 grid where each square is dedicated to the 4 aspects of SWOT (Strength, Weakness, Opportunity and Threat). Each square must have a couple of relevant, one-word questions to help you put your thinking hat on.

Here are a few questions you can use for reference:

Strengths: What is your USP? What’s that one thing you do really well? What do others like about your work?
Weakness: What’s that one thing you wish to improve? What makes you lag behind? What do you believe is your biggest weakness? What do others point out in you as your weakness?
Opportunities: What are the current opportunities in front of you? What are the advantages you have as of now? Which trends can you take advantage of now? How will your strength add to a new opportunity?
Threats: What is your worst nightmare? What’s that one thing you dread the most in life? What can be the potential outcome of your weaknesses?

Step 2. Grid Formation

Now, create a group of 8 and allocate two individuals each to each square- two persons for strength, two to determine weaknesses, and so on. Since you are carrying out the SWOT analysis to come up with a solid business strategy for your business, it is important to have multiple people on board. Brainstorming alone for a business SWOT analysis is not a very good idea.

Step 3. Start with Strengths

Strength should be the very first thing about your organization that you must be very well aware of. Once you understand your strength, it brings you a sense of relief as well as confidence. Basically, you can consider those things that your organization is very good at doing. Also, it can be those activities that set your organization apart from those of your competitors. For example, your organization may have access to specific materials. Or, maybe, it has a set of flawless manufacturing processes. Or, maybe you are blessed to have a terrific team who work together to achieve important business goals.

You can also consider what your organization does better than others. Or, maybe the factors or values that drive your business that set you apart and ahead. The ultimate goal is to determine your business USP and add it to the Strength grid.

Next, shift your perspective and think about what your competitors think of your strengths. Is there anything that helps you stay ahead of your rivals? Are there factors that make them believe that you are superior to them in one way or the other?

One thing that you need to keep in mind is that an aspect is your strength as long as it is giving you an upper hand over your competitors.

Step 4. Now, go for your weaknesses.

You must know the weaknesses of your business from the inside out. While determining weaknesses, you must consider factors such as your team members, procedures, systems, resources and so on. Once you have jotted down these points, think about areas that require improvement. You can also try to figure out things that your organization must avoid.

The next step involves determining your weaknesses from a third-person perspective. Is there anything that your competitors find to be a weakness in your organization? Are they doing something that makes them better than you? Find out where you are lagging behind.

You need to understand that honesty is the key when you are doing a SWOT analysis. Don’t turn a blind eye to your lackings. Instead, identify the weaknesses and jot them down in the grid so that you can come up with a relevant strategy for the upcoming time.

Step 5. Go for opportunities.

You can’t afford to ignore all the opportunities that are coming your way. Basically, opportunities are the chances or openings that benefit your organization in the form of monetary gains and reputation enhancement. Generally, opportunities arise because of certain situations outside your business that are not in your control. Also, the inner preparations and competency of your team members decide whether or not you will be able to grab the opportunities at the right moment.

At this moment, you must consider those opportunities that are all set to be exploited. Consider small as well as big opportunities that can add to your organization’s competitiveness.

Here’s a pro tip: If you wish to find the best opportunities at this moment, keep an eye on market trends, social patterns, government policies, and so on.

Based on all these, identify a couple of key opportunities and add them to the SWOT grid.

Step 6. Don’t forget the threats.

Threats may affect your business negatively, both from outside and inside. You must constantly monitor both external and internal factors, such as shortage of recruits, supply-chain issues and market requirement shifts.

As an organization, you must keep in mind that threat assessment in advance helps you take adequate preventive and remedial measures. Otherwise, a sudden threat situation can bring your business to a sudden standstill.

Consider commonplace obstacles such as facing any issue in business operations. Threats can also arise in the form of subtle or drastic changes in product specifications or quality standards. Highly dynamic technology, AI, and other advanced digital factors can also pose a threat if you are not prepared adequately. You must also consider external factors such as competitor activities and internal ones (cash flow issues, bad debt, uncompetitive team members, lack of system etc.)

SWOT analysis example of a digital marketing agency

Strengths

Positive client testimonials add to the credibility of the organization
One-stop solution for client requirements.
Highly skilled team members with expertise in media marketing, PPC and SEO.

Weaknesses

Excessive dependency on third-party tools and platforms
Limited human resources leading to delayed TAT.

Opportunities

Remote work model enables the agency to hire top talent across the globe.
The demand for personalized content can boost the opportunity to expand services and charge premium rates.

Threats

There is excessive competition in this industry.
Changing social media algorithms and Google updates are hampering digital campaigns.

Based on this SWOT analysis, the digital marketing agency can come up with a fail-proof plan to make the most out of its strengths and opportunities. At the same time, it can figure out ways to overcome its weaknesses and intercept threat situations by staying well prepared.

PEST Analysis

Now that we’re familiar with SWOT analysis, let’s talk about another tangential analysis called PEST analysis.

Basically, PEST stands for Political, Economic, Social and Technological factors that affect an organization externally. So, PEST analysis is the one where the management evaluates these 4 core areas to stay relevant and competitive in the market. PEST analysis, when used alongside SWOT analysis, offers the best results to an organization.

PEST analysis enables organizations to capitalize on significant external factors as well as take preventive measures for upcoming challenges.

The political component includes factors like regulations, tariffs, policies, laws and so on. The economic component includes labor costs, financing, cost of living, etc. Factors like education, population growth rate, health, etc., fall under the social category. Lastly, the technological component includes components like cybersecurity, research and development, artificial intelligence and so on.

There’s no right or wrong time to carry out a PEST analysis. You can conduct it as often as you want to. However, if you witness a significant change in factors like interest rates, government policies, new policies, etc., it would be great to carry out a PEST analysis.

FAQs Related to SWOT Analysis

1. What does SWOT analysis stand for?

Ans: SWOT is the acronym for Strengths, Weaknesses, Opportunities and Threats.

2. What are the 3 biggest SWOT analysis mistakes?

Ans: These are the 3 biggest SWOT analysis mistakes that an organization must avoid at all costs-

Creating a list that is too long.
Ignoring the weaknesses.
Being too generic and avoiding specificity

3. Who should use SWOT analysis?

Ans: Business organizations- big or small, must use SWOT analysis. It can also be used by individuals as well as nonprofit organizations.

4. How often should one update their SWOT analysis results?

Ans: An organization must update its SWOT analysis results either bi-annually or annually.

5. What are the cons of SWOT analysis?

Ans: SWOT analysis is not that effective when it comes to complicated external factors. It should be used in conjunction with other tools, such as PEST analysis, to get the best results.

6. Can I use SWOT analysis for competitor analysis?

Ans: Absolutely! Conducting a SWOT analysis to evaluate the strengths, weaknesses, opportunities and threats of your competitors can bring forth amazing results and help you amp up your strategies.

Author
Recent Posts

Ravi Ranjan

Ravi is an experienced Digital Marketing Specialist with 8+ years in marketing and IT sectors. He holds an MBA from Dehradun, India. Ravi owns Easy Management Notes (EMN), an educational platform offering MBA resources. Beyond work, he enjoys photography, music, and following cricket, especially MS Dhoni. He's a dedicated family man with a naughty daughter.