SWOT Analysis

Provided by Buzgate.org Small Business Resource Referral Network, content partner for the SME Toolkit.

Where Is My Business Headed and Why?

Know your businesses internal Strengths and Weaknesses, as well as external Opportunities and Threats.

By: Dr. William R. Osgood

A key problem facing any smaller business is how to focus their limited business resources of time and money. SWOT analysis provides an efficient way to evaluate the range of factors that influence your operation, and can give you valuable guidance in making decisions about what to do next. It also provides a highly productive way to get your key personnel involved in the management decision-making process.

SWOT analysis is the process of carefully inspecting the business and its environment through the various dimensions of Strengths, Weaknesses, Opportunities, and Threats. Strengths are the companies core competencies, and include proprietary technology, skills, resources, market position, patents, and others. Weaknesses are conditions within the company that can lead to poor performance, and can include obsolete equipment, no clear strategy, heavy debt burden, poor product or market image, weak management, and others. Opportunities are outside conditions or circumstances that the company could turn to its advantage, and could include a specialty niche skill or technology that suddenly realizes a growth in broad market interest. Threats are current or future conditions in the outside environment that may harm the company, and might include population shifts, changes in purchasing preferences, new technologies, changes in governmental or environmental regulations, or an increase in competition.

As with most such management analysis tools, SWOT in of itself will not give specific answers. Instead, it is a way to organize information and assign probabilities to potential events - both good and bad - as the basis for developing business strategy and operational plans.

Using SWOT analysis is a straightforward process. The key is to limit the number of issues under each category. This forces you to evaluate the relative importance of each, and select only the most critical. To get there, use a reduction process.

1. List any issues you can think of that affect your business. These may be extremely pragmatic and objective (we don't have enough capital to support growth), or highly subjective (key personnel don't like each other and so don't work well together). They may be internal or external. They may be real or perceived. Don't evaluate at this stage; just make your lists.

2. Once listed, sort these issues or factors into the SWOT categories.

3. Sort each category first by relative importance, and then by reality. This is where the hard work begins. It is critical at this stage to make sure that the factors you are listing are real and not wistful thinking on your part (We are the best - Are you really the best? How? Why?), or a way of passing the buck (Things are out of control, and there is nothing I can do about it). Being honest with yourself here is essential.

4. Now, use the reduction process to limit each list to no more than five factors or issues. This forces you to look for duplicates of variations of the same issue, and to determine which are really the most critical to your business situation.

Once you have performed the SWOT analysis yourself, ask your key employees to go through the same process. Make sure that they do this independently of your work and each other, otherwise, they suffer from the phenomena of "group think," in which the group limits its thinking to the topics, which hit the table first. After your staff has had an opportunity to perform their own SWOT analysis, gather their ideas and construct a master list of all issues. This may well bring some new matters to your attention that you haven't been aware of or have chosen to ignore. This list now becomes the basis for your strategic planning. Remember that this is not about ego, it is about reality, because the business can only operate in the realm of reality.

This list now becomes the basis for your further strategic planning. Inspect each of the Strengths, Weaknesses, Opportunities, and Threats, and determine what each of them implies for your own operation. There is no substitute for your own efforts, and so no passing this task along to someone else in the company. Here, the secret of success is in the details, and your own hard work. Good luck!

Run your business - don't let it run you. This is COMMON SENSE.