Essential guide to SWOT analysis

A SWOT analysis looks at the strengths and weaknesses, opportunities and threats facing your business.

By focusing on the key factors affecting your business, now and in the future, a SWOT analysis helps you understand where your business has a competitive advantage and what issues you should be addressing.

What is a SWOT analysis?

Carrying out a SWOT analysis

Strengths

Weaknesses

Opportunities

Threats

Analysis into action

SWOT checklist

1. What is a SWOT analysis?

A SWOT analysis is a tool to help your business succeed

• SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The SWOT analysis is an organised way of identifying these for your business.
• Strengths and weaknesses are internal characteristics of your business. For example, your strengths might include a unique product or a good reputation. A weakness might be a shortage of financing.
• Opportunities and threats are outside factors. For example, new technologies or regulations, or changes in the competition.

You can use a SWOT analysis in different situations

• A SWOT analysis is a useful way of starting to write a business plan or updating your marketing plan.
• You could carry out a SWOT analysis in preparation for raising finance. The analysis shows that you understand your business and your market.
• You can use SWOT analysis as part of a regular process of reviewing business performance. 
• You can also do a focused SWOT analysis of a specific product or service to assess whether it is viable.

2. Carrying out a SWOT analysis

Decide who to involve

• Key participants are likely to include the managing director and other managers.
• Involve employees to get a fuller picture and gain their commitment to the process.
• Consider getting feedback from customers and suppliers who know your business and market.

Brainstorm the issues

• Ask everyone to identify the strengths and weaknesses they feel the business has, and any opportunities or threats they think the business faces.
• Encourage participants to make suggestions without trying to judge how important the issue is.
• Concentrate especially on identifying weaknesses and threats.
• Be aware that lack of honesty is a common problem. Most people find it easier to identify strengths and opportunities, particularly if the performance of key people (including managers) is one of the weaknesses.
• You may want to use checklists of possible strengths, weaknesses, opportunities and threats to prompt further suggestions.

Organise the ideas

• Separate ideas into strengths, weaknesses, opportunities and threats.
• Use Post-It notes or cards to make it easy to organise related ideas into groups.
• Create a digital summary that you can share. You can download a SWOT analysis template (charge applicable).

Assess the importance of the issues identified

• Use relevant data from your own and similar businesses.
• Update your conclusions from any previous SWOT analysis. For example, a strength may no longer exist (e.g. if last year’s best-selling product is now outdated).
• Assess whether your strengths (or weaknesses) provide a significant competitive advantage (or disadvantage).
• Don’t be surprised if some factors crop up as both a strength and weakness.

Create a simple, clear action plan

• There is no point conducting a SWOT analysis if it doesn't result in action.
• Set out what will be done to address weaknesses, capitalise on opportunities and deal with threats. This includes the steps to be taken, the personnel involved, timeframes and budget.
• Involve key personnel in drawing up the action plan to gain their commitment.
• Keep the analysis and action plan to hand for review before making important decisions. For example, as a reminder of what you should be looking for when recruiting a new employee.

3. Strengths

Your strengths are usually easy to identify, through your continuing discussions with customers and suppliers. Your sales records and customer feedback will highlight areas where you are particularly strong.

Sound finances may give you advantages over your competitors

Important factors might include:

• positive cash flow;
• growing turnover and profitability;
• skilled financial management, good credit control and few bad debts;
• a strong balance sheet;
• access to extensive credit, a strong credit rating, and a good relationship with the bank and other sources of finance.

Marketing may be the key to your success

For example, your business may enjoy:

• market leadership in a profitable niche;
• a good reputation and a strong brand name;
• an established customer base;
• a strong product range;
• an effective online presence;
• effective research and development;
• use of design and innovation;
• a skilled sales team;
• thorough after-sales service;
• protected intellectual property (eg registered designs, patented products).

Management and personnel skills and systems may underpin your success

These may include factors such as:

• management strength;
• the ability to make quick decisions;
• skilled employees, successful recruitment, effective training and development;
• good motivation and morale;
• efficient administration.

Strengths in production may include the right premises, plant and suppliers

You may benefit from:

• modern, low-cost production facilities;
• spare production capacity;
• a good location;
• effective purchasing and good relationships with suppliers.

Be aware that strengths are not always what they seem

• Strengths may also be weaknesses. For example, market leaders can be complacent and bureaucratic.
• Strengths often imply threats. For example, your star salesperson may be a strength, unless they leave.

4. Weaknesses

Your weaknesses are often known but ignored. A SWOT analysis should be the starting point for tackling underperformance in your business.

Poor financial management

This may result in situations where:

• not enough funds are available for investment in new plant or product development;
• all available security, including personal assets and guarantees, is already pledged for existing borrowings;
• poor credit control leads to unpredictable cash flow.

Lack of marketing focus

This may lead to:

• unresponsive attitudes to customer requirements;
• a limited or outdated product range;
• a bad website;
• a poor or non-existent online presence (eg on social networking sites and in content marketing);
• complacency and a failure to innovate;
• over-reliance on a few customers.

Management and personnel flaws are often hard to recognise without hindsight

Typical examples are:

• failure to delegate and train successors;
• expertise and control locked up in a few key personnel;
• inability to take outside advice;
• high staff turnover.

Inefficient production, premises and plant can undermine any business

Typical problems include:

• poor location and shabby premises;
• outdated equipment, high cost production and low productivity;
• long leases tying the business to unsuitable premises or equipment;
• inefficient processes.

5. Opportunities

External changes provide opportunities that well-managed businesses can turn to their advantage.

Changes involving organisations and individuals which directly affect your business

These may open up completely new possibilities. For example:

• deterioration in a competitor’s performance, or the insolvency of a competitor;
• improved access to potential new customers and markets (eg overseas);
• increased sales to existing customers, or new leads gained through them;
• the development of new distribution channels (eg social media platforms);
• improved supply arrangements, such as just-in-time supply or outsourcing non-core activities;
• the opportunity to take on a key employee from a competitor;
• the introduction of financial backers who are keen to fund expansion.

The broader business environment may shift in your favour

This may be caused by:

• Political, legislative or regulatory change. For example, a change in legislation that requires customers to purchase a product.
• Economic trends. For example, falling interest rates reducing the cost of capital.
• Social developments. For example, demographic changes or changing consumer needs leading to an increase in demand for your products.
• New technology. For example, new materials, processes and cloud-based platforms.

6. Threats

Threats can be minor or could possibly destroy the business.

Changes involving organisations and individuals that directly affect your business

These can have far-reaching effects. For example:

• improved competitive products or the emergence of new competitors;
• a reliance on legacy products or services for large chunks of revenue;
• loss of a significant customer;
• creeping over-reliance on one distributor or group of distributors;
• failure of suppliers to meet quality requirements;
• price rises from suppliers;
• key personnel leaving, perhaps with trade secrets;
• lenders reducing credit lines or increasing charges;
• a rent review threatening to increase costs, or the expiry of a lease;
• legal action (eg being sued by a customer).

The broader business environment may change to your disadvantage

This may be the result of:

• Political, legislative or regulatory change. For example, new regulation increasing your costs or requiring product redesign.
• Economic trends. For example, rising inflation.
• Unfavourable trading conditions such as supply chain issues or recruitment difficulties.
• Social developments. For example, consumer demands for 'environmentally-friendly' products.
• New technology. For example, technology that makes your products outdated or gives competitors an advantage.

7. Analysis into action

The results of SWOT analysis - and the action needed - will be different for every business. Successful businesses focus on capturing market niches and creating 'barriers to entry' to reduce possible competition.

Capitalise on opportunities that play to your strengths

The SWOT analysis may also suggest various strategic options. For example:

• following a strategy of expansion where opportunities match your strengths;
• moving away from areas of significant threat to more promising opportunities;
• focusing on turning around weaknesses in areas of significant opportunity;
• taking defensive measures in areas of threat where you are weak.

Address your weaknesses

• Decide which weaknesses need to be addressed first.
• Some weaknesses can be turned into strengths or opportunities. For example, it might be possible to turn a shortage of production capacity into rarity value for your product.
• Some weaknesses have a clear solution. For example, financial weakness might be solved by raising further funds, and management shortcomings by recruiting new personnel.
• Some weaknesses will take time and money to address. For example, you may need to start a programme of improvements through training.

Protect yourself against threats

For example:

• build relationships with suppliers and customers;
• promote good employee relations;
• make sure you have clear and reasonable contracts with suppliers, customers and employees;
• take out insurance cover against obvious potential disasters, such as cybercrime and data theft;
• draw up realistic contingency plans to cope with possible crises;
• introduce the right types of service contract for key personnel;
• invest in legal protection for your intellectual property;
• take advantage of low fixed-interest rates to move your overdraft to long-term loans.

8. SWOT checklist

1. Involve employees from all the key areas of your business in your SWOT analysis.
2. Consider involving key customers, suppliers or others who know your market and can provide an objective view.
3. Ask participants to collect and review information on internal resources and external factors affecting the business.
4. Arrange a brainstorming session to identify your firm's strengths and weaknesses and the opportunities and threats facing it.
5. Decide whether to chair the session yourself or use an external facilitator.
6. Encourage an open and honest atmosphere. Avoid judging or disagreeing with suggestions; try to draw out weaknesses and threats.
7. Review internal operations such as finances, marketing, production, management and personnel to identify strengths and weaknesses.
8. Review external organisations (eg competitors, customers and suppliers) and the business environment and market to identify opportunities and threats.
9. When there are no further suggestions, discuss the ideas that have been raised; agree the key strengths, weaknesses, opportunities and threats.
10. Identify any additional information you need to confirm your analysis. If necessary, carry out further market research.
11. Assess the significance of your results. Identify areas where you have a competitive advantage or disadvantage.
12. Create an action plan to tackle weaknesses, capitalise on strengths and opportunities and deal with threats.
13. Use the analysis and action plan as a review tool before important decisions.