SWOT Analysis

By WILL KENTON, October 30, 2023

What Is SWOT Analysis?

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a
company's competitive position and to develop strategic planning. SWOT analysis assesses internal and
external factors, as well as current and future potential.

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and
weaknesses of an organization, initiatives, or within its industry. The organization needs to keep the
analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on real-life
contexts. Companies should use it as a guide and not necessarily as a prescription.

Understanding SWOT Analysis

SWOT analysis is a technique for assessing the performance, competition, risk, and potential of a
business, as well as part of a business such as a product line or division, an industry, or other entity.

Using internal and external data, the technique can guide businesses toward strategies more likely to be
successful, and away from those in which they have been, or are likely to be, less successful.
Independent SWOT analysts, investors, or competitors can also guide them on whether a company,
product line, or industry might be strong or weak and why.

SWOT analysis was first used to analyze businesses. Now, it's often used by governments, nonprofits,
and individuals, including investors and entrepreneurs. There is seemingly limitless applications to the
SWOT analysis.

Components of SWOT Analysis

Every SWOT analysis will include the following four categories. Though the elements and discoveries
within these categories will vary from company to company, a SWOT analysis is not complete without
each of these elements:

Strengths

Strengths describe what an organization excels at and what separates it from the competition: a strong
brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge
fund may have developed a proprietary trading strategy that returns market-beating results. It must
then decide how to use those results to attract new investors.
Weaknesses

Weaknesses stop an organization from performing at its optimum level. They are areas where the
business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high
levels of debt, an inadequate supply chain, or lack of capital.

Opportunities

Opportunities refer to favorable external factors that could give an organization a competitive
advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new
market, increasing sales and market share.

Threats

Threats refer to factors that have the potential to harm an organization. For example, a drought is a
threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common
threats include things like rising costs for materials, increasing competition, tight labor supply. and so on.

How to Do a SWOT Analysis

A SWOT analysis can be broken into several steps with actionable items before and after analyzing the
four components. In general, a SWOT analysis will involve the following steps.

Step 1: Determine Your Objective

A SWOT analysis can be broad, though more value will likely be generated if the analysis is pointed
directly at an objective. For example, the objective of a SWOT analysis may focused only on whether or
not to perform a new product rollout. With an objective in mind, a company will have guidance on what
they hope to achieve at the end of the process. In this example, the SWOT analysis should help
determine whether or not the product should be introduced.

Step 2: Gather Resources

Every SWOT analysis will vary, and a company may need different data sets to support pulling together
different SWOT analysis tables. A company should begin by understanding what information it has
access to, what data limitations it faces, and how reliable its external data sources are.

In addition to data, a company should understand the right combination of personnel to have involved
in the analysis. Some staff may be more connected with external forces, while various staff within the
manufacturing or sales departments may have a better grasp of what is going on internally. Having a
broad set of perspectives is also more likely to yield diverse, value-adding contributions.

Step 3: Compile Ideas

For each of the four components of the SWOT analysis, the group of people assigned to performing the
analysis should begin listing ideas within each category. Examples of questions to ask or consider for
each group are in the table below.

Internal Factors

What occurs within the company serves as a great source of information for the strengths and
weaknesses categories of the SWOT analysis. Examples of internal factors include financial and human
resources, tangible and intangible (brand name) assets, and operational efficiencies.

External Factors

What happens outside of the company is equally as important to the success of a company as internal
factors. External influences, such as monetary policies, market changes, and access to suppliers, are
categories to pull from to create a list of opportunities and weaknesses.

Strengths Weaknesses

1. What is our competitive advantage? 1. Where can we improve?

2. What resources do we have? 2. What products are underperforming?

3. What products are performing well? 3. Where are we lacking resources?

Opportunities Threats

1. What new technology can we use? 1. What regulations are changing?

2. Can we expand our operations? 2. What are competitors doing?

3. What new segments can we test? 3. How are consumer trends changing?

Companies may consider performing this step as a "white-boarding" or "sticky note" session. The idea is
there is no right or wrong answer; all participants should be encouraged to share whatever thoughts
they have. These ideas can later be discarded; in the meantime, the goal should be to come up with as
many items as possible to invoke creativity and inspiration in others.

Step 4: Refine Findings

With the list of ideas within each category, it is now time to clean-up the ideas. By refining the thoughts
that everyone had, a company can focus on only the best ideas or largest risks to the company. This
stage may require substantial debate among analysis participants, including bringing in upper
management to help rank priorities.

Step 5: Develop the Strategy

Armed with the ranked list of strengths, weaknesses, opportunities, and threats, it is time to convert the
SWOT analysis into a strategic plan. Members of the analysis team take the bulleted list of items within
each category and create a synthesized plan that provides guidance on the original objective.

For example, the company debating whether to release a new product may have identified that it is the
market leader for its existing product and there is the opportunity to expand to new markets. However,
increased material costs, strained distribution lines, the need for additional staff, and unpredictable
product demand may outweigh the strengths and opportunities. The analysis team develops the
strategy to revisit the decision in six months in hopes of costs declining and market demand becoming
more transparent.

Benefits of SWOT Analysis

A SWOT analysis won't solve every major question a company has. However, there's a number of
benefits to a SWOT analysis that make strategic decision-making easier.

A SWOT analysis makes complex problems more manageable. There may be an overwhelming amount
of data to analyze and relevant points to consider when making a complex decision. In general, a SWOT
analysis that has been prepared by paring down all ideas and ranking bullets by importance will
aggregate a large, potentially overwhelming problem into a more digestible report.

A SWOT analysis requires external consider. Too often, a company may be tempted to only consider
internal factors when making decisions. However, there are often items out of the company's control
that may influence the outcome of a business decision. A SWOT analysis covers both the internal factors
a company can manage and the external factors that may be more difficult to control.

A SWOT analysis can be applied to almost every business question. The analysis can relate to an
organization, team, or individual. It can also analyze a full product line, changes to brand, geographical
expansion, or an acquisition. The SWOT analysis is a versatile tool that has many applications.

A SWOT analysis leverages different data sources. A company will likely use internal information for
strengths and weaknesses. The company will also need to gather external information relating to broad
markets, competitors, or macroeconomic forces for opportunities and threats. Instead of relying on a
single, potentially biased source, a good SWOT analysis compiles various angles.

A SWOT analysis may not be overly costly to prepare. Some SWOT reports do not need to be overly
technical; therefore, many different staff members can contribute to its preparation without training or
external consulting.

SWOT Analysis Example

In 2015, a Value Line SWOT analysis of The Coca-Cola Company noted strengths such as its globally
famous brand name, vast distribution network, and opportunities in emerging markets. However, it also
noted weaknesses and threats such as foreign currency fluctuations, growing public interest in "healthy"
beverages, and competition from healthy beverage providers.

Its SWOT analysis prompted Value Line to pose some tough questions about Coca-Cola's strategy, but
also to note that the company "will probably remain a top-tier beverage provider" that offered
conservative investors "a reliable source of income and a bit of capital gains exposure."

Five years later, the Value Line SWOT analysis proved effective as Coca-Cola remains the 6th strongest
brand in the world (as it was then). Coca-Cola's shares (traded under ticker symbol KO) have increased in
value by over 60% during the five years after the analysis was completed.

To get a better picture of a SWOT analysis, consider the example of a fictitious organic smoothie
company. To better understand how it competes within the smoothie market and what it can do better,
it conducted a SWOT analysis. Through this analysis, it identified that its strengths were good sourcing of
ingredients, personalized customer service, and a strong relationship with suppliers. Peering within its
operations, it identified a few areas of weakness: little product diversification, high turnover rates, and
outdated equipment.

Examining how the external environment affects its business, it identified opportunities in emerging
technology, untapped demographics, and a culture shift towards healthy living. It also found threats,
such as a winter freeze damaging crops, a global pandemic, and kinks in the supply chain. In conjunction
with other planning techniques, the company used the SWOT analysis to leverage its strengths and
external opportunities to eliminate threats and strengthen areas where it is weak.

The Bottom Line

A SWOT analysis is a great way to guide business-strategy meetings. It's powerful to have everyone in
the room discuss the company's core strengths and weaknesses, define the opportunities and threats,
and brainstorm ideas. Oftentimes, the SWOT analysis you envision before the session changes
throughout to reflect factors you were unaware of and would never have captured if not for the group’s
input.

A company can use a SWOT for overall business strategy sessions or for a specific segment such as
marketing, production, or sales. This way, you can see how the overall strategy developed from the
SWOT analysis will filter down to the segments below before committing to it. You can also work in
reverse with a segment-specific SWOT analysis that feeds into an overall SWOT analysis.

Although a useful planning tool, SWOT has limitations. It is one of several business planning techniques
to consider and should not be used alone. Also, each point listed within the categories is not prioritized
the same. SWOT does not account for the differences in weight. Therefore, a deeper analysis is needed,
using another planning technique.