SWOT Analysis - Where Does Your Business Stand?

On this topic (Strengths, Weaknesses, Opportunities and Threats), I will leave the how-to discussion to what can be found on the internet or business strategy books. Instead, I'd like to make some comments about the benefits and uses of this technique. Fore mostly, SWOT offers the business owner a strategic way of thinking about his/her business. It forces the owner to step back from the trees to see the forest, and provides a springboard for an executable strategic plan.

I frequently ask a business owner, manager or sales person to name their competition, and frequently experience delays while they think about the answer. One would think that most businesses have a strategy in place and are already actively executing it. Regardless, let's step through SWOT for a closer look.

Strengths

When the strengths of a business are listed, one should look hard to identify niche strength, since these may be unique to the environment that the business operates in. Niche strengths offer opportunities to differentiate a business from one or more competitors and offer value to customers that competitors don't provide.

If the list of strengths is broad, perhaps the business is becoming too general instead of being very good at fewer things in order to merit a premium price for products or services. A critical look at the list may also reveal missing strengths which could lead to increased revenue and profit. These become candidates for the "Opportunities" list. Finally, don't forget the less tangible strengths, examples of which are noted in "Weaknesses" below.

Weaknesses

In similar fashion to "Strengths", one should be thinking about capabilities needed to round out a strong business portfolio, plus capabilities that could differentiate the business from competitors. Besides capabilities, consider less tangible attributes such as quality of staff, staff training, access to timely information, speed, customer service, relationships with providers and customers, discipline, execution and culture.

Opportunities

Opportunities should not be thought of as remedies for weaknesses, but instead as initiatives that can provide a leap forward for the business. Such leaps are possible when an existing strength is leveraged to the next order of magnitude. But after working through "Strengths" and "Weaknesses", the business owner is already thinking strategically so that more opportunity ideas are likely to pop up.

He/she shouldn't overlook thinking about opportunities related to competitors, customers, relationships with providers and relationships with providers your customers typically use for other products or services. Opportunities could lie around weaknesses or hardships being experienced by competitors. Certain customers could be in need of extended or somewhat different products or services. Alliances with providers to develop unique products or services can differentiate a business and expand its offerings. Finally, a careful look at what existing customers buy in addition to your products and services could lead to opportunities to expand your product/service offering, raise switching costs and expand your business. Another approach is to seek alliances with the providers of such products/services, which would open an opportunity to gain access to their customers for your products and services.

Threats

One would think that this topic gets a lot of thought time when one considers the high rate of small business failures. Being naturally optimistic, most business owners are unlikely to think about it much at all. I would think that cash flow should be at or near the top of the list for a small business.

Threats can originate from the potential loss of key revenue streams (customers), issues with key suppliers, actions by competitors, market conditions, an economic downturn, a disaster (fire, flood, storm, theft, etc.) and loss of one or more key employees. We tend to get comfortable with long economic trends even though we know they won't last. How many small businesses were created around the US housing market over several years before 2008? Was a downturn in housing regarded as a threat that they were prepared to react to?

When viewing this completed list, the business owner should also think about hidden opportunities. Try making a similar list for your key competitors and then look for opportunities to capitalize on their vulnerabilities.

Strategic Plan from SWOT

Once the SWOT analysis is fairly complete, and even better, reviewed by an outsider, we are ready to gain some value from this exercise. A list of actionable items can be captured from each of the SWOT lists. Some items would be strategic in nature, while others would be more tactical. At this point it is more important to just capture the action items as they are thought of.

Strengths:	Which strengths can be leveraged to increase value to the next order of magnitude? Do gaps exist that need to be filled? Too many strengths that make our business too general? Niche strengths that could be further exploited? Are any competitors weak where we are strong?
Weaknesses:	Which need work to be raised to an acceptable level that would remove them from this list? What about actions to address the less tangible weaknesses? Are competitors taking advantage of any of our weaknesses?
Opportunities:	Opportunities listed might all be transferrable directly to the strategic action list.
Threats:	It will be important to either eliminate a threat altogether, or put plans in place that can be executed when a threat materializes. Perhaps a business owner lacks sufficient information about suppliers, competitors and markets to even identify threats. The action will be to obtain such knowledge.

A little organization of the action list comes next.

1. Separate tactical items from strategic into two lists
2. Categorize each according to area of the business (sales, marketing, information, controls, operations, etc.)
3. Assign a champion or responsible person to each item
4. Establish a target completion date for each, if the action is specific enough
5. Prioritize each list

While this may not be a comprehensive business strategy as defined by a business consultant, it certainly is a good start toward one, is better than none at all, and costs nothing! The adage "Plan your work; work your plan" is needed to convert this plan into action. With the active and constant attention of the business owner over the long term, SWOT becomes very valuable. Without it, it is an academic waste of time.