A Practical Guide to SWOT Analysis
Being one of the most widely used and, at the same time, one of the most misused business analysis techniques means that SWOT has had its fair share of bad press over the years. Despite all this, there are some very good reasons it’s so widespread and can be extremely effective if implemented correctly. Today we will discuss the best practical approach to conducting a SWOT analysis so that you can use this very helpful tool to your advantage.
What Is A SWOT Analysis?
As you may have guessed, SWOT is an acronym and stands for:
- Strengths: internal enhancers that create advantages for the company from within
- Weaknesses: internal inhibitors that create disadvantages for the company from within
- Opportunities: external enhancers that can be pursued to gain benefit
- Threats: external inhibitors that have the potential to cause damage to the company
SWOTs are usually arranged in a 2-by-2 matrix where the x-axis relates to the effect the factor has on the company which can either be enhancing or inhibiting, and the y-axis relates to the controllability of the factor which can be internal or external (under the company’s control or outside of its control). These combinations lead to the four factors we just defined.
The main objectives of the SWOT analysis are to:
- Identify internal and external inhibitors and enhancers of performance
- Analyze and quantify each of those factors to understand their importance relative to each other
- Decide on future company actions based on the analysis
This article will cover not only the techniques for conducting the analysis but also the best practices for how to act on the findings.
The Problem Of Real World Use
If implemented right SWOT can be extremely beneficial to the firm. It can guide company decisions and make the stakeholders aware of internal and external factors that afflict it, while still being cheap and simple to conduct.
The issue is that most of the time companies conduct SWOT analysis carelessly, getting very little in return for their efforts. A study of real-world SWOT implementation has shown that only around 10% of SWOTs are conducted per the proper methodology. Meaning that most of the analyses don’t produce a lot of valuable data or make any significant impact on the company.
To get the most out of your SWOTs, you will need to standardize the analysis process and follow the best practices. This will make the analysis a bit harder, but will ultimately pay out much more.
6 Steps Of A SWOT Analysis
There are a lot of different approaches you can take when conducting SWOT. Just a simple Google search can yield you thousands and thousands of articles on this topic, a lot of which suggest different ways of handling it. The approach we will discuss here today is one of the most effective methods and successfully resolves SWOT’s most persistent and troublesome problem, connecting the qualitative estimations to quantitative measures.
Step 1: Recruiting Stakeholders
When recruiting stakeholders who will take part in the discussion, you will need to mind a couple of different factors such as stakeholder power, involvement in the topic as well as expertise. Depending on your requirements you can have a mixed bag of people varying in each of these factors, or you can have more homogenous groups. Whatever the mix of stakeholders, the group should ideally consist of eight to forty members.
Step 2: Leading The Focus Group
To effectively utilize their focus groups, facilitators must create the appropriate setting for discussion. They can do this by securing the location, explaining the purpose as well as the ground rules of the process, and clarifying the topic of discussion.
The facilitator needs to secure a secluded area where the members of the group can comfortably fit. Something else to consider is the structure of groups during the discussion. The five most popular options are:
- The entire group takes part in generating SWOTs
- Four breakout groups are formed, each responsible for one of the four SWOT categories
- Four breakout groups are formed, each generating all categories in sequence
- Groups are created based on similarity or difference in power, knowledge, or some other factor. They are tasked with generating all four categories
- Like number 4 but the members are rotated between groups
Before starting the discussion it is incredibly important that the rules of SWOT are explained to group members. Similarly, the categories of SWOT must be precisely defined to avoid any potential confusion.
One of the more common things that happen during analytical group discussions is that the group members quickly resort to attributing responsibility and casting blame on each other. This can greatly inhibit any back and forth and drastically reduce the effectiveness of SWOT.
A way to combat this would be to inform the members that no such blaming should take place and remind them that the companies that capitalize on internal strengths could very well turn them into threats to their competition. Similarly, companies that fail to amend their weaknesses could turn those into opportunities for other companies in the market. This statement conveys the importance of making a real and objective estimation of the company.
Finally, a specific topic of discussion should be selected and communicated. The topic can be broad and discuss the company as a whole, but this is only recommended for market research. SWOT could be much more effective if applied to a single department or region.
Step 3: Identifying And Categorizing SWOTs
At the most basic level, this step consists of two tasks: naming factors and deciding which category they belong to. The answers to these questions are best achieved by asking two simple binary questions:
- Is this factor a benefit or a cost?
- Is this factor occurring within or outside our company?
It can be easier to answer these questions one by one for each factor, first asking the focus group to decide whether a factor is within or outside the company’s locus of control. After this is decided for all factors, the facilitator can move to the next question of deciding whether the factor is beneficial or detrimental to the company. This sequence of events makes it much easier for the group members to decide.
Step 4: Analyzing SWOTs
After the factors are defined and categorized it’s time to attribute quantitative values to each of them so that we can compare them and decide which ones to act on. This is done by a process known as IE2 analysis. It answers two very basic and important questions:
- To what degree is the SWOT factor internally or externally controlled?
- To what degree is the SWOT factor an enhancer or inhibitor of performance?
Analyzing The Attribution
When analyzing the dimension of internal control, the group members are asked to rate the factor on a scale from 0 to +5, where 0 represents a factor that isn’t under internal control and +5 represents a factor that is entirely under control. On the other hand, analyzing the dimension of external control asks the group members to rate the factor on a scale from -5 to 0, where -5 represents the point of total external control and 0 a point of no external control. A very similar scale is used for assessing the benefits or detriments of a factor.
Form Of The Questionnaire
The questions take a form of a bi-directional Likert-type rating scale thus standardizing the answers and making them easier to compare once all the data comes in. The questionnaire can be easily created online and distributed to group members via a link. It could also be useful to color code factors from different categories of the SWOT to avoid any confusion when filling out the questionnaire.
Function Of The Questionnaire
This is a great tool to quantify the SWOT and allow comparisons between different factors while allowing for statistical estimation of the results instead of relying simply on a majority vote. It also allows the group members that might have not been as vocal during Step 3, to state their opinions.
Step 5: Synthesizing SWOTs
Now that the data is quantified it can be plotted on a graph to visually represent the position of different factors within the SWOT chart. Another alternative is to plot answers from different stakeholder groups separately but to do this you will need to collect basic demographic data in your questionnaires so that you can differentiate the answers.
Step 6: Determining Further Company Action
The gathered data allows decision-makers to appropriately decide which factors to act upon first and which ones to ignore. The decisions to act are made easier by defining an arbitrary threshold, above which the factor is acted upon and below which it is simply monitored. This threshold should be defined before collecting data to avoid potential bias when constructing it.
Based on the relation of a factor to its threshold there are three courses of action decision-makers can take:
- Monitor. When a factor is under the threshold it may be best simply to keep track of it for the time being.
- Mitigate threats and exploit opportunities. While still externally controlled, threats and opportunities can be acted upon to the great benefit of the company.
- Confront weaknesses and leverage strengths. Factors under direct control can be acted upon more easily, thus making their threshold lower than for the factors outside of company control.
When Should I Use SWOT Analysis?
There are four major applications of the SWOT analysis:
- In performance analysis for identifying the degree to which internal and external factors are influencing productivity.
- In cause analysis for deciding if a practice should be continued, discontinued, expanded, or shrunk.
- In strategic planning for determining factors that contribute or detract from organizational effectiveness.
- In evaluation for monitoring external and internal environments of a program over time.