1. The core of the SWOT analysis
The SWOT analysis was developed at the Harvard Business School and is an important part of corporate planning, a distinction is made between internal and external analysis. According to Abbreviationfinder, the internal analysis shows where the strengths and weaknesses of our company lie, the external one, which opportunities and risks in our market have to be considered. Sounds complicated at first, but in summary it is no longer that tricky. In a nutshell, the SWOT analysis helps determine the strategic direction of the company, bundle resources, use budget in a targeted manner, advance projects and take necessary measures to take – without the SWOT analysis it would be like trying to drive a rubber boat without pumping air into the tires first.
2. You shouldn’t make this mistake with the SWOT analysis
So you have learned in the above section that we compare strengths, weaknesses, opportunities and dangers. What many find difficult in the analysis process is to make a distinction between strengths / weaknesses and opportunities / threats and always relate all 4 categories to their own company. However, this is technically not entirely correct:
These always relate directly to your own company and not to the market . So there are strengths and weaknesses that your company has and that is why it has no place in here that relates to the market.
Our company has a very strong brand , which means that customer loyalty is very high.
Opportunities & dangers
These always relate to what opportunities the market offers and what dangers exist or could arise in the market. Here we take a bird’s eye view of the market and list opportunities and dangers that EVERY market participant could theoretically use for themselves.
There is currently a very strong trend towards digitization , which gives companies that rely on innovations early on at an advantage.
3. The SWOT categories in detail
Strengths describe the characteristics and factors that make a company better than the competition or other market participants. It is outstanding strengths that move the company forward and from which a USP or UAP could emerge.
The employees are very qualified, the location is in a strategically better place, the products are very innovative, there are many financial reserves, etc.
The weaknesses can be easily explained: everything that the competition does better or where the competition is better positioned. Of course, other weaknesses can also be listed that do not have to be directly related to the competition.
Bad financial strength / no reserves, weak and unknown brand , strong dependency on partners, poor sales partners, old-fashioned products, etc.
Opportunities are developments in the market, in the environment or in the industry that companies can use for themselves in order to expand their potential. Often your own strengths can be used to make better use of opportunities in the market.
Technological developments that produce modern products, changes in customer behavior due to new trends, changes in the environment , new legislation that has a positive impact on our industry, etc.
Given the dangers, it should come as no surprise that the risks can be derived from them, which could weaken our market. You should always be aware of the dangers and it is best to make plans early on in the event that a danger actually occurs.
Legal changes that massively restrict our market , over-dominant competitors in the market (e.g. oligopolies), pandemics such as Covid-19, new trends that make our market superfluous, etc.
4. Basics for the strategic derivation: further develop strengths, eliminate weaknesses, use opportunities and contain risks
A company is like a fingerprint, each one is unique! This means that an analysis should always be objective and still be individually adapted to the company. Some questions can help to ensure this uniqueness and thus create the optimal basis for defining strategic derivations from the SWOT analysis:
- What successes have been achieved so far and how?
- What does the company do better than the competition?
- What went particularly well in the past?
- What is the company proud of?
- Where does the company clearly have some catching up to do?
- Where is the competition better positioned?
- What is the company struggling with?
- What else is missing?
Opportunities (Opportunities )
- What opportunities are there for the company for further development?
- Has the trend changed beneficially?
- Are future opportunities foreseeable that would have a positive impact?
- Which changes in the environment could make a difference?
- What could be dangerous for the current business model?
- Which competitor activities could have a negative impact?
- Which developments in the environment are fraught with risk?
- What could affect competitiveness?
5. The SWOT matrix
All the information collected is summarized in the so-called four-field matrix, or in other words, a table. The most important findings – such as the positive and negative influences of the previous analysis – are visible at a glance. This overview enables us to recognize relationships immediately and to define strategic derivations from them.
Analysis of strategic planning
The SWOT analysis, in particular the SWOT matrix, offers many possibilities to achieve a precision landing in the planning for companies. They also make the direct connections between weaknesses and strengths or dangers and opportunities visible.
The following questions help to identify the relationships between strengths and weaknesses as well as opportunities and threats.
- Which strengths help to take advantage of the opportunities in the market?
- How can strengths help make opportunities profitable?
- Which business fields or product areas can the company expand?
Strategy “catching up”
- Can opportunities arise from weaknesses?
- How can strengths develop from weaknesses?
- Which weaknesses need to be optimized? Where is there immediate need for action?
- In which business areas or markets does the company have to catch up?
- What strengths can the company use to avert risks?
- How can strengths prevent risks?
- In which technical or organizational areas does the company have to protect itself?
- Where do risks meet weaknesses?
- What are the dangers of this?
- How can the company still be protected?
- What activities should the company avoid or stop doing?
Strategies from the SWOT analysis
After all questions for the SWOT analysis have been finally clarified, both the right strategy and the necessary measures can be determined. In short: analysis is good, implementation is better. The next step is to determine how risks can be reduced and opportunities used profitably. In other words, we also define a strategy for each comparison :
SO strategy: Strength-opportunity combination “expand”
The time is changing, customers are becoming more environmentally conscious and want corresponding products. Now the question arises, how can a company use this opportunity to join the trend? Do you already have an environmentally friendly range ? Then this should be expanded and advertised with a campaign . In the course of this, companies should also strengthen their image , make production more energy-efficient and resource-saving, and communicate this as well.
WT strategy: “Avoid” weakness-risk combination
For a long time there has been evidence of poor quality in some products. Customers become dissatisfied and want to switch to the competition. Quick action is required here, the products must be removed from the range or improved immediately. In addition, sales should be given a certain amount of leeway for discounts and replacements. If the company has incurred customer displeasure, it is important to shine with service.
WHERE strategy: weakness-opportunity combination “catching up”
The production of the products in-house becomes too expensive, because the competition has production in Asia and thus has a clear price advantage. It doesn’t matter at all. At this point, it is not just a question of positioning yourself based on price , but rather on your image . What speaks against using the premium area for yourself, converting production to one-off production and limited quantities and at the same time offering outstanding service. Today’s customers want more, so they also want more service. In the online shop , a configurator is integrated to the design of the desired product. The marketing communication services such as “fast delivery”.
ST strategy: Strength-risk combination “safeguarding”
The company is doing extremely well, sales have been increasing for years, the products are selling. Everything is fine, but suddenly an important supplier threatens to break away, which could quickly develop into an absolute horror scenario. In order to react quickly before failures occur, the company should think about taking over the supplier, at the same time looking for alternative suppliers or checking whether the products can also be manufactured in-house.
6. Problems and other possible errors of the SWOT analysis
Research effort is underestimated or reduced
In principle, a SWOT analysis can be very extensive and time-consuming. But it is necessary to get reliable information about the company. Because here, once you invest time, there are undreamt-of possibilities. If the SWOT analysis is then used correctly, the current status can be surprising and the development can be terrific. Often several people in the company or external service providers are entrusted to this.
The decision is not an easy one
If the analysis does not lead to a clear result because the opportunities and strengths, risks and weaknesses have not been clearly identified, an assessment and categorization of individual characteristics and influencing factors is not possible. As a result, the analysis is more or less useless and management cannot make any decisions.
Much too positive portrayal of one’s own company
The most important thing about the SWOT analysis is neutral and objective handling. There is no point in leaving the analysis too positive and defining a strategic direction on this basis. In many business plans you can see, for example, that the strengths clearly predominate, which often does not correspond to reality. If you present your own situation too positively, you steal valuable planning time from yourself, for example to be able to eliminate weaknesses at an early stage.
The SWOT analysis is an indispensable process that every company should integrate into regular planning in order to remain competitive. But the SWOT analysis is not only important for strategic planning, but also for assessing the current situation. Nevertheless, with all advantages, it should be taken into account that it is only one of many instruments that provides ideas and initial information – in the rarest of cases, however, a finished solution.