If a business is looking to thrive, it needs to define its objectives, as well as any factors which may negatively impact those objectives.
A SWOT (strengths, weaknesses, opportunities, threats) analysis allow a business to determine both internal and external factors which may affect a business’s profits and objectives, then effectively react to them to minimize or even eliminate potential losses.
Strengths are what makes the business unique and what they can do better than the average business, such as having low employee turnover or good customer relationships. When analyzing strengths, a business needs to review what it perceives as its own internal strengths, as well as what the market perceives as the strengths of the business. After determining strengths, a business should then work on enhancing them even more in order to create more opportunities for the business.
Weaknesses, on the other hand, represent internal improvements a business should make or options it should possibly even avoid. Weaknesses also hurt business since they hinder it from achieving objectives; however, a business can better achieve an objective by identifying weaknesses early. Examples of weaknesses include having high production costs, too much overhead, or a low marketing budget.
Opportunities serve as indicators of external areas where a business can grow or adapt to stay relevant to competition in the market, as well as ways in which a business can achieve objectives. Opportunities can range from producing and providing a new product due to high demand in the market, to recognizing and reacting to market trends ahead of time to increase profits and relevancy.
Threats are both current and potential challenges which a business is facing or may face in the future. External threats can include economic issues such as a depressed market or competitive issues like a rival producing a new product or starting a new marketing campaign. The key to identifying threats to a business is to create a plan to counterattack the problems, which will affect success and future growth.
A SWOT analysis is beneficial for businesses because it is a low-budget, quick way of brainstorming and strategic planning methods that will increase profits and achieve objectives. It also allows a business to use its strengths to combat its weaknesses if possible. Unfortunately, though, SWOT is most effective at a micro level rather than a macro level, so it is best for a business to use the analysis model with a specific objective in mind.
Overall, a SWOT analysis is an effective way for a business to react to and even eliminate profit losses, as well as efficiently achieve its objectives, by identifying internal and external factors within and around the business. Using the simple SWOT analysis structure can help a business quickly answer questions related to its present and future concerns by logically looking at the issues at hand to help brainstorm the appropriate solutions and strategic plans. Although it should not be used as a primary tool, it represents a helpful guide to make a business more productive.