Sign up to access the complete lesson and track your progress!
Unlock This CourseSWOT analysis is one of the most useful tools in a business's toolkit. It helps companies understand where they stand and plan for the future. Whether you're running a small business or working in a big company, knowing how to do a proper SWOT analysis can make a huge difference to success.
Key Definitions:
SWOT analysis was developed in the 1960s by business and management consultant Albert Humphrey at Stanford University. It was originally created to understand why corporate planning failed. Today, it's used by organisations of all sizes to help with strategic planning and decision-making.
SWOT analysis helps businesses make better decisions by providing a clear picture of their current situation. It's simple to use, requires no special tools and can be applied to almost any business situation - from launching a new product to evaluating a marketing strategy.
Strengths are the things your business does well or advantages it has over competitors. These are internal factors that are within your control.
Weaknesses are areas where your business could improve or things that put you at a disadvantage compared to competitors. Like strengths, these are internal factors.
Opportunities are external factors that could benefit your business if you take advantage of them. These are things happening outside your business that you could use to your advantage.
Threats are external factors that could harm your business. These are things happening outside your business that you need to be aware of and plan for.
A SWOT analysis is typically presented in a 2x2 grid or matrix. This visual format makes it easy to see all four components at once and understand how they relate to each other.
Cadbury, the famous chocolate maker, might have a SWOT analysis that looks like this:
Strengths: Strong brand recognition, loyal customer base, high-quality products, wide distribution network
Weaknesses: Reliance on cocoa suppliers, higher prices than some competitors, limited product range beyond chocolate
Opportunities: Growing demand for premium chocolate, expansion into emerging markets, new product development (e.g., vegan options)
Threats: Rising cocoa prices, health-conscious consumers reducing sugar intake, strong competition from other chocolate brands
This SWOT analysis helps Cadbury understand where they stand in the market and what strategies they might pursue, such as developing healthier chocolate options to address the threat of changing consumer preferences.
Once you've completed your SWOT analysis, the next step is to use it to make strategic decisions. The goal is to build on strengths, address weaknesses, capitalise on opportunities and mitigate threats.
Use your strengths to take advantage of opportunities. For example, if you have a strong online presence (strength) and there's growing demand for online shopping (opportunity), you could expand your e-commerce offerings.
Overcome weaknesses by taking advantage of opportunities. If you lack technical expertise (weakness) but new technology could improve your products (opportunity), you might hire tech specialists or partner with a tech company.
Use your strengths to reduce the impact of threats. If you have a loyal customer base (strength) and face new competitors (threat), you could create a loyalty programme to keep customers from switching.
While SWOT analysis is a simple tool, there are some common pitfalls that can reduce its effectiveness:
Imagine you're thinking of opening a small café in your town. A SWOT analysis could help you decide if it's a good idea and how to make it successful:
Strengths: Your experience as a baker, unique recipe collection, friendly personality, available startup funds
Weaknesses: No previous business management experience, limited marketing knowledge, small premises
Opportunities: No other cafés in the area, growing interest in artisan food, nearby office buildings with potential customers
Threats: Possible new competitors, rising ingredient costs, economic uncertainty affecting customer spending
Based on this analysis, you might decide to proceed with opening the café, but take a business management course to address a key weakness and focus your marketing on office workers to capitalise on a key opportunity.
SWOT analysis is a powerful tool that helps businesses understand their current position and plan for the future. By identifying strengths, weaknesses, opportunities and threats, companies can make more informed decisions and develop more effective strategies.
Remember that SWOT analysis is not a one-time exercise. As your business and the market change, you should revisit and update your SWOT analysis regularly to ensure it remains relevant and useful.