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Historically, corporate planning has always been difficult. Many organizations have failed at trying to get everyone on the same page and agree to the details of a plan—more often than not, their efforts proved to be both ineffective and time consuming. Something had to be done.
Albert Humphrey of the Stanford Research Institute determined in the 1960s to identify why corporate planning consistently failed. Thus the origination of the SWOT analysis. Today, the SWOT analysis is one of the most important concepts in the business world and is widely used by all types of organizations to help build a strategic plan.
So, what is a SWOT analysis, and what do you do with it? In this article, we’ll explain it all (and share some SWOT analysis examples to boot) from start to finish.
What is a SWOT analysis?
A SWOT analysis is a high-level strategic planning model that helps organizations identify where they’re doing well and where they can improve, both from an internal and an external perspective. SWOT is an acronym for “Strengths, Weaknesses, Opportunities, and Threats.”
SWOT works because it helps you evaluate your business by considering multiple factors:
- Strengths and weaknesses are internal factors (things you can control), like team members, software, and geographic location.
- Opportunities and threats represent external factors (things you can’t control), such as competitors, regulations, and economic trends.
Organizations use SWOT to plot out a future course that plays on their strengths and minimizes risks. Taking the time to look at your organization from different perspectives and honestly assess your future prospects is a worthwhile activity; the insights you glean as a result you should then use constructively as part of the strategic planning process.
How do you conduct a SWOT analysis?
To help you get started, we’ve created this step-by-step SWOT analysis template. The examples below are specific to the airline industry (since that’s the example we use in our grid), but the SWOT analysis exercise is applicable to all businesses.
You’ll notice we divided our hypothetical examples for strengths, weaknesses, opportunities, and threats based on the four Balanced Scorecard perspectives. You don’t have to use the Balanced Scorecard to be successful with your SWOT analysis, but this method does provide a strong framework for your discussion.
Not using the Balanced Scorecard? Look to the guiding principles of whatever strategic management framework you are using for ways to think about your business. For example, the VRIO framework emphasizes value, rarity, imitability, and organization; you can conduct a SWOT analysis through the lens of these criteria instead.
1. Create a SWOT matrix.
This is the grid-like matrix that will house the information you gather. As you can see in the SWOT analysis template below, each quadrant features one of the four elements you’ll be focusing on—strengths, weaknesses, opportunities, and threats. Using a matrix helps present your findings in a clear, easy-to-understand way.
2. Gather the right participants.
Pull people from all departments to participate in the analysis. Your entire leadership team should be involved because they can provide a broad view of the organization and offer insight into the competitive landscape. But having lots of different perspectives is beneficial, and that means including leaders from every department—and anyone else you think might have valuable input. The more diverse the group, the better insights you’ll generate. Not all ideas will make it to the final list, but it’s important to consider them all.
3. List your strengths.
Ask the group: What are we good at? How are we better than our competitors? These are broad questions, but in the beginning stages of your discussion, you should accept all answers.
Examine these questions in relation to the Balanced Scorecard perspectives. For the fictional company Upward Airlines, the discussion might look like this:
- Financial strengths: What is our most reliable source of financial growth? Is it our service destinations? A large fleet size? Our customer loyalty program?
- Customer strengths: Where is our customer growth coming from? Is it due to excellent service ratings or low prices? Why are customers choosing us over our competitors?
- Internal strengths: What do we do very well as an organization? Are our operations easily scalable? Do we have an exceptionally high employee retention rate? How complex is our maintenance program?
- Learning & growth strengths: Where do we excel as far as our employees are concerned? Is it our compensation model? Could it be our workforce development program? Are people coming or leaving because of our culture?
Having considered these questions for your own organization, you might come up with multiple responses in some categories. Below is a sample of the strengths portion of the SWOT analysis for Upward Airlines:
4. List your weaknesses.
Ask the group: What are we not good at? Where can we grow? What are we lacking? The Upward Airlines discussion might look like this:
- Financial weaknesses: What is our biggest financial weakness? Our destinations are all in the U.S., which may be limiting our growth. Or, we know that a large number of new competitors entering the market are decreasing our market share. Do we have challenges with debt or credit?
- Customer weaknesses: Where do our customers think we need to improve? This could be related to frequently canceled flights, lost baggage, complexity of the reservation process, or cleanliness, for instance.
- Internal weaknesses: What do we do poorly? Are we slow at handling customer complaints? Are our maintenance costs above industry average? What about plane utilization?
- Learning & growth weaknesses: What are our biggest challenges with employees? Is our staff security training proving ineffective, or is there a negative perception of the organizational culture? Do our employee surveys reveal low engagement?
5. Identify your opportunities.
Ask the group: Where do we see big (and small) possibilities for our organization? What do we see happening in the future?
The Upward Airlines group might discuss the following:
- Financial opportunities: What is our biggest opportunity to improve our finances? This might mean taking advantage of federal loans in a time of crisis (like COVID-19) or adopting specific technology to lower costs. Maybe there is an opportunity to purchase a weaker competitor.
- Customer opportunities: Where could we dramatically improve with our customers? Could we enhance our online interface? Can we create and promote new standards of cleanliness? What about finding new ways to engage with customers when travel opportunities are low?
- Internal opportunities: What processes will drive us well into the future if we could improve upon them? Adopting certain climate initiatives to reduce our carbon footprint, for instance, will make us more eco-friendly (and, by extension, more appealing to customers). Maybe now is the time to upgrade a reservation or pricing system.
- Learning & growth opportunities: What opportunities do we have to leverage staff? For example, do we have cross-training opportunities? Could we make a few tweaks to improve our culture and thus our retention?
Upward Airlines’ opportunities for the foreseeable future might be:
6. Identify your potential threats.
Ask the group: What do we see as a threat? What obstacles do we anticipate? What is changing that could hurt us? As a travel-related company in a tough economy, Upward Airlines might uncover a number of potential threats:
- Financial threats: What threats could seriously impact our financial health? This could be low-cost competitors, ongoing global health issues that prevent travel, or rising oil costs.
- Customer threats: What is our biggest concern about our customers? Has a competitor created a more attractive loyalty program? Is our number of business clients trending downward?
- Internal threats: What current areas of our business might harm us later? Is a contract dispute imminent that could disrupt business? Is a potential merger or acquisition on the horizon?
- Learning & growth threats: What threatens the people within your organization? This could be anything from instability in our customer support department to staff member departures to a department-specific pushback against new technology.
The external threats deemed most imminent for Upward Airlines might be:
7. Examine your matrix for connections.
In looking at your SWOT matrix, do some of your strengths naturally support the identified opportunities? If you eliminate weaknesses, would that present additional opportunities?
Your SWOT analysis is now complete! At this point, we recommend running a “brown paper exercise”—print your SWOT matrix in large size, and ask employees to add post-it notes in any or all of the matrix’s four boxes if they feel the leadership team missed something. (You can also ask employees to add their names next to their suggestions so leadership can follow up with them.) Not only is this exercise great for inter-office discussion, but it also gives leaders the chance to consider opinions from staff in the field.
Done correctly, the SWOT analysis is another valuable tool in your toolbox for improving business performance and minimizing threats and weaknesses going forward. It can also prompt organizations to be more innovative with their strategy—new ideas may emerge that leadership would not normally have considered without such a thorough examination of the business from all angles.
Complement SWOT With PEST
A SWOT analysis is a way of understanding and evaluating all facets of your company so you’re in a better position to make decisions about the future. But there are also external factors that will impact your company’s future; these things are beyond your control but still require consideration as you map out your strategy. That’s why many organizations choose to complement a SWOT analysis with a PEST analysis—together, they provide a complete picture of your business environment for effective strategic planning.
PEST stands for political, economic, social, and technological—the four key areas outside your business that are likely to impact it. These factors tend to play out over long time frames. An economic slowdown, for instance, could take years to resolve, but you can take action to address staff training issues fairly quickly. Thus, a PEST analysis is more valuable than SWOT when it comes to formulating longer-term plans and business strategies.
Our recommendation is to do a SWOT analysis first, followed by a PEST analysis, to get a complete picture of the business landscape.
What should you do with your SWOT analysis?
Congratulations! Hopefully, you understand your business a little better after completing your SWOT analysis; now it’s time to put those insights to good use. Your ideas on how to use your strengths and overcome your weaknesses should inform your strategy.
Developing a strategy is in and of itself a big step. It involves defining objectives for your company to move toward, creating priority initiatives (projects) to help make them a reality, and identifying measures to make sure the strategy is unfolding the way it should.
Our Upward Airlines SWOT analysis example, for instance, lists four weaknesses:
- High maintenance costs
- Fewer direct travel routes than our competitors
- No uniform project management system in place
- Below-average employee satisfaction
Some of these weaknesses are easier to address than others, such as improving employee satisfaction and your project management practices. Others, like the lack of direct travel routes, may be difficult to address in a time when COVID-19 is severely limiting travel and profits are low. Similarly, you want to continue supporting your current strengths. While you shouldn’t let your excellent training program lapse, it needn’t be a focus if you expect the number of new hires over the next year to be low. However, improving your virtual communication practices will most likely prove to be beneficial moving forward.
Therefore, the Upward Airlines SWOT analysis above might drive strategy in the following ways:
- An objective might be to improve employee satisfaction; to accomplish that goal, the company might reevaluate its benefits plan or start a surveying program for employee feedback.
- An objective might be to make flying as safe as possible for customers; to reach that goal, they might implement a new cleaning regimen and increase communication with customers about new procedures.
- An objective might be to secure pandemic-related government aid; to achieve that goal, they might create a new department focused on applying for and following up on these opportunities.
Make sure there is a clear and strong link between your SWOT analysis and your strategy map. For example, if you’re a for-profit organization, your financial perspective will be the top priority—build your analysis into your map in a manner that drives those finances in the right direction. Maybe your SWOT analysis foretold an opportunity to hit a new line of business or forecast that a line of business would dry up. Your strategy needs to reflect that information.
SWOT Analysis Best Practices
To create the most accurate and effective SWOT analysis, we recommend the following best practices:
- Encourage open and honest conversation. Create an environment that encourages candidness. That might mean using sticky notes to gather anonymous feedback, rather than having people raise their hand to state a company weakness out loud.
- Promote collaboration. Have everyone write all their ideas on sticky notes, put them on a board, and then walk through them as a group. Combining similar ideas might help people to think of more. You might also consider breaking up a large group into smaller groups of three or four employees to encourage the sharing of ideas.
- Vote to narrow down ideas. The group will generate lots of ideas. You want to take them all into consideration, but you don’t need to keep every idea; this should be a fairly high-level exercise. Rank the top 10 and list those to focus on. And remember—the SWOT isn’t intended to project 10 years down the road; it should look at where you are now and in the very near future.
- To identify external factors, look at the competition. In addition to a PEST analysis, another way to identify external threats and opportunities is to look at your competitors. What opportunities are they currently after, and can you use that to your advantage? What threats are they currently facing, and how does that apply to you?
- Be specific when describing internal factors. For example, “brand image” can be both a strength and a weakness, depending on how you word it. Be specific in your descriptions; ultimately, that specificity will also help you define the right measures and benchmark your performance over time.
- Keep emotion out of the room. This exercise should be objective, not subjective. If a statement can’t be backed up with facts, it doesn’t count.
- Try to make your resulting strategy “weatherproof.” Current threats may include the possibility of more political and economic turmoil, but these kinds of obstacles tend to be much more complicated than those you’d see in most SWOT analyses. While it may be difficult to address them fully, try to develop a strategy that will bolster your organization during hard times. For example, a retail store might consider creating an objective to ensure its online and in-person stores perform equally well should either avenue be cut off due to external circumstances.
Download our strategic planning tools—including a SWOT analysis template.
If you need some guidance with this process, download our free strategic planning booklet. It includes eight of the most popular templates to build strategic plans, including a SWOT analysis template.
The strategic plan you develop from your SWOT analysis is powerful, so once you’ve created it, don’t let it sit! Use strategy execution software like ClearPoint to track your progress over time. (Read more about strategy execution and how you can use ClearPoint for tracking here.) And as you continue using ClearPoint, you’ll also gain great insights into your strengths and weaknesses for future SWOT analyses. So, download the templates—or check out our learning center for other helpful resources—and start planning for the future now!
What are the 4 dimensions of SWOT analysis?
The four dimensions are: Strengths, Weaknesses, Opportunities, and Threats.
When and where should you develop a SWOT analysis?
You need a few uninterrupted hours to conduct a strong SWOT analysis. You should conduct a SWOT analysis around the same time of your strategy refresh. Include key leaders within the company to get comprehensive insight on the current state of your business.
How do you use your SWOT analysis?
Use your SWOT analysis to influence your strategic plan! Don’t let the insights from your SWOT analysis just sit in a shelf. Learn how to utilize your strengths to achieve your long-term goals, and make plans to strengthen your weaknesses.
Why should I conduct a SWOT analysis?
A SWOT analysis offers many benefits for your organization. It allows you to better understand your business. By taking the time to identify where your company succeeds, and where they struggle, you can create plans to leverage your strengths and mitigate risks in your weaknesses.
What’s the difference between a SWOT and PESTEL analysis?
A SWOT analysis is conducted to assess internal factors that affect your business. A PESTEL analysis focuses solely on external factors.