SWOT analysis is one of the most well-known concepts in the corporate world for strategic planning. In a nutshell, SWOT analysis enables companies to identify what they are good at and what they need to work on more for improvements, from both internal and external points of view. Internal elements include employees, IT infrastructure, office locations, etc. These elements are under the control of the organizations.
In contrast, external factors, such as regulations, competitions, cultural trends, cannot be controlled. However, by evaluating these outside opportunities and threats, businesses can take steps to minimize risks and take advantage of any forthcoming changes. Given the importance of SWOT analysis, it is crucial for companies to have a procedure in place to establish a good SWOT analysis. Below are the fundamental steps that a business can take to help streamline its process.
Six Steps to Perform a SWOT Analysis for Strategic Planning
First, the right people should participate in the process. If it is necessary, companies can gather participants from all departments, along with the entire leadership team. Having the right people involved in the process aids in broadening the view as well as getting insight into small details. People from diverse backgrounds can provide inputs from different perspectives. As a result, firms can generate better insights.
Second, based on the inputs of the team members, businesses can list their strengths by asking the appropriate questions. For instance, to verify customer strengths, the following questions can be asked. What is the source of our customer growth? Why did our customers choose us instead of our competitors? In the early stage, companies should accept the answer to those questions from all team members. The answers can be narrowed down later. Responses from participants should be listed in the SWOT matrix template and distribute to all members. For the above two questions, the answers can vary from excellent customer support, low prices, or good training programs for new staff members.
Similarly, in the third step, companies will list their weaknesses using the same tasks as above. Using the same example, the question that can be asked in this step is “What can we do to produce better products?” The answer can be related to material quality, product availability, cleanliness, etc.
In the next two steps, businesses will list their opportunities and threats. As the same as above, it is necessary to take as many inputs as possible from all participants. It allows companies to have a broad view of the whole picture. Because opportunities and threats cannot be controlled, a further understanding of the circumstances that the firms are facing is often required. A threat can be turned into an opportunity, and vice versa. If businesses do not understand their surroundings well, it may be hard for them to avoid threats or take advantage of opportunities.
For example, a big soccer event will take place near a company’s factory. Whether this event is an opportunity for the company to advertise its products or a threat to its logistics requires further analysis and a deep understanding of the situation. The event can be both an opportunity and a risk. It is worth noting that opportunities and threats exist for all businesses out there. However, it is up to the individual business to create the best possible outcomes.
In the last step of the SWOT analysis, companies need to connect all the factors that they discovered through prior steps. For instance, with all the strengths that they listed, can the strengths support external opportunities? Likewise, if the firms get rid of their weaknesses, will there be any additional opportunities? If businesses can answer these questions, they can connect all the internal and external elements. It will ultimately help them minimize risks and maximize their chances.
Ten Steps to Carrying Out a SWOT Analysis
To achieve the best outcomes, some of the following practices should be followed. First, the leaders should encourage open and honest discussions. If it is necessary, companies can accept anonymous feedback. Understandably, some employees may not want to express their opinions openly. Nonetheless, all opinions must be gathered. Second, to save time, similar ideas can be divided into groups. People may be able to think of more ideas when similar ideas are combined. To narrow down the idealists, participants can vote on the ideas. The ideas that receive the most votes should attract more attention. Third, to identify all possible opportunities and threats, companies can look at their competitors. If their competitors are after a certain idea or avoid a certain threat, businesses may consider taking the same actions. Lastly, the external environments are complicated to explore and analyze fully. Even though it is hard to consider all possibilities, businesses should make effort to streamline their operations during difficult times.
SWOT Analysis Scenario
It is not uncommon for organizations to experience change. In some instances, enterprise transformation is required in order to stay competitive. In these cases, problems and issues arise that need immediate attention in order to remain competitive. Such is the case with the following business scenario:
Sales for your products have been consistent and steadily increasing. However, there has been a positive shift in demand for your products, especially overseas! The company’s business-model was more suited for domestic customers and partners; the organization initially started in domestic markets and this was the bulk of your business. Subsequently, the processes for conducting business internationally have been plagued with inefficiencies that have led to lower than expected growth and profit-margins in the global market. Therefore, it makes it especially difficult now to meet the increased demand overseas. One of the strategies that have been presented for consideration is to manufacture the more internationally popular product-lines overseas. This manufacturing-line move would mean essentially outsourcing some related job functions, while strengthening existing international partners, and creating new ones. The company must also take into account any international business laws and regulations that must be adhered to.
It is apparent that the decision-making process within the organization needed to be evaluated. For example, the company was ambiguous about their plans for product development. They weren’t sure whether to build on the core competency of existing products or commit to the development of new products. The organization has been recently investigating the acquisition of a Flexible Manufacturing System (FMS). This type of system would give the company a more robust manufacturing environment able to produce a greater variety of products since the system can incorporate the use of emerging technologies Additionally, your organization has been short-sided in its forecasting and did not consider developing new markets and products (especially outside the borders of the U.S.), another indication of not focusing enough on international business. One reason cited for the lack of cognizance towards the international market was the organization’s inability to produce products that could compete with the foreign market. Internal processes and procedures, coupled with a stagnant workplace environment made it difficult to create and develop new products. The problem stems from management and its inability to create a workplace environment that would foster creativity and innovation; the workforce seemed unmotivated to think “outside the box” and be creative.
In regards to technology, the IT budget left little room for R&D, thus the company had no plan to integrate any emerging technologies (data-mining, CRM, etc.) that could help facilitate and augment organizational productivity and enable the company to be more competitive in the market. The organization has been utilizing older technologies, and in some cases, computer software that is outdated and no longer supported. The technological resources have historically been difficult to manage since technology has always been a “moving-target” so to speak and required a high-level of expertise. So technology initiatives have recently been focused on resolving problems to keep up with manufacturing demands. Therefore, old and outdated technology, lack of expertise, bad management, and no initiatives towards incorporating newer technologies have made it very difficult to solve problems and be proactive. The incorporation and implementation of emerging technologies would also benefit other initiatives, such as the company’s plan to push towards sustainability and corporate social responsibility by reducing waste and improving internal manufacturing processes; this enables the company to leave a smaller carbon-footprint. The management perspective in terms of corporate culture however has always been towards increasing profits and growth. Therefore, the company is unsure how to plan and implement strategic initiatives directed at specialized functions outside the core-competency of the organization such as emerging technologies and sustainability.
Overall, the company is doing well. However, with the advent of many new challenges, the organization finds itself in a precarious position and uncertain on how to proceed. The organization needs to understand where it stands in relation to many areas; products, processes and operations, customers, international markets and global business, the workforce, technology, sustainability, and strategic direction.
Strategic Planning & Implementation
For the company in the scenario, using the SWOT analysis, the company can figure out its strengths and weaknesses. At the same time, it can also know if there are any opportunities and threats in the foreign markets. In terms of strengths, the strongest aspect of the company is that it is doing well in the U.S. This strength is a good foundation for the company to enter international markets. For its weaknesses, the biggest weakness is that the company’s structure is more suitable for domestic markets. The unsuitable model has led to inefficiencies when the business expands internationally.
Another weakness is that the decision-making process of the company is ambiguous. It does not have any clear plan to develop new products to be sold overseas. This weakness creates the company’s inability to operate beyond the U.S. borders. The third weakness is the internal environment is unfriendly and stagnant to stimulate creativity. It seems like the root cause for the bad workplace environment is incompetent management. Employees are not encouraged to think outside the box. The last weakness is the company’s IT infrastructure. The IT has been using old technologies. It has no specific plan to upgrade to new models. It is because the budget for IT does not leave much room for research and development.
Regarding opportunities, the scenario shows that there is an increasing demand for the company’s products overseas. However, this opportunity obviously comes with a few threats and challenges. First, there are language and cultural barriers. It is hard to sell products to the customers if a business does not speak the same language as the customers. Furthermore, it will be a problem if the company develops a product that is not accepted culturally in the foreign markets. This threat can be avoided by doing a throughout research on the international markets about their trends, preferences, income, etc. before launching any new product. Second, through advanced market research, the company in this case can identify all potential local competitors. Obviously, there are several disadvantages that the company has to overcome first to compete against the local businesses. Some of the problems are taxes and tariffs, different currencies and exchange rates, slow turnaround times, etc. The solution to this challenge can be finding the right partners and building relationships with international suppliers.
The next threat is supply chains. It is not easy to import and export products, as well as shipping and logistics. One of the dominant problems is the time associated with shipping the goods. The only way to overcome this challenge is to come up with a business plan and a budget. The final threat is the risks related to hiring staff in foreign countries. The most obvious risk is a rise in overhead costs. The revenues from selling products overseas may not be enough to cover the additional overhead costs. Moreover, hiring new people from a foreign country means that the company has to put trust in them, even though the company’s owners never meet with them face to face.