SWOT Analysis (also known as SWOT Matrix) is a business framework that aids in evaluating a wide range of elements that can significantly influence a company’s success. These variables might be either internal or external to a firm.
Furthermore, these variables may be beneficial/helpful or detrimental/harmful to a firm. Integrating these two dimensions, you will create a 2×2 matrix with four quadrants. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. We will go through each of the four quadrants of the SWOT analysis.
After, we will review the TOWS Matrix. TOWS is used to align the strength and weaknesses of a company (internal factors) to the opportunities and threats in the environment (external factors) to better understand a company’s current and future strategies. Consequently, SWOT analysis is often the first step before a TOWS analysis.
How to do a SWOT Analysis
SWOT analysis may be used before you take any company action, whether you’re evaluating new projects, revising internal policies, looking at possibilities to pivot, or changing a plan in the middle of its implementation. Sometimes it seems sensible to do a comprehensive SWOT analysis to assess your company’s present environment and make any necessary operational improvements. The research can highlight the main areas where your company is operating at its best and where processes require improvement.
You should start with a question or purpose to get the most out of your SWOT analysis. Before starting the SWOT analysis, it is also better to conduct research to comprehend last industry trends and market. You may get various viewpoints from your personnel, business partners, and clients. Also, could you do some market research about your competitors?
A firm’s characteristics that give it an advantage over others are its strengths (competitors). These advantages are known as unique selling points (USPs), firm-specific advantages (FSAs), or competitive advantages. These strengths come from resources and talents that are valued, unusual, and difficult to replicate. Patents, a strong brand reputation, a new creative product, a competent team, historically developed know-how, and substantial financial reserves are all examples of essential firm resources.
The inner side of the organisation and the SWOT analysis are formed by the organisation’s strengths and weaknesses. Weaknesses might include a lack of patent protection, a poor customer reputation, limited working capital, weak leadership, and an inefficient manufacturing process. These corporate attributes put a firm at a disadvantage compared to others. In other words, they are detrimental to a business.
Weaknesses are best found when there are a sufficient number of feedback loops in place, both internally and externally. Could you consider sending out consumer questionnaires and holding monthly employee meetings?
Opportunities are the external elements of the SWOT analysis that may favour a company’s success. A firm should search for aspects of the environment that may be used to its advantage when assessing prospects.
Examples are customers’ rising purchasing power, government subsidies, more favourable international trade regulations, and general population lifestyle changes. It may also refer to existing rivalry, upstream supplier power, downstream buyer power, possible new entrants, and alternative products or services.
The external portion of the SWOT analysis is made up of opportunities and threats. Regarding industry-specific risks, one may consider new rivals entering the fray, the availability of replacement products, and suppliers’ rising negotiating strength. On the other hand, threats are outside elements that may pose problems for the firm in the future. A growing unemployment rate, disruptive technology, and NGO demonstrations are all examples of negative macro-environmental trends.
The SWOT analysis is a simple but thorough tool for identifying the weaknesses and threats of an action plan and the strengths and opportunities it makes possible. To go further, look at an interesting tool: the TOWS Matrix.
A SWOT analysis can analyze a company’s present internal and external conditions but does not give clear strategic measures to pursue. The TOWS matrix is one method for mapping a company’s strategic choices (or TOWS analysis).
You can develop four main strategies based on the circumstances by integrating the external environment’s possibilities and dangers with the internal organization’s strengths and weaknesses.
WT situation: Mini-Mini strategy
Mini-Mini strategy boils down to a pessimistic scenario, such as a company’s collapse, or an optimistic one, such as attempting to survive by combining with another firm. In this situation, the firm has few prospects for growth. It functions in a hostile environment, and its ability to alter is limited. It lacks significant strengths that might withstand threats. The Mini-Mini strategy’s goal is to reduce both vulnerabilities and dangers.
WO situation: Mini-Maxi strategy
The Mini-Maxi approach seeks to reduce exposures while maximizing possibilities. In this circumstance, the firm has more vulnerabilities (weaknesses), but its environment gives many options to fix them. The plan should include taking advantage of these possibilities while minimizing or addressing organizational shortcomings. For example, outsourcing tasks or acquiring another firm with the necessary resources might be possible.
ST situation: Maxi-Mini strategy
We observe a powerful firm functioning in a challenging environment in this situation. The goal of a Maxi-Mini strategy is to maximize a company’s strengths while reducing risks through these strengths.
E.g. A firm with excellent financial capabilities and cost-cutting abilities may be able to decrease its pricing to drive out competitors.
SO situation: Maxi-Maxi strategy
Any business would like to be in a position where it can capitalise on its strengths and prospects. Such a company may lead from its strengths, leveraging its resources to capitalise on market possibilities.
Companies in these conditions, for example, might consider expanding overseas or diversifying their product line to increase sales.
For other powerful tools and concepts, to launch a new product, also look at:
- Lean Startup: how to launch a product or service successfully
- Design Thinking Process
- Brainstorming for ideas
- SWOT Analysis and TOWS Matrix
- 5 Whys’
- SCAMPER Ideation Method