A SWOT analysis involves an evaluation of your company's strengths, weaknesses, opportunities and threats. This tool is valuable when assessing your current position in the marketplace, and encourages a business owner to look ahead to identify the right strategies to achieve goals. When effective, there are few drawbacks to a SWOT, but the time involved and the potential bias in preparation are obstacles.
The primary value of a SWOT analysis is the potential to uncover profitable business opportunities you wouldn't have identified otherwise. The key is to figure out how to utilize your business strengths to take advantage of prime opportunities in your industry. A company with large cash reserves as a strength may seize an opportunity to get into a high-traffic building that recently became available, for instance.
SWOT also helps you play defense as well. Your weaknesses are areas or vulnerability that competitors may point out, and that may deter customers from patronizing your business. Knowing your limitations helps you prepare a compelling branding strategy that focuses on strengths, and offsets weaknesses. Threats are factors that could impede your ability to stabilize or grow your company moving forward. Proposed government regulations that mandate costly recycling and renewal programs that will negatively impact your ability to compete on price would be a threat. With a SWOT analysis, you can contemplate how to proactively or strategically address the new regulations rather than waiting until a point of desperation.
A SWOT analysis typically is performed by executives or top managers in a business. However, some companies include department leaders and employees, or have each department prepare its own SWOT analysis. Trying to get multiple people involved in the process can lead to extreme differences in perspectives. Participants may disagree, for instance, on which particular strengths are most important to your business plans. Selecting the opportunities to invest in is another potential source of contention, as participants may disagree on which new market or project offers the highest potential return on investment.
It is sometimes beneficial to gain input from outside sources when performing a SWOT analysis. Business associates, suppliers, partners, city officials and even customers can offer useful insights.