The Advantages of SWOT Analysis in a Strategic Plan

A comprehensive strategic plan does for your existing business what the business plan does for start-up businesses: It establishes the direction and action steps required to grow your business. SWOT stands for strengths, weaknesses, opportunities and threats. A SWOT analysis is important to strategic planning in identifying key internal and external influences that are responsible for your company's current position, and that favor and inhibit the prospects of moving it to where you want it to be.

Strategic planning requires an objective assessment of the strengths and weaknesses of your available internal resources. Your internal resources are variables under your control. This is analogous to an army general taking inventory of his war materiel and "boots-on-the-ground" fighting capacity. He will not engage the enemy in combat before compensating for deficiencies in his war-waging capabilities. Strategic planning also requires an objective assessment of the external forces — the opportunities and threats — over which you have no direct control. Similarly, the general will reconnoiter his enemy's fighting capabilities and the lay-of-the-land where he will engage the enemy. He will use the battlefield terrain to his advantage and not cede those advantages to the enemy. Moreover, the general will adapt his engagement plan to minimize the hazard of enemy threats that could endanger his troops.

Your SWOT analysis is implicitly an exercise in relativity — relative to your competition. You must first precisely define and identify the businesses that are your competition and your reasons why. Your strengths are those internal resources where you enjoy a competitive advantage. Your company-wide assessment of strengths could include product or service superiority, first-mover advantage, cutting-edge distribution and logistics, patent exclusivity, product or service development dominance, and excellence in marketing and sales. The same applies in reverse when assessing your internal weaknesses. Your internal resources may not be readily apparent. The key is to ask: Where do we excel? Where do we fall short?

External variables are opportunities and threats over which you have no control. These are market and industry-driven forces that characterize the customer and competitive environments of your business. Market and industry-driven changes can present opportunities and threats to your business. Consequently, view your customers and your competition from the competing perspectives of advocate and antagonist. A few examples of external forces that could present opportunities or threats to your business include changes in demand due to opening or closing of important market segments, aging or emerging distribution models, competitor's first-mover advantage, technology changes, and changes in customer spending due to lifestyle or economic factors

SWOT analysis has been an integral part of strategic planning since the 1960s. Proposed improvements to SWOT analysis over the years appear to be refinements to the general SWOT technique. Regardless of the technique employed, you must assess the internal and external forces that regulate your company's ability to move to the next level. SWOT analysis has delivered on this mandate for thousands of businesses simply because it withstands the test of time.