SWOT Analysis: Step-by-Step Approach & Common Pitfalls

SWOT

When creating a SWOT Analysis, it is easy to fall into common pitfalls. A SWOT Analysis is a tool for strategic analysis of businesses. As most of you will know, SWOT stands for Strengths, Opportunities, Weaknesses and Threats. It is a simple tool which can be used by organizations to assess its own competitive position in the market. A SWOT analysis helps an organization to define a strategy or to make strategic decisions.  It is often visualized in a matrix form, in which a distinction is made between internal and external factors, as well as positives and negatives. In this article, we discuss how to create a SWOT Analysis and common pitfalls to watch out for. At the end of the article you’ll find a free SWOT Analysis Powerpoint Template!

SWOT Analysis Matrix

Let’s look into the four quadrants in more detail, to give you a better understanding of what they actually stand for:

Strengths

Strengths are, simply said, things you do well. Every organization will have certain characteristics that make it stand out. Aspects of the organization that it does differently from the competition.

To help you identify the strengths of an organization, you could ask the following questions:

  • Do we have unique resources / qualities that distinguish us from our competition?
  • What do others think we do well?
  • What is the added value we offer to our customers?

To find out what the strengths are, it could also help to look at the value proposition, for example as defined in the Business Model Canvas. The value proposition focuses on why customers would buy your product or service. What do you have to offer that makes them choose you? It describes what problem you are solving for them.

Examples of strengths an organization could have are:

  • A strong financial position;
  • A large market share, with a monopoly position;
  • Highly skilled human resources;
  • An outstanding IT architecture with state of the art software;
  • Efficient processes;
  • A strong brand.

Weaknesses

This should not come as a surprise now: weaknesses are things you do not do well. Aspects the organization should work on. Knowing your weaknesses is essential to good strategic decision making.

To help you identify the weaknesses of an organization, you could ask the following questions:

  • What could we improve?
  • What are our competitors doing better than us?

Perhaps even more than for “strengths”, to identify weaknesses it is highly recommended to talk to employees. They are the ones who usually have frustrations of things that are not going well. They are the ones receiving feedback from customers, internal or external.

Examples of weaknesses that an organization could have:

  • Cost inefficiency
  • A high level of bureaucracy
  • Weak marketing
  • Unfriendly customer service

Opportunities

Opportunities are chances that may be available to improve a company’s competitive advantage. Such opportunities usually arise from external developments in the market. Strategic tools such as the Five Forces Framework or a PESTLE analysis can help to analyse the external environment and identify opportunities and threats.

Relevant questions you may ask to identify opportunities:

  • How can we improve our competitive advantage?
  • Do we see trends that we can utilize to improve our position?
  • Are the wishes / demands from our customers changing?

Examples of possible opportunities are:

  • Technological developments that are relevant to your company
  • International expansion in new markets
  • Partnerships that could lead to cost sharing

Threats

Threats are things that MAY negatively impact your organization’s competitive advantage. Obstacles that could get in the way of reaching your company goals. Similar to ‘opportunities’, threats usually arise from the outside, and can be discovered by executing analysis of the external environment, using a PESTLE Analysis or the Five Forces Framework.

Questions you may ask to identify threats:

Examples of threats an organization could have:

  • New regulations regarding packaging that impact the production costs;
  • Political developments in a country or region;
  • New market entrants or substitutes that increase competition

How to use the SWOT analysis Tool – STEP by STEP

To perform a SWOT analysis, the following steps could be taken:

  1. Firstly, draw a matrix with all four quadrants of SWOT
  2. Brainstorm for each of the four quadrants:
    • Make a list of strengths
    • Do the same for weaknesses
    • Make a list of opportunities
    • Make a list of threats
    • Look for overlap between the quadrants.
  3. Cross-check the results of the brainstorm session by doing research. For example, for opportunities & threats, it is important to have a clear understanding of the market & the environment. This could be achieved by doing a PESTLE analysis and by sing the Five Forces Framework.
  4. Prioritize each list:
    • What are our strongest aspects?
    • Which of our weaknesses is the worst?
    • What is the opportunity with the biggest impact? Which opportunity is easiest to fulfil?
    • What is the threat with the biggest impact? Which threat is most likely to occur?
  5. Based on the priorities, define actions for each quadrant.
  6. Last but not least: Evaluate the SWOT analysis regularly, as well as the progress of the defined actions.

Another recommendation to consider: When organization a SWOT brainstorm session, gather a diverse team from the organization. It is recommended to include people from all layers of the organization to prevent bias.

Common SWOT Analysis Pitfalls

Even though the SWOT analysis is a simple and to the point strategic tool, there are several mistakes that are commonly made. Some examples:

1.      Thinking the work if finished when a SWOT list has been made.

While it is an important step do write down all strengths, weaknesses, opportunities and threats, this should only be a starting point. The information gained by doing a SWOT Analysis should be used to improve the business. You should define actions on how to utilize opportunities and how to mitigate the threats.

2.      Not updating a SWOT often enough.

This isanother pitfall. The external environment can change much faster than you think. These changes can lead to new opportunities and threats. Additionally, changes in your internal organization may lead to new Strengths or Weaknesses. That’s why it is important to keep your SWOT Analysis updated. I recommend to do this at least every year.

3.      Being too optimistic or unrealistic.

When creating a SWOT analysis, you should be able to look critically at your own organization and be realistic. It is a common mistake to be too optimistic about strengths and too positive about weaknesses & threats. If you are having trouble coming up with weaknesses, you could ask an external party (a partner of even a customer) to give your organization feedback from an outsiders perspective.

4.      Not being specific enough.

It should be clear what you mean with the Strengths, Weaknesses, Opportunities and Threats. For example, Too Much Bureaucracy can be a weakness, but you need to make it more concrete. In what areas do you see too much bureaucracy? Which processes are hit and how negative is this effect?

5.      Not ranking the items in your SWOT Analysis.

When you made your list of strengths, weaknesses, opportunities and threats, you should define their significance compared to each other. You should ask questions such as what is our biggest strength? Which of the threats would have the most impact and how realistic are they?

SWOT Analysis Examples

I have created several SWOT Analyses on this blog already. Below, you can find some of them, for inspiration:

Oil & Gas Supermajor Shell: SWOT Analysis Shell (2020)

Football (soccer) club FC Barcelona: SWOT Analysis FC Barcelona

Beer producer Heineken: Heineken SWOT Analysis

Afterthoughts

Each organization, small and big, could evaluate themselves on a regular basis. For example, a SWOT analysis is something that can be evaluated each year, after which comparisons can be made to the previous year.

Questions you should ask while reviewing your SWOT Analysis:

  • “Have we pursued the opportunities that we saw last year?”
  • “Have the threats become bigger and do we need to take action?”
  • “Did we manage to reduce our weaknesses and utilize our strengths?”

A SWOT analysis can either be a tool solely used as a means of brainstorming, as well as a formal tool to base an organization’s strategy upon. After the SWOT analysis has been made, it is important to define actions. It is no rocket science to think that threats should be minimized and opportunities should be investigated. It is also important to look if there are similarities between the quadrants. Perhaps there is an opportunity to exploit that could decrease a weakness.

SWOT Analysis Template (PowerPoint)

Now that we’ve looked at a SWOT Analysis in detail, it is time you do it yourself. If you want to create a SWOT Analysis for your own business, employer or for a school project, I placed a download link here to a simple free SWOT Analysis Template in PowerPoint. Now you can create your own SWOT Analysis!

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