Sunday, May 31, 2015

SWOT Analysis - A Standard Tool in Business Planning

SWOT Analysis has become a standard in any type of business planning, be it a small business plan or the strategic planning process in a large, multinational company. It is an excellent tool that can help any business manager focus his or her attention on what's important.

What is SWOT Analysis?
SWOT is an an acronym for Strengths, Weaknesses, Opportunities and Threats. It focuses your attention very specifically and has you identify factors in each of the above areas. That alone is a very worthwhile exercise. But it shouldn't end there.
How to Conduct a Meaningful SWOT Analysis?
Simply listing several items under each of those categories (Strengths, Weaknesses, Opportunities and Threats) is a good start, but it could not be called an "analysis". So how can we make this process more meaningful?
First, when looking at the company's strengths and weaknesses, we need to focus our attention on the internal factors. In contrast, the opportunities and threats need to be analyzed in terms of the outside world.
1. We begin, therefore, by brainstorming lists of strengths, weaknesses, opportunities and threats. We should make sure that our brainstorming covers all functional areas of the company - marketing, sales, operations, finance, management, logistics, etc.
2. We then boil down our lists to the most important factors - 10 at the most in each of the categories - and evaluate them in terms of their importance, relevance and strategic impact.
3. And now we have a good basis for an in-depth discussion which should explore each of those factors in terms of their implications to our company's performance up to now and its future potential.
4. Each of the areas - Strengths, Weaknesses, Opportunities and Threats - needs to be addressed in depth by itself first. Then, parallels should be drawn between the internal strengths of a company and its external opportunities. Some of those combinations could uncover a new strategic direction or confirm an existing one.
5. Links between the internal weaknesses and external threats are areas which will require management's attention. These are serious weak spots which could prove to leave the company too vulnerable. They will have to be addressed and resolved.
6. One should then take a look at what is both an internal weakness and an external opportunity. These are areas with great potential which can focus management's efforts to eliminate those weaknesses with new motivation.
7. The last combination of factors would be those which are both an internal strength and an external threat. Many companies have overestimated their strength. One should ask some probing questions - are we as strong in this areas as we believe we are? Is this strength going to withstand this threat?
As you see, a SWOT analysis can help you uncover a variety of interrelated factors in your business. When performed properly, it is a great tool aimed at examining the business from all possible angles.
Lucy Rudnicka is a former Corporate Controller. She now owns her own Accounting Services firm and specializes in small business bookkeeping as well as part-time Controller services. She believes that every business, no matter how small, needs accurate and timely financial statements. Visit her site at and learn more about managing a small business with financial intelligence.
Ready to get started with your own SWOT Analysis? Download a SWOT Analysis Chart Template.
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