SWOT analyses are without doubt the most commonly used business planning tool, since they are easy to understand in principle and – deceptively – easy to create. They should perform a critical role in summarizing the key factors from the initial audit phase of the planning process, aid understanding and gathering of insights, pinpoint key issues to be addressed in the plans that follow, and offer some clear indication as to what is needed to succeed. In summary, they should focus management’s thinking and facilitate the decision-making process. That SWOT analyses often fail to fulfil this purpose is down to a lack of proper understanding and rigour.
The SWOT analysis should adhere to the following rules:
- Concentrate only on the key issues and critical success factors, rather than creating long lists of tactical items.
- Strengths and weaknesses are internal to the organization, in relation to its competitors. Thus, a strength is only a strength if no other significant competitor is offering the same thing and it is motivating to a segment of your customers. Don’t include hygiene factors – something that at least one significant competitor also offers. Similarly, a weakness is not so if all significant competitors are as poor as you – maybe it’s an opportunity…
- Opportunities and threats are external to the organization, and relate to the future envisaged during the planning period (usually 3/5 years for a strategic plan):
- Opportunities do not include marketing initiatives such as raising prices, engaging in a new promotional campaign etc. (which might be part of the response to an opportunity), but should consist primarily of the offering of new products and services to reflect identified customer needs, or developing new market segments. They may also reflect PESTLE (political, economic, social, technological, legal, environmental) factors.
- Threats are events – out there, down the track – anticipated as having a potentially negative impact on you, including specific competitor initiatives. They are not ongoing market realities, however (such as awkward customers or a generalised threat of new legislation – be specific).
- Create a different SWOT for each major market segment, since the content will differ according to which customer segment is being considered. Combining them at the outset is likely to create potential confusion, lead to issues not being picked up and opportunities missed.
The classic way to create a SWOT analysis is to use a 4-box matrix. This is perfectly acceptable for securing an overall view of the strategic issues that need to be taken into account in driving the plan. However, it lacks rigour, since it is a qualitative assessment; quantification of the elements in the SWOT introduces a level of rigour that will help in identifying the critical issues and making investment decisions. The document Completing the Marketing Plan gives a format that can be used to implement a quantitative assessment, and Completing the Marketing Plan Commentary gives further details about how to complete the template and organise the SWOT creation process (to download right-click/save as on a PC; on a Mac press Apple/S).
These are some of the things that so often go wrong in the SWOT creation process:
- Trying to create one SWOT to cover every target market/customer segment. It is perfectly possible to create a ‘master SWOT’ by pulling together the common and most important factors from individual market SWOTs, but unless the market is a very simple one, with few opportunities, successful planning will prove much more difficult if only one SWOT is created at the outset.
- As with everything in marketing, be led by market needs rather than existing products.
- Don’t mistake marketing mix initiatives for opportunities. A price increase, the use of new social media, a new product variant, etc. are not opportunities in themselves: opportunities should be external, to which the initiatives will be responses, detailed later in the plan itself.
- The most common error this consultant has experienced over a great many years of viewing SWOT analyses is in the strengths analysis. This is because participants in the process have not removed their sales hat, and proceed to list a string of attributes that are nothing more than hygiene factors, offered by competitors as well. Nothing should be recorded as a strength unless the organization uniquely owns it in the marketplace being considered.
- A good, and useful, SWOT relies upon the collection of as much relevant external and internal data as possible, and upon the involvement of a small team examining and debating this information.
Having created a rigorous SWOT analysis, it must be used to help drive the subsequent plans. Using a step-by-step process can help in extracting the maximum benefit from the SWOT analysis:
- Although all four elements of the SWOT are important, the opportunities must inevitably be the key drivers for the plan, so it is important to examine each in turn.
- Are any of the opportunities affected by any of the threats that have been identified?
- Do you need to address any of the identified weaknesses to enable you to exploit each of the opportunities?
- How can you best leverage any of your identified strengths in order to develop the opportunities?
- Were there any other issues identified during the SWOT that need addressing in order to exploit the opportunities?
- What initiatives are therefore needed, particularly in relation to elements of the marketing mix?
A more rigorous version of this latter process is detailed in the Constructive SWOT Analysis developed by Harry Macdivitt. This entails exhaustively matching up every item within the SWOT analysis with each of the items in the other three elements, using a ‘So What’ evaluation to drive out the implications for the planning itself.