This is the second installment of a two-part column about SWOT analysis. The first part appeared in January.
Being aware of your company’s strengths and weaknesses is an important part of developing a business strategy. These strengths and weaknesses form the platform from which your company will serve the marketplace, and respond to changes. These changes usually come from external sources in the form of Opportunities and Threats.
As much as we would like to be able to control everything that affects our business, that’s simply not the reality. Like hockey players, we entrepreneurs need to keep our heads up and be aware of what’s going on around us. Use the following categories to examine the external factors that affect your business. For each item, ask yourself whether this will have an impact on the sale of your product or service, or on how well your company can perform:
Macroenvironment: these factors affect all businesses, across all industries. Smart companies will be aware of changes that are occurring, and be ready to respond.
• Demographics/economics – aging Baby Boomers, changes in currency exchange and interest rates, employment rates, increases in household debt levels.
• Technological – Internet, communications tools, e-commerce
• Political/legal – government policies, regulations, laws, political climate
• Social/cultural – smaller family units, two-income families, multiculturalism
Microenvironment: these factors affect businesses in your industry and may affect your ability to achieve your objectives and earn profits.
• Customers – changing needs and interests, desire for “one-stop shopping”, any shifts or events that affect your customers’ ability and willingness to buy from you
• Competitors – growing, shrinking, merging, introducing new products or services
• Distributors – how does your product or service reaches the end user? What might happen to interrupt that flow?
• Suppliers – can you get the raw materials you need to create your product or service? Are prices changing? Delivery schedule interruption?
Opportunities or threats to your business can appear in any of these categories, so it’s important for you to be thorough when you brainstorm and research your environments.
Rank your opportunities in order of how attractive they are and how likely it is that your business will be able to capitalize on them. Also rank your threats in order of how serious the threat is, and the probability of the threat actually happening.
Next, look at your list of strengths and weaknesses and match them with your opportunities and threats. Highlight all the strengths that will be relevant to your most attractive opportunities: these strengths are what will help you to capitalize on those opportunities. More importantly, look for weaknesses in your company that could possibly become fatal when combined with a threat from your external environment.
Here’s an example: Company X builds set pieces for the movie industry has a strength in its ability to be flexible and fast to respond to requested changes. Customers in the film industry are under increasing cost pressures as the exchange rate becomes less favorable. While this may be a threat to many other companies in the set building industry, Company X is able to quickly respond to customer demands without adding additional cost. This actually creates a marketing opportunity for Company X. They should emphasize this competitive advantage in their marketing brochures, website and in their discussions with customers.
How do your strengths and weaknesses interact with your opportunities and threats? What will happen when the environment changes again, or as your company grows bigger? It’s important to return to your SWOT analysis and update it every six months to make sure you have your head up and you are aware of what’s happening in “the game.” The SWOT analysis will help you and your business to be pro-active, not reactive, in every aspect of operations.
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The original article appeared in Canadian Immigrant Magazine in February 2006