How to perform a SWOT analysis for effective decision-making

Effective decision-making is essential for the success of any business. But you aren't just born a decision-making pro. Making effective, successful decisions that benefit your brand or business is a learned skill set, usually honed with practice and improved using the tried and true tools available. SWOT analysis is one of those tools that can help you improve your skills at making the best decisions by incorporating all the data that may affect the best decision.

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SWOT, an acronym for Strengths, Weaknesses, Opportunities, and Threats, is a framework developed in the 1960s that you can use to evaluate the competitive position of your company and offer the data to make strategic improvements. This analysis uses both internal and external factors that can hurt or help you in developing implemental changes. Since its inception, it has become one of the most widely used tools by business owners during start-ups or when trying to grow their companies.

By identifying the core strengths and weaknesses, as well as opportunities and threats, you’ll be able to conduct an analysis using that information, opening the door to new ideas and perspectives. The analysis functions best when a diverse group can provide the necessary information so that you can receive data from different points of view and data points.  

SWOT analysis is versatile enough to be applied to the company as a whole, or you can narrow the scope to focus on a single department or product. You can use this strategy to tell if a company is meeting its growth projections, gauge the performance of a new product, or determine if a department or campaign has met its goals. 

SWOT analysis template

The best time to do a SWOT analysis is before you begin a new process or when you’re reviewing or revisiting ones that are already in place. If you have a process or policy that’s a work in process, doing a SWOT analysis is an effective way to see if you’re on course. Your analysis can be as general as you need (e.g., an evaluation of your entire operation), or you can make it more focused (e.g., an evaluation a new company policy). 

By doing a formal SWOT analysis, you can develop a total picture so that you can build on your strengths and minimize your weaknesses. Not only are you analyzing the internal data, but you can also see the external factors that influence the performance of your process.

Again, it’s important to reiterate that the owner or developer does not carry out SWOT analysis on their own. This is a collaborative process that thrives on information from a variety of sources and expertise. Many areas in your business can benefit from SWOT analysis. 

When to perform the analysis depends on the stage you’re at in development or review:

• Strategy building. Whether it’s for a new product, a new company policy, or the general growth of the company in its entirety, using SWOT analysis when you are first developing the strategy to perform your task or process is essential.

• Corporate planning. Goal setting, growth projection, policy implementation, and more can benefit from SWOT analysis. Not only is it beneficial in the planning stage, but you can also use it as a benchmark during the implementation of the policy or growth plan.

• Marketing. Marketing is a key area that benefits from SWOT analysis. Whether you’re implementing a new marketing campaign or an existing campaign is not meeting performance objectives, both can benefit from the data collected through SWOT analysis.

• Community organizations. SWOT analysis is not limited to commercial applications but can also be implemented with community or governmental organizations, particularly when implementing new policies or laws. This analysis can help point out the new policy’s strengths and weaknesses while looking at how the external factors will affect its implementation.   

Most groups conducting a SWOT analysis will create a table or graphic with the four elements of SWOT (strengths, weaknesses, opportunities, threats) and list the factors that fit into each category. You need these elements to effectively develop your plan of action.  

Generally, the factors will be either internal or external and will land somewhere within the four categories. You may immediately see some correlation between the four columns, but if there is no apparent correlation, there may be in the future, or it may not even be relevant.

Internal factors

Internal factors are those strengths and weaknesses that are internal to your organization and which you have available to you or your company. Some common examples may be:

• Finances. This could be a strength or weakness. Do you have enough money to introduce the new product, or do your finances limit you? Do you have the financial ability to hire the staff to implement and monitor the new policy? You can apply your financial factor to any analysis that you’re doing.

• Physical resources. Do you have the space, equipment, or manpower to complete the process? Will your current software or technology be sufficient when implementing the new process or product?

• Staff. Will you need to hire additional staff to implement the process? Do you require specialized employees for the process, and who are they? How does this correlate with your financial position?

• Audience. Your customer availability is key to the success of your company, process, or product. Is your customer accessible and available?

• Legal. Do you need legal help in complying with laws and regulations in the process? Do you need patents or copyrights? Do you need to file documentation to keep you in compliance? 

External factors

External factors are those outside of your company and your control. Even though they are out of your control, they are relevant to your analysis. This includes both the opportunity and the threat factors. Some examples of the external factors to consider during your SWOT analysis are:

• Economic trends. Consider unemployment rates, inflation, and interest rates. Are consumers able to afford to purchase your product?

• Market trends. This is essential when considering technology. For example, cell phones hit the market as large and bulky items that were mobile. Then there was a trend for smaller phones, which went on for years. More recently, the market started trending toward larger, more manageable devices. When considering the introduction of a new product, or for that matter, a new policy, consider projections in the market.

•  Finances. As an internal factor, finances refers to your current resources. As an external factor, it refers to available external funding that may offset your financial deficit, such as donations or crowdfunding, legislature, or government grants.

• Demographics. This can cover a wide range of circumstances. For example, do you need skilled staff members that are unavailable in your location? In order to fulfill your sales goals, will you have to export your product elsewhere? If your new process is focused on a certain demographic, can it be modified to broaden the target market?

• Supply. As seen recently, supply chain issues can place a company in financial distress.  Do you have good relationships with your vendors, and are raw materials available and affordable? 

We’ve touched on the strengths, weaknesses, opportunities, and threats that are the four elements that make up the SWOT acronym. While the process or product may change, and the factors may change, there’s one thing that is certain—all four elements must be present to get a comprehensive and useful analysis.   

Strengths

When listing strengths, focus on the aspects that set you apart from your competitors.  List the things that have helped your company to show success and growth. 

Examples of strengths may include:

• Financially stable

• Innovative

• Strong, recognizable brand

• Growing customer base

• Quality products

Weaknesses

It may be painful, or at least uncomfortable, to list your company's weaknesses, but all companies have them. To be at the top of your game, remain competitive, and meet your goals and projections, you must identify weaknesses to make the needed improvements. This is where getting the involvement of a variety of perspectives is essential. With others involved, their point of view may be entirely different and previously unconsidered. 

Examples of the company’s weaknesses may include:

• Inability to source raw materials or to source them competitively

• High levels of debt

• Low employee morale or high turnover

• Lack of financial stability

• Lack of space or other resources

• Insufficient or outdated technology

Opportunities

Opportunities are those external factors that can help your company develop a competitive edge. They are the things that happen outside your business that can propel your brand or company into higher profits or benefits that previously were unseen. 

Some of these opportunities include:

• Tax reductions or benefits

• New technology opportunities

• Widening customer base

• Change in market trends that ultimately benefit your business

• A drop in interest rates, tariffs reduction, or supplier rebates

• A competitor closes its doors

Threats

Threats refer to the opposite external factor. Instead of opportunities, threats are the factors that you need to overcome to achieve your goals. If not addressed, they can harm or even destroy an organization. We saw this during the pandemic. Small restaurants went under when they could no longer offer indoor seating to their customers. When other restaurants identified this as a threat, they could stay afloat by offering delivery, curb-side pickup, or outdoor seating. 

Other examples of threats to identify are:

• Rising costs of materials, utilities, or payroll

• Unreliable supply chain

• Labor market issues with both skilled and unskilled labor

• Natural disasters such as tornadoes, drought, flooding, etc.

• Increase in competition

Though you may think it’s easy to sit down and list all the strengths, weaknesses, opportunities, and threats, it can sometimes be difficult without a roadmap. Use questions in each category to get the creativity started and receive the responses you want. Here are a few examples:

Strengths

• What do we do best?

• How are we better than our competitors?

• What’s our unique selling point?

• What are our assets and financial strengths?

• Why are our customers are loyal?

Weaknesses

• What areas need improvement?

• How much debt do we have?

• What is our biggest customer complaint?

• Is our equipment or technology outdated?

• Are we understaffed?

Opportunities

• How can market trends affect our company and products?

• Do our customers ask for products we don't offer?

• Can we expand in our market to increase our sales?

• Can we take advantage of a misstep made by our competitors?

• Are there government programs that we can take advantage of?

Threats

• How do we react to a natural disaster?

• How do we comply with new laws or regulations?

• How is our bottom line affected by increased inflation?

• Will increased interest rates impact our business?

• How can we bypass a labor shortfall?

Usually, a SWOT analysis includes the CEO or owner of the company and a selected group representing a cross-section of the company. This may include someone representing finance, marketing, human resources, product management, engineering, and materials management.  The variety ensures there is access to more data and creativity than with only one or two executives.

SWOT analysis template

Once you have assembled your group, there are a few steps to take to ensure that you’re successful in your analysis. Taking shortcuts can sometimes result in incomplete or biased data. To avoid this and get the best analysis, follow these five steps:

Step 1: Determine your objective

Broad objectives usually do not give enough concise information to be successful. Instead of the objective to find out why your company is not meeting sales projections, perhaps focus on a particular product or product line as your objective.

Step 2: Gather resources

This involves a combination of the personnel working on the analysis as well as the data you’ve gathered. This can change drastically from one SWOT analysis to another. For example, if your objective is to find out if a new product should be introduced in Canada as well as the US, you will want to get people involved from marketing, sales, distribution, finance, etc. If your objective is to see if you should advertise on social media, your cast will change.

Step 3: Compile ideas

This can be a brainstorming session with no judgment, used to gather ideas that are relevant to the objective. Be sure to list the ideas in the strength, weakness, opportunity, or threat category where they belong. Remind your team that you’re focusing on both internal and external factors.

Step 4: Refine findings

Once you compile the ideas, engage the team in prioritizing the ideas. What do we need more information on? What should we focus on? What’s irrelevant? It’s fine to debate, but continue to remind the participants of the common objective.

Step 5: Develop the strategy

Once you finish the analysis, develop the strategy to move forward, make changes, or scrap the project as determined by the data you collected and analyzed.

By following the information outlined above, you can write a good SWOT analysis by identifying the four elements and arranging them into a table with the four quadrants. Identify the objective, and list the strengths, weaknesses, opportunities, and threats. Use questions (examples above) as a guide for completing the analysis and attempting to balance the list. If you don't prefer the quadrant format, set it up as free text, just as long as it is a workable, useful tool.

An example of a SWOT analysis might be the XYZ bakery. This is a small local bakery that focuses on selling premium wedding cakes. Their objective is to see if it is feasible to carry other product lines. The strengths of the business include a loyal customer base, low overhead, experienced cake designers, and a low advertising budget. Their weaknesses are a limited space and storefront, older equipment, and a very tight budget. The opportunities are that there is a demand for decorated cookies, an unsaturated market, and that cookies, unlike wedding cakes, can be successfully shipped globally. The threats are that other companies are already shipping this way and that decorated cookies are a trend that may not continue, especially in a health-conscious market.

Though SWOT analysis is great for strategy sessions or focusing on a specific segment of your business, it can also be limiting. Listing items in a quadrant does not mean that all items listed have the same importance. A deeper analysis is required when this comes to light. Depending on the objective, other strategic planning tools may be useful, such as Objectives and Key Results (OKR), Political, Economic, Sociocultural, and Technological (PEST) analysis, and Balanced Scorecard.

The strengths and weaknesses in SWOT analysis are those internal factors that can describe the ways a business excels or the ways it can improve.

The opportunities refer to the external factors that contribute to an objective's success that are not within the control of the company or owner of the company.

Once all the data is collected, the participants can strategize the next moves.