SWOT Analysis

The SWOT Analysis is a Tool that helps to Analyze the Situation of a Company in a certain Market.

• Its Competitiveness and Future.

 

According to this method, the situation of any Company can be accurately described using 4 factors:

Internal Factors:

• Strengths.
• Weaknesses.

External Factors:

• Opportunities.
• Threats.

Its name is an Acronym for the 4 Factors Proposed.

 

SWOT Analysis Template.

 

* In our “Strategy Templates” Page you will find an Open (and Free, of course) Excel Sheet with a SWOT Analysis Template.

Now, we’ll explain these Factors in Detail using different examples.

• This way, you’ll better understand How to use this Tool.

 

Let’s begin:

These Factors, Strengths and Weaknesses, depend on the Company.

 

What a Company is Capable of, and what it Lacks.

• Compared to its Competitors.

The Strengths Factor describes:

• What a Company does better than its Competitors.
• The Advantages a Company has.
  • Lower Transportation Costs.
  • Access to Cheap Raw Materials.
  • Cheap labor.
  • etc.

 

Even if some of these advantages are influenced by External Factors (such as Location or Policies) the Company is benefiting from them more than its Competitors.

• Otherwise, all its Competitors would do the same and there would be no Strength.

 

In the Game Console World, there is a company that can be easily pointed as the leader:

• PlayStation.

 

Sony entered the market much later than Nintendo or Sega, but in few years PlayStation took the first place in the Game Console Market.

 

How did Sony do it?

 

Some People would say that was due to is the huge Game catalogue.

However, this was not, the Main Cause of its Success.

 

Why did PlayStation got this large Catalog of Games and its Competitors didn’t?

 

A Good SWOT should highlight:

• Its Easy Game-Programming Environment.

It was much easier to Develop a Game for PlayStation than for its Competitors.

 

This made possible for SONY to Attract lots of Game Developers that were struggling with SEGA Consoles.

• Thanks to this, its Game Catalog grew rapidly.

As you can see, there is a Important Difference between a Real Strength and its Consequences.

 

You have to identify the Root Cause, the Real Strength of a Company.

• Instead of the Consequences of these Strengths.

The Weaknesses Factor describes:

• What the Company does worse than its Competitors.
• The Disadvantages of a Company.
  • Higher Labor Costs.
  • Expensive Materials used.
  • etc.

 

You surely know Elon Musk’s company.

• It is one of the most Innovative Companies in the World.
• Tesla has been the first automotive company to integrate a semi-autonomous driving system.

 

However it is impossible for them to Supply all the Demand they have.

But how can this be a Weakness?

 

A properly Developed SWOT should highlight as Weakness:

• Tesla has a Poor Internal Management (sorry, Musk).

 

This has caused the Company to:

• Set Impossible Goals.
• Develop overly aggressive Marketing Campaigns.
• Be continually adjusting expectations.

 

Some people would point its Financial Management.

• Tesla has borrowed a ton of money, and now has to pay it.

 

And that is true.

• But, for us, Internal Mismanagement is Causing this.

If the Company had had more realistic Goals, it might not have needed so much money.

 

Now, let’s give Elon a hand:

• It is normal for such a young Company to have a “chaotic” Internal Management.

Ford Motor Company, for example, was founded more than a Century ago…

Even if it is very important to analyze what a Company can do Better, sometimes, there are events that affect it and it can’t do anything about it.

 

Let’s talk about External Factors.

The External Factors, Opportunities and Threats, depend on the Environment a Company is.

 

Usually, they are affected by:

• Trends.
• Politics.
• Technological Advances.

 

Let’s start with Opportunities:

The Opportunities Factor describes:

• Niches in which a Company can succeed.
• New Trends that could be Profitable for a Company.
  • Changes in Customer behavior.
  • Attraction toward New Products.
  • etc.

 

Summarizing: Any Event that may result in an Economic Opportunity.

Nintendo is one of the most Beloved companies in the world.

• Mario, Zelda, Pokémon… Nintendo is synonymous with fun and nostalgia.

 

We could point out several of its Strengths.

However, let’s take a look at the Opportunities Nintendo seized.

 

As soon as SONY entered the Market, Nintendo realized how delicate the situation was for them:

• SONY had much more Money.
• They developed high-tech hardware for different devices.
• Their Programming Environment was the best for game Developers.

 

Was it the end of Nintendo? No.

Sony quickly conquered all the “Sports” and “Action” segments.

• The entire “adult” audience.

 

But, Nintendo saw two interesting Opportunities:

• Multiplayer games.
• “All audiences“.

 

Nintendo bet Heavily on its world-famous franchises (a Strength):

• Mario.
• Zelda.
• Pokémon.
• etc.

Then, it “squeezed” the “family” segment.

 

Why?

Because Game Consoles are often (or were) bought by Parents at Christmas.

• And Parents preferred to buy their children the Console that seemed more aimed at children.

 

Also, as Nintendo had much better Multiplayer games, the Console could be used by more than one child at the same time.

• What is a great advantage for a desperate parent.

 

Nintendo became the “Disney of consoles”.

This example shows how you can be successful regardless of whether your opponent is much bigger than you.

• By taking advantage of the opportunities that you can find.

 

But… What happens when the tables turn?

The Threats Factor describes:

• What could affect Negatively the Performance of the Company.
• Events that can Destabilize the Company, even if they seem unlikely.
  • Changes in Trends and Tastes.
  • A Political decision that affects an entire Market.
  • New Technology that makes the current one obsolete.
  • etc.

 

In our experience, hardly any company takes a minute to study what are the Threats that could harm it in the future.

• Which makes this Factor Unusual but Extremely Important.
  • It can allow you to act before your Competitors do.

 

Huawei is one of the most popular mobile phone Companies in the world.

 

This Chinese company was considered a low-quality mobile phone Manufacturer.

• Today, its products compete with Samsung and Apple.

 

With US$ 92.5 billion Sales and US$ 7.2 billion Profits on 2017, what could go wrong?

 

On 20th of May 2019, Google announced that it would no longer offer Android Operating system on Huawei mobile phones.

• Due to international political tensions.

 

We don’t know if Huawei had a team analyzing this possibility.

But, what is certain is that they should have had a Backup Operating System.

• Maybe they had, we don’t know.

 

They could afford to develop their own Operating System.

• So, they should have been prepared for that (again, maybe they were).
  • Google could have broken up for other reasons.

This example shows How, sometimes, your “luck” changes very quickly.

• No matter How big and Successful your Company is.

 

Remember: It takes years to build a Successful Business and one single day to Lose it.

• Be ready for that day.

The SWOT Analysis is a Tool that helps to Analyze the Situation of a Company in a certain Market.

 

According to this method, the situation of any Company can be accurately described using 4 factors:

Internal Factors:

• Strengths: What a Company does Better than its Competitors.
• Weaknesses: What a Company does Worse than its Competitors.

External Factors:

• Opportunities: Any Event that may result in an Economic Opportunity.
• Threats: Events that can Destabilize the Company.