What is a SWOT analysis?

A SWOT analysis is one of the most popular analyses you can develop when analyzing a company. It is essential and highly recommended for assessing your projects, but you must ensure it is carried out properly.

As most analysis tools, it can be very helpful if well developed, but terribly dangerous if poorly built.

SWOT” is an acronym of: Strengths, Weaknesses, Opportunities, Threats.

A SWOT analysis is defining the key factors that determine the situation of a certain company in a determined environment.

These factors above explained, can be divided into two categories:

Internal factors:

  • Strengths.
  • Weaknesses.

External factors:

  • Opportunities.
  • Threats.

* Check the “Strategy Templates” page; you’ll find an open Excel sheet with a SWOT analysis proposal and the scheme below shown.

Classic SWOT scheme

Why do we explain this SWOT analysis right now, and not before? Because people usually develop the SWOT analysis at a very first step when analyzing a company.

When analyzing a company, first of all, you should:

  • Develop an environmental analysis through a PESTEL analysis.
  • Analyze the Market you are into, with a proper Porter 5 forces.
  • Establish your main activities adding value to the final product by analyzing your Value Chain.

Once you have developed these analysis you’ll be able to finally conduct a SWOT study.

Now, we’ll explain the main points constituting it, with useful examples that will make you think deeply about it.

 

* If you have not visited the “PESTEL Analysis” page, the “Porter 5 Forces” or the “Value Chain” one, we encourage you to do so right now. As you can see, it is very important to understand these tools before start developing a proper SWOT analysis.

SWOT Analysis main factors

As we explained before, a proper SWOT analysis consists of gathering together all the conclusions established in the PESTEL, Porter 5 Forces and Value Chain analysis.

Let’s analyze SWOT’s factors and which analysis of these mentioned would be helpful in developing them.

Internal factors

These factors (Strengths and Weaknesses) depend more on the company’s characteristics rather than in its environment.

1. Strengths

  • This factor should describe the competitive advantages of the company analyzed.

A Strength is not supposed to be a description-list of the company’s good position within a market, but the key factors that made or can make possible that this company succeeds.

Although it is mainly an Internal factor, it is obviously referred to a certain market context (there is no strength that exists by itself).

The main tools necessary for establishing correctly a company’s Strengths are:

  • Value Chain analysis.
    • This tool would help us defining which activities within the company are better than the competitor’s ones.
    • But, for establishing if a company’s activity is a strength or a weakness, we need to compare it to other companies, and here is where we find Porter’s analysis.
  • Porter 5 Forces analysis.
    • The Value Chain analysis is placed in the context with the Porter 5 Forces study.

It seems a bit confusing mixing all these studies together, but as we said before, SWOT analyses are usually developed not caring about supported data. And that gives weak not-reliable conclusions as result.

PlayStation SWOT - Strength example

In the game-console war, there is a company that can be easily pointed as the leader: Sony Playstation.

We could comment different PlayStation’s SWOT factors, but we’ll comment its main Strength:

Sony entered the market much later than Nintendo or Sega, but in few years PlayStation took the first place in the game console race.

How could Sony lead the market that strongly?

A bad SWOT analysis would tell you that:

  • Its Strength is the huge catalogue and the graphics.

But, although it would be describing something good about PlayStation compared to other competitors, it is not strictly speaking the root cause of its strength.

A good SWOT should highlight:

  • The easy game-programming system that makes possible to different companies easily developing and adapting their games to PlayStation’s platform.

This would be the real PlayStation’s Strength, allowing it having the best game catalogue, graphic optimization and performance.

As you can see, there is a important difference between a real Strength and its consequences (good market position, for example).

2. Weaknesses

It should describe the company’s main disadvantages.

It must not be a list-description with “improvable” points but a deep analysis of the root causes preventing the company to success at certain things.

The tools you would need in order to guarantee a proper Weaknesses analysis are:

  • Value Chain analysis.
    • Identifying your company’s activities that are not just not-adding value but putting you behind your competitors.
  • Porter 5 Forces analysis.
    • Entry barriers, Market alternatives or competition, are important aspects your weaknesses should give answers to.
    • The Porter analysis relates your Value Chain “improvable” aspects with the market you are targeting, highlighting whether they are real weaknesses or not.

TESLA SWOT - Weaknesses example

You surely know Elon Musk’s company.

It is one of the most innovative companies nowadays… or at least lot of people think that way.

They have developed few models. However it is impossible for them to supply all the demand they have.

Tesla has been the first automotive company to integrate a semi-autonomous driving system: The Holy Grail for car-manufacturing companies.

Then… has Tesla any weaknesses? Of course it has. Everybody has.

By now, they are not making almost any profit.

A bad SWOT analysis would tell you that:

  • They have not enough money.

A good SWOT should highlight:

  • Tesla is a young company that started its activity by investing large amounts of money (just like other companies did a hundred years ago) and the big part of this money has been borrowed to financial institutions (when other companies started with National investments) so the interests they bear are disproportional.

This correctly identified weakness could make them think about merging with other big automotive company in the future… for example.

On the other hand, the “bad SWOT” would make you think, you need more money from the banks.

With this example you can see how important is identifying your weaknesses since otherwise, you could take wrong actions thinking the problem would be solved.

External factors

The external factors (Opportunities and Threats) depend more on the environment your company is, that the company activity itself.

3. Opportunities

This factor must identify, among current and future trends, the niches in which your company can succeed.

By identifying these trends in advance you can take advantage of your competitors.

The main analysis tools you would need to identify market Opportunities for your company are:

  • PESTEL analysis.
    • Although sometimes it can seem a very broad and generic analysis, when properly supported, a PESTEL analysis may help you seeing what the market is bringing in the near future.
  • Value Chain analysis.
    • This analysis would highlight which of your adding-value activities can be employed in order to take advantage of those opportunities the market is offering you.

Nintendo SWOT - Opportunities example

Everybody loves Nintendo.

It is one of the most admired and valued companies in the world.

From Mario to Zelda and Pokémon, Nintendo is synonym of entertainment for the whole family.

We could point out several of its Strengths or Weaknesses, but let’s focus on the opportunities Nintendo took advantage of.

As soon as Sony entered in the market, Nintendo knew the situation was quiet delicate for them:

  • Sony had much more money.
  • They developed high-tech hardware for different platforms.
  • They had the best graphic technology, and they could manufacture it at big volumes.

Was it the end of Nintendo? No.

They saw how Sony quickly conquered the entire “sports” and “shoot’em up” segments, as well as many other focused on “adult” audiences.

But Nintendo saw two interesting Opportunities:

  • Multiple player games.
  • “All audiences” games.

By using his world-famous franchises (Strengths) Mario, Zelda and Pokémon, Nintendo started squeezing the “family” segment and made its consoles, the consoles a parent would buy to his sons at Christmas. Nintendo became the “Disney of consoles”.

This example shows how you can still be successful no matter your opponent is much bigger or stronger than you are.

4. Threats

This final factor is probably the most ignored of all.

A “Threats” analysis should be frequently developed in order to identify what can destabilize a company.

The better results a company has, the more important is to study what is or could be threatening it.

According to our experience assessing and analyzing broken companies, almost no company having good results, takes a single minute studying what are the threatens that could harm it in the future.

The main tools you would need in order to identify your company’s Threats are:

  • PESTEL analysis.
    • Some of the biggest unexpected threats come from foreign and national policies (privacy restrictions, data handling, commercial wars…).
    • A frequent PESTEL analysis would keep you alert regarding unexpected news.
  • Porter 5 Forces.
    • Changes in the entry-barriers, new strong market players or other new substitutive product are factors that a regularly developed Porter 5 Forces should keep you informed about.

Huawei SWOT - Threats example

Huawei: one of the best selling mobile-phone companies in the world.

It is a superpower company itself. Their sales are increasing each month worldwide, threatening even Samsung’s market position.

This Chinese company was regarded as a low-quality mobile-phone manufacturer in the past, but nowadays, its products can compete with the best and most prestigious brands.

With US$ 92.5 billion sales on 2017 and US$ 7.2 billion of benefits… what could go wrong?

On the 20th of May 2019, due to the commercial war between USA and China, Google announced it would no longer offer Android operative system in Huawei’s mobile phones.

We don’t know if Huawei had a team analyzing potential threats that kept them aware of this possibility.

But surely, they should have had a backup operative system as soon as the commercial war started to take place.

This example is a little extreme, but sometimes, your “luck” changes that fast.

You go to sleep with the best business model and projections in the world, and the next day, you are thinking about shutting your business (it is not Huawei’s situation, of course).

SWOT Analysis main Mistakes

We constantly insist on supporting your analysis with real data in order not to obtain wrong conclusions that may jeopardize your company’s future.

When developing a SWOT analysis you must make sure that:

  1. All the analysis previously developed; PESTEL, Porter 5 Forces and Value Chain, are well data-supported.
  2. What you identify in your Internal factors (Strengths and Weaknesses) are root causes, not consequences.
  3. You External factors (Opportunities and Threats) take into account foreign policies, commercial wars… not just focusing on nearby events.

And don’t forget:

Never use a SWOT analysis as a mere description list but a deep conclusions research summary.

Summarizing

The SWOT analysis is one of the most important study you can develop when analyzing or assessing a certain company.

It should be done after developing properly a:

  • PESTEL study.
  • Porter 5 Forces study.
  • Value Chain study.

The SWOT analysis is based on 4 factors, divided into Internal factors and External factors:

  • Internal factors:
    • Strengths.
    • Weaknesses.
  • External factors:
    • Opportunities
    • Threats

Within the Internal factors, you must ensure that all the Strengths and Weaknesses identified are authentic Root causes and not a list of good attributes caused by them (the root causes).

On the other hand, within the External Factors, you should properly link together the company’s attributes you’re analyzing with the worldwide events that may affect them.

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