Understanding and Using SWOT Analysis

Where does SWOT analysis fit into a formal strategic or marketing plan?

The first major component of any formal plan is the situation analysis, where the overall business environment is reviewed and analyzed. This would include both the internal and external marketing environment.

In particular, we want to look at our assets and capabilities – what’s working and not working – obviously our key competitors, key target markets, supplier and retailer (or other channel) relationships, as well as the broader macro environment.

This level of analysis should be quite detailed and deep and would involve numerous qualitative and quantitative assessments. The summary SWOT analysis would follow this detailed marketing environment review. In essence, the summary SWOT table is like an executive summary for the situational analysis part of the plan.

Not everything should be included in the summary SWOT, only the key strengths, weaknesses, opportunities and threats should be tabled. This is more of a communication device for other readers of the document and helps simplify the key issues that the company has to work with or address.

How many items should be included in a SWOT analysis?

It really depends upon the brand’s position in the marketplace. More successful and stronger brand/firms obviously have more strengths and most likely less weaknesses than other firms. For example, large companies such as Amazon and Netflix, would list more strengths and weaknesses.

Small businesses and various start-up firms would usually only have a couple strengths to list in their SWOT table. When you think about it, if the company truly does have multiple strengths, then they should be a major player in their industry.

There is a distinct relationship between the number of strengths and the number of possible opportunities. The more strategic strengths that a company can leverage, that naturally creates more potential opportunities for them to pursue in the marketplace.

Likewise, a small or new business with its limited set of strengths, is also likely only to have a few potential opportunities that are viable to pursue given their relative strategic position.

Do we need more than one SWOT?

In theory and in good practice the short answer is yes. The strengths and weaknesses component of the SWOT is relative to competition – for example, is our product line a strength or weakness relative to our key competitors?

In an industry where there is limited substitute competition, then the key competitors would be similar to each other and therefore a single SWOT analysis table would be most suitable and logical.

However, take a firm like McDonald’s – they have an array of direct and indirect competitors. Their direct competitors include other fast food style operators – but their indirect competitor set is very broad – and could include: restaurants, takeaway food, home-delivered food, home-cooked meals, frozen food, snacks and candy bars, coffee chains, and even vending machines.

In this case, it would be difficult for McDonald’s to summarize their strengths and weaknesses against this broad array of competitors in a single SWOT summary table, thereby requiring the effective use of multiple strengths and weaknesses comparisons.

As the opportunities and threats sections of a SWOT generally consider the external environment, many of these would be similar across multiple SWOTs for McDonald’s, with the exception of various unique competitive threats.

Why do planning sessions often do SWOT analysis first?

If you have been to a planning day for a corporation, it is not uncommon for one of the early sessions to be a brainstorming SWOT development activity. Given that a true SWOT should be based upon detailed analysis and insight, rather than top-of-the-head random ideas, this approach seems somewhat illogical and non-analytical.

The quality of the overall SWOT generated by such means is likely to be low because there would be multiple gaps and, given the cohort of management, more likely to overstate strengths and understate weaknesses.

So why is this approach adopted? It is because the planning session needs management “buy-in” and commitment. This brainstorming approach is an effective means of an icebreaker, getting to general agreement on the firm’s strategic position, and providing a relatively fast agreed starting point to the planning day.

It would be necessary to fine-tune and build upon this “draft” SWOT summary before building into any official strategic  or marketing plan.

Resources

Download the free Excel template for developing a detailed SWOT analysis