SWOT analysis is one of the frameworks widely used in business.
Do you clearly understand “for what purpose” and “how to use it”?
SWOT analysis is an effective tool for understanding your company’s current situation and creating a business plan.
However, many people are worried that they don’t know how to use SWOT analysis.
Therefore, this time we will mainly explain the following five topics.
By reading this article, you will deepen your understanding of SWOT analysis and be able to conduct effective analysis that will lead to results.
“I would like to learn more about SWOT analysis”
“I want to use SWOT analysis to analyze the current situation and formulate strategies.”
If you are interested, please use this as a reference.
Table of contents
What is SWOT analysis?
SWOT analysis is a business framework for analyzing the following four elements:
The name SWOT analysis is an acronym for these four English words.
Four categories are created by dividing the “external environment” such as market and economic trends, and the “internal environment” such as the company’s assets and resources into “positive factors” and “negative factors.”
While frameworks such as 3C analysis and PEST analysis summarize only facts, SWOT analysis is characterized by adding interpretation based on whether the facts are “positive” or “negative” for the company.
- Strengths: Characteristics and assets that your company has that are advantageous compared to other companies and that contribute to achieving your goals. “What we’re good at” and “Why users choose us.”
- Weaknesses: Characteristics and assets of your company that stand in the way of achieving your goals. “Things I’m not good at” and “areas where I’m inferior compared to my competitors.”
- Opportunity: An external environmental factor that can contribute to achieving a goal. Changes in the market, society, competition, etc. that can create opportunities for your company.
- Threats: External environmental factors that may prevent you from achieving your goals. Changes in the market, society, competition, etc. that may pose risks to your company.
This framework is called SWOT analysis.
Do you know what it is used for and in what situations?
Be sure to read the following chapters to help you conduct a SWOT analysis in the appropriate situations and with a clear sense of purpose.
Purpose and usage of SWOT analysis
SWOT analysis is used to understand the current situation and develop strategies to achieve goals and objectives.
As we all know, businesses must consider all factors when making decisions.
This is because the resources available to a company, such as people, goods, and money, are limited.
Also, in order to avoid big losses and capture opportunities, it is necessary to pay attention to market and consumer movements.
SWOT analysis allows you to understand all the factors involved in decision-making, dividing them into favorable and unfavorable factors for your company.
As a result, you can better determine the next action to take.
Therefore, SWOT analysis is often used in the following situations:
SWOT analysis is a very effective tool for business, but there are some points that must be kept in mind for effective analysis.
In the next chapter, we will explain the points to consider when conducting a SWOT analysis, so if you want to perform a valuable analysis, be sure to check this out as well.
Key points of SWOT analysis
By being aware of the following three points, you can proceed with SWOT analysis more effectively.
Let’s take a closer look at each.
Point 1. Clarify your purpose in advance
If you somehow conduct a SWOT analysis without clarifying the purpose of “why you are conducting the analysis,” it will not lead to good results.
SWOT analysis is a framework used to achieve specific objectives.
For example, “I want to increase the sales of 〇〇 (product name). Therefore, I will conduct a SWOT analysis to formulate a strategy.” It is necessary to decide on the objective as concrete as possible before starting the analysis.
If you analyze without having a clear goal to aim for, the content and essence of the discussion may become blurred, and as a result, it may become meaningless.
Be sure to decide on the purpose of “What kind of decisions and strategies do you want to ultimately make based on this SWOT analysis?” and share it with your team in advance.
Point 2. Conducted by members of various occupations and attributes
When conducting a SWOT analysis, gather members from various occupations and attributes, such as management, marketers, sales, and engineers, depending on the purpose.
This is to prevent opinions and ideas from becoming biased if only some members conduct the analysis.
Also, if you want to proceed with the discussion, instead of having everyone discuss it all at once, first give each person time to write down their ideas on sticky notes.
By adopting this style, you will be able to capture the ideas of each member of the group without falling into “group thinking,” making it possible to reflect diverse perspectives in your analysis.
It would be a good idea to group the opinions of each member in the subsequent discussion or develop them into new ideas.
Point 3. Distinguish between internal and external factors
In a SWOT analysis, make sure to distinguish between internal and external factors.
It is important to be careful as there are often cases where “strengths”, which are internal factors, are confused with “opportunities”, which are external factors.
The difference is whether or not we can control those factors ourselves.
Internal factors can be changed by our own efforts, while external factors cannot be changed by ourselves.
The four elements can be divided into internal factors and external factors as follows.
- Internal factors (controllable): strengths, weaknesses
- External factors (uncontrollable): opportunities, threats
If you have read this far, I hope you have understood the points to consider when conducting a SWOT analysis.
In the next chapter, we will explain how to proceed when actually conducting a SWOT analysis.
We will also introduce frameworks that are often used in conjunction with SWOT analysis, so please read them.
How to do a SWOT analysis
Here we will explain how to conduct a SWOT analysis.
A SWOT analysis is usually performed in the following three steps.
Let’s take a closer look at each.
1. Analysis of external factors
Internal factors can be affected by external factors, so when conducting environmental analysis, the flow is basically from external to internal.
Therefore, the first step in SWOT analysis is to collect external environmental factors that are beyond your company’s control.
For example, write down the current status of each of the following external factors.
Also, when collecting external factors, frameworks such as PEST analysis, 5 forces analysis, and 3C analysis can be used.
We will introduce three frameworks here, so please try using them.
Framework that can be used to analyze external factors: PEST analysis
PEST analysis is a framework for analyzing the so-called macro environment such as “Political,” “Economic,” “Social,” and “Technological.”
It is called PEST analysis, which is an acronym for the four items.
Framework that can be used to analyze external factors: 5 forces analysis
Five Forces analysis analyzes the so-called micro-environment such as “bargaining power of sellers”, “bargaining power of buyers”, “hostile relationships between competing companies”, “threat of new entrants”, and “threat of substitute products”. It is a framework for
The name 5 Forces Analysis comes from the five forces that determine an industry’s profitability.
Framework that can be used to analyze external factors: 3C analysis
3C analysis is a framework for analyzing the three C’s: Customer, Market, Competitor, and Company.
Of the three factors, “Company” is an internal factor.
2. Analysis of internal factors
Once you have collected external factors, the next step is to collect internal environmental factors that you can control.
For example, list what characteristics your company has regarding the following items.
Internal factors can also be analyzed using other frameworks.
VRIO analysis is a good way to analyze internal factors.
Framework that can be used to analyze internal factors: VRIO analysis
VRIO analysis is a framework for analyzing your company’s strengths and weaknesses in market competition based on your company’s management resources (people, goods, money, information, organization, etc.).
VRIO analysis performs analysis from the following four perspectives.
- Economic value
- Rarity
- Inimitability
- Organization
3. put together in a frame
With the above two steps, we were able to collect and organize the external and internal factors necessary for SWOT analysis.
Now, try applying each factor to the four frames of SWOT analysis.
Positive factors in the external environment are classified as “opportunities,” negative factors are classified as “threats,” positive factors in the internal environment are classified as “strengths,” and negative factors are classified as “weaknesses.”
When filling out the frame, it is a good idea to ask questions such as the following, based on the purpose of the SWOT analysis.
- What strengths can you leverage?
- What weaknesses do you need to overcome?
- What market opportunities are available?
- What threats should you avoid?
I will explain later about “cross-SWOT analysis,” which is used to translate this SWOT analysis into more specific measures.
Before that, let’s take a look at a concrete example of SWOT analysis in the next chapter.
SWOT analysis example
Here, we will introduce an example of SWOT analysis.
Please see the table below.
This is an example of a bakery that conducted a SWOT analysis of its current situation in order to develop a “strategy to increase new customers.”
| positive factors | Negative factor |
internal factors | Strengths
| weakness
|
external factors | opportunity
| threat
|
Even in the case of a small store like this, it is possible to properly understand the current situation by conducting a SWOT analysis with the correct purpose and procedure.
However, at this point when the frame is filled, it is only an analysis of the current situation.
In order to determine the direction of “what should be done in the future” and develop specific strategies, it is necessary to utilize “cross-SWOT analysis.”
This will be explained in the next chapter, so be sure to check it out as well.
Incorporate it into your strategy with cross-SWOT analysis
Cross-SWOT analysis is an effective method for incorporating the information gathered through SWOT analysis into strategies.
By considering the following four items that combine external and internal factors, it is possible to derive a specific strategy that goes one step further from SWOT analysis.
- “Strengths x Opportunities”: Active Strategy
Think about how you can leverage your strengths to maximize opportunities.
- “Strengths x Threats”: Differentiation Strategy
Think about how you can use your strengths to avoid threats or turn threats into opportunities. - “Weakness x Opportunity”: Weakness reinforcement strategy
Think about how you can take advantage of opportunities to strengthen your company’s weaknesses. - “Weakness x Threat”: Defense Strategy
Think about how to avoid or minimize the negative effects and damage that can occur when weaknesses and threats overlap.
After SWOT analysis, be sure to perform cross-SWOT analysis and develop strategies to achieve your goals.
[Summary] Use SWOT analysis to understand the business environment and use it to formulate strategies
This time we will be talking about SWOT analysis.
By using SWOT analysis, you can visualize your company’s strengths, weaknesses, opportunities, and threats, allowing you to appropriately understand the current situation, solve problems, and formulate strategies.
When conducting a SWOT analysis, make use of the other environmental analysis frameworks introduced this time to analyze “external factors” and then “internal factors.”
In order to conduct an effective SWOT analysis, you need to keep the following points in mind.
- Clarify your purpose in advance
- Conducted by members from various fields
- Distinguish between internal and external factors
Let’s conduct an appropriate SWOT analysis and cross-SWOT analysis that will lead to strategy formulation and lead your business to success!
