SWOT Analysis Done Right!

By Lon W. Schiffbauer, BA, MBA, PhD, SPHR

When it comes to strategic business analyses, few are as straight-forward as the SWOT analysis, or so it would seem. You sit down and list your organization’s Strengths, Weaknesses, Opportunities, and Threats, and you’re good to go. Thing is, it’s this very simplicity that belies the real value of the exercise and baits us into giving the process little real thought or analysis. In fact, many of the SWOTs I’ve seen (including some that I’ve done) are little more than a cursory, back-of-the-napkin effort. The deeper purpose of the exercise is to determine the company’s competitive position and figure out the best strategy to pursue—how best to win in the marketplace. In this article we’re going to talk about what goes into a proper SWOT analysis and how it can help your organization map out a strategic direction.

Strengths and Weaknesses Are Internally-Focused

Internal environmental factors are those within direct control of the organization. This includes things like vision, mission, guiding principles, core competencies, organizational structures, management and leadership practices, processes, and human resources.

A Strength or a Weakness is the presence of absence of a necessary core competency, such as:

  • Competencies or know-how
  • Physical assets
  • Human assets/intellectual capital
  • Organizational assets
  • Intangible assets
  • Strategic alliances or cooperative partnerships
  • Supplier networks

A note about physical assets and other tangible resources: for a resource to be considered a competitive advantage, it must pass these four tests:

  1. Is the resource difficult for competitors to obtain or copy?
  2. Does the resource have staying power? Will it provide an advantage in the long-term?
  3. Does it actually outclass what the competitors have and provide a meaningful edge in attracting and/or pleasing customers?
  4. Can the resource be replaced by something perceived as equally valuable by your competitors?

Opportunities and Threats Are Externally-Focused

External environmental factors exist outside the company’s control but profoundly affect operations. This includes things like competitors, supply chain availability, cost of materials, regulations, trade policies, media perception, and customer preferences.

An Opportunity is an external environmental condition which the organization, by virtue of its strengths, is well poised to exploit. For example, the remote meeting company Zoom was well positioned to respond to the COVID-19 pandemic when millions of people found themselves working from home and in need of a way to collaborate virtually with remote teams.

An opportunity can look like (just to name a few):

  • A prospect for profitable long-term growth
  • The possibility of gaining a competitive advantage
  • The prospect of closing/increasing a competitive gap (depending on if you’re behind or ahead)
  • Entering or expanding in a new market
  • Lengthening a product’s lifecycle
  • Reducing per-unit costs and increasing economies of scale

A Threat is an external environmental condition that highlights an organization’s Weakness, exposing a chink in the armor which competitors can then exploit. For instance, some of Zoom’s competitors required users to log into an account or download software to use the remote meeting app. Zoom had no such requirements, placing competitors at a distinct disadvantage.

Threats looks just like Opportunities—from the perspective of you competitors! The difference is how you choose to responds. The purpose of identifying Threats is so you can devise a strong response or mitigation strategy. Not all Threats can be removed, but there may be ways to mitigate or adapt to the new situation.

Strengths allow us to pursue Opportunities

I would submit to you that an opportunity is at least in part defined by the ability to exploit the moment. For instance, let’s say that Sotheby’s is auctioning off a near mint copy of Detective Comics #27. One might then reason that I have the opportunity to own this seminal comic book, but do I really? I don’t have anything approaching the $3 million this book is likely to fetch. The same can be said for starting the next metaverse multinational. There need is out there, so can it be said that I have the opportunity to become tomorrow’s latest tech giant and reshape the future in my image? If you want to humor yourself and say yes, you have that opportunity, then all the power to you. However, I believe that unless you have the skills and resources, you don’t have the opportunity. Someone with strong skills and experience can pursue an apply for an exciting consulting opportunity. Skills and experience are internal strengths; the consulting gig is an external opportunity.

Weaknesses give power to Threats

The opposite holds true with Weaknesses and Threats. Someone with a weakened immune system is more susceptible to the threat of infection. A deficient immune system is an internal weakness; a harmful infection is an external threat.

Scoping Your SWOT

With these things in mind, you can now start working through your strategi SWOT Analysis. As you do so, it’s important that you keep your analysis focused on the question at hand. For example, I can juggle, but I wouldn’t include that in a SWOT for Nutshell Brainery, even if I were the best juggle in the country. (I’m not!) Despite my skill, it’s not a core competency and doesn’t give me competitive advantage. Same goes for Weaknesses. When she was young, my daughter had a hard time sleeping at night, terrified that North Korea was going to nuke us at any moment. Now was this a possibility? Sure, I suppose so. Was it likely? No, not in the least. Furthermore, was there anything she could do about it? Not really, so chill (which as she grew older, she eventually did). The same thing goes for our Weaknesses. Yes, they’re all over the place, but bear in mind how much of a Threat they actually present.

So there you are! Not rocket science, but more than a back-of-the-napkin exercise. Take your time, think it though, and it will serve you well.

Lon is an Associate Professor of Business Management at Salt Lake Community College and holds an MBA, a PhD, and is a certified Senior Professional in Human Resources (SPHR). In addition to his academic background, Lon spent close to 30 years working and consulting for such companies as FedEx, Intel, eBay, and PayPal, as well as a variety of small to mid-sized companies around the world.