Thursday, April 23, 2009

SWOT Analysis

One of the most commonly used frameworks in the business world is SWOT (Strengths, Weaknesses, Opportunities and Threats) for competitive analysis. A SWOT analysis can give a high level view to a organization's management regarding their current strategic positioning as well as insight into potential future road maps.

Another way of looking at a SWOT analysis is a 2 x 2 matrix. Strengths and weaknesses are generally internal factors, Opportunities and Threats external. Strengths and Opportunities are positive aspects and Weaknesses and Threats are negative.
This is a great structure to apply to make team members more aware of the current context for decision making and setting direction.

  • What is our area of expertise?
  • What is our inimitable difference?
  • What are we recognized and associated with?
  • What are the key factors in driving our brand equity?
  • What can we improve?
  • Where is the largest number of systematic failures?
  • Who are our biggest critics and what are they focused on?
  • Are there additional growth sectors in the market?
  • Can our products and services be applied in other areas or have other uses?
  • What are our processes dependent on?
  • What risks are associated with our business?
  • What is the probability of disruptions from external events?
Once the initial analysis is complete, it is critical to ask the right questions:
  • How can we leverage our Strengths?
  • How can we improve each Weaknesses?
  • How can we benefit from each Opportunity?
  • How can we mitigate each Threat?
This provides a good context to decide next actions from a strategic point of view and also allows managers to prioritize responsibilities based on what appears in the SWOT analysis.

Other methodologies that pick up after a SWOT analysis include matching and converting.

Matching uses competitive advantage to pair strengths with opportunities.

[Case Study] Starbucks is very well known for it's coffee, but it didn't become a huge success overnight. Upon analyzing their business models, Howard Schultz understood that what they were selling was more than just coffee, but an experience. By leveraging the Starbucks expertise in coffee, he was able to extend the brand offering to "re-creating the Italian coffee-bar culture in the United States [as] Starbucks' differentiating factor".

Converting means converting weaknesses or threats to strengths or opportunities.

[Case Study]
A threat McDonald's position in the wake of movies such as Super Size Me was a movement towards healthier living where McDonald's was decidedly not well positioned.

However, McDonald's is the world leader in standardized food preparation services, having pioneered the field in the 50's under Ray Kroc. With an opportunity in the growing healthy foods space, McDonald's leveraged it's strength and food processing skills to provide a new repertoire of products well outside their original hamburger mandate. Their product line retained their strength of delivering cheap convenient food (their hallmarks) while entering a new and growing market space.


Suziesaurus said...

Interesting that you would bring up McDonald’s and their new products geared towards “healthier lifestyle”. Although it’s good attempt I don’t think their new products geared towards healthy choices are very successful or even actually that healthy.

Although adapting to new markets is something companies definitely need to investigate and consider I am not sure that it is always the right move to actually implement plans to make direct competition with others. I think it depends on your customer base and what your company is known for and knows how to do well.

Joshua Wong said...

Fair enough. I was just trying to point out how they did a bit of a 180. After all, before McD's started the healthier choices menu, I don't know that there was anywhere you could get a salad at a drive through.

It's more to point out a converting and leveraging of a strength (leadership in the cheap convenient foods, distribution etc.) to take them into an area where there was a weakness. Ray Kroc is famous for stating that his core business is actually real estate, not hamburgers.

It's always important to keep a healthy cynicism :)

Tammy said...

great post again! currently in the midst of a one-sided strategy session with my boss... where i'm developing a strategy for entering the chinese market.. and they're half listening. But it was really great to read a posting on SWOT because that's the kind of exercise i'm doing right now. keep up the great blogging!

Joshua Wong said...

That's a good idea. I think SWOT is pretty useful for understanding your points of differentiation in the pursue of the holy grail of inimitability.

I've always asked my colleagues: "Why should our customers come to us and not our competitors?"

Suziesaurus said...

"Why should our customers come to us and not our competitors?"

That's such a good questiont to keep posting to yourself as a company/business.

It's so challenging to stay critical of yourself & not of the customers after you've been with a company/business for a while.

Joshua Wong said...

That's a good point. Often it's the best companies that suffer from this ideology as well, seeing as they are usually so good at what they do they become entrenched.

Often they are slow to change because they don't even fully understand how to deal with it when a new upstart company arrives on the scene. Think of scenarios like traditional landline carriers versus companies like Skype / Vonage.

Or products with relatively short lives and low barriers to substitution, where you have to capitalize equally on perceived obsolescence and planned obsolescence to cannibalize your own market share (ie. fashionable clothing).

Ben said...


I like the 2x2 matrix way of looking at SWOT Analysis. I'll have to incorporate that model into my approach.

I posted to my blog on applying SWOT Analysis to network marketing businesses. Perhaps I'll update the post to include the 'internal'/'external' structure.


Joshua Wong said...

Cheers, Ben! :)

Chandra Prakassh Kabra said...

Thanks Joshua for the interesting post.

I too have recently posted an article on SWOT, in my blog....but your examples were really intuitive