Every business requires a good strategy to succeed in highly competitive markets. Today’s businesses are dealing digital disruption and ever changing customer allegiance. A strategy needs to be extremely well thought out and followed up with structured planning for a smooth transition from concept to execution. What role does SWOT analysis play in helping to define strategy?
Day in and day out, a battle is being fought amongst the market giants and SME challengers for a chance to control the available market and own the loyalty of the customers. Strategy is key to building lasting relationships and market share. Businesses exist to solve customer problems and the roadmap to achieving this is the business game plan. This is derived from its strategy and it has to provide for the development of practical solutions to client problems taking into account the preparedness of the business.
SWOT analysis is a tool used to assist with business strategic planning. It assesses the preparedness of the business, characterizes the market opportunities and the competition to help a business derive the right game plan to move forward successfully.
Before moving into a congested market inundated with competition, it is important for a business to analyze the potential gaps that can limit and/or advance the business and then attack them with the right strategies and tactics.
Gaps are inevitable in a business’s services regardless of how well designed it’s business plan may be. These appear over time due to changes in customer behavior or the economic situation. Customers no longer favor the goods, products and services in their originally conceived form or price point. These changes can be gradual as customers’ needs become more sophisticated. For example, retail banking products have changed enormously in the past 5 years as digital savvy customers demand less friction of their bank accounts in the smooth operation of their lives. However, changes also occur over a very short timeframe due to economic shocks such as the Global Financial Crisis (GFC) of 2008 or more recently the COVID-19 pandemic, the latter providing both rapid customer behavior and demand changes.
The business impact of a gap in strategy depends on the relative strengths and weaknesses within the business. It is to this end that companies need to conduct SWOT analysis to prepare themselves adequately for gradual or shock challenges/changes in the market.
WHAT IS SWOT ANALYSIS?
SWOT analysis is a game plan based approach used to evaluate the Strengths, Weaknesses, Opportunities and Threats of a business. Its aim is to form the best external and internal business ecosystem. It can be described as a gap analysis of the relative strengths and weaknesses of the internal resources and how they affect the opportunities and threats of the business in influencing external factors.
SWOT analysis is consistently used across all forms of the business and could also be Integrating SWOT analysis with a PESTLE analysis provides businesses with a comprehensive strategic approach. This integration allows companies to not only identify their internal strengths and weaknesses but also align them with the broader external factors shaping their operational landscape, enabling more effective execution. THE STRATEGY JOURNEY book further enhances this strategy by offering insights and implementations on the seamless combination of SWOT and PESTLE analysis for marketing operations.
WHAT ARE THE FACTORS TO CONSIDER DURING SWOT ANALYSIS?
Conducting a good SWOT analysis is centered on discovering and understanding the internal and external factors which can either promote or limit your business growth. These factors may be explained thus;
#1. Internal factors:
The internal factors are the business strengths and weaknesses – what the business is good and less good at. Depending on the type of business they can occur in the form of staff skills/experience, business locations, intellectual property assets, business patents and business systems and processes . Paying particular attention to these factors in comparison to the competition, can provide a business edge. Just optimizing around these may in turn this can increase a business’s ability to own more of the market.
Identifying strengths is important since they are what makes a business unique in the market. Ask important questions about what a business is good at and what it is lacking. Compare a business with the market leaders/giants to reach a conclusion on what are the unique strengths. These may come in different forms. They could be a unique selling proposition, another specific competitive advantage, other strong asset, the relationship you hold between suppliers and distributors, marketing team capability, specific product skills, additional capital/other financial aspect or relationships with the customer base. You can also conduct a survey to know what customers think about your products and services to gain further insight.
For weaknesses, it is important to apply an open approach to know what needs improvement in relation to, for example, workforce expertise, what the competitors do better, business debt position, feedback from prospective customers, updates on equipment and cash flow challenges etc.
Example: Company X is a local tech business aiming to solve the problem of customer support limiting its growth in its location. An internal survey of the company revealed that it has a good experienced customer support team. It also has assets in the form of systems and processes to support the team and market connectivity. However it lacks the support experience to attract and retain the target clients. They noticed that Company Y, their biggest competitor utilized the power of social media marketing to attract clients and improve engagement. So they decided to build a social media network with a chatbot to provide clients with unmatched and responsive customer support and participation.
#2. External factors:
This encompasses opportunities and threats. These factors are controlled by the market and competitors and may pose the biggest challenge to a company’s growth. Opportunities may be as yet undiscovered territories to be conquered with your business services using your strengths. Threats may be the pending dangers you may likely face per existing or new venture if you fail to take special note of your business weaknesses. The internal factors of strength and weakness determine your response and preparedness to the external factors.
Example: Company A identified that the current trend in their market was new technology based functionality offering an enhanced experience for the customers and decided to key into it. After some time, they discovered hiring the right workforce to build this bespoke was expensive and the cumulative cost of the venture could bring their business down. To solve this problem, they studied how their competitor was able to remain at the top of their game, even after spending so much on the workforce. Rather than go the same way as their competitor, after SWOT analysis Company A decided to utilize AI-based tools to complement the expert services of their workforce. This gave them a more cost effective means of enhancing their existing offerings and winning over the customers with a new, improved experience.
The SWOT Matrix: Illuminating Company Strengths and Weaknesses
The SWOT matrix stands as an indispensable tool within the realm of strategic analysis, facilitating a comprehensive understanding of a company’s strengths and weaknesses. This matrix serves as the cornerstone of the SWOT analysis process, offering a structured visual representation that intricately weaves internal attributes and external factors. Its design, akin to a quadrant, forms a canvas on which a company’s internal strengths and weaknesses are juxtaposed against the external opportunities and threats presented by the ever-evolving business landscape.
Within this matrix, the internal strengths—discerned via SWOT analysis—showcase the unique facets that distinguish a company. These strengths encompass technological expertise, exceptional customer service, efficient supply chain management, and intellectual property. Moving in parallel, the internal weaknesses, unearthed through SWOT analysis, spotlight areas primed for enhancement. From outdated technology infrastructure to workforce skill gaps, these weaknesses pinpoint avenues for targeted improvement.
Simultaneously, the matrix unfurls opportunities on the horizon, identified through SWOT analysis. Market trends, unmet customer needs, emerging technologies, and shifting regulations all exemplify these opportunities. Counterbalancing these, the matrix also unveils threats—a critical revelation from SWOT analysis. These threats encompass disruptive competitors, economic downturns, regulatory changes, and technological vulnerabilities.
Transcending mere analysis, the SWOT matrix bridges insights to strategy. It empowers decision-makers to navigate their course, leveraging strengths, fortifying weaknesses, capitalizing on opportunities, and proactively averting threats. The SWOT matrix converges analytical prowess and strategic foresight, steering enterprises toward a realm where actionable clarity propels decision and decision propels progress.
Example on how SWOT Analysis could be used to analyze Customer Life-time value (CLV).
Scenario: A mid-sized e-commerce company specializing in fashion apparel is facing stagnant growth in customer retention and CLV. They decide to use SWOT analysis to revamp their strategies.
How SWOT Analysis Extends CLV:
Leveraging Strengths: The company can use its online platform and wide clothing range to implement a more personalized shopping experience. They can analyze past purchase behavior to recommend products that align with individual customer preferences, increasing the likelihood of repeat purchases and higher CLV.
Mitigating Weaknesses: Addressing customer service issues, improving response times, and offering post-purchase support can enhance overall customer satisfaction. This builds trust and encourages customers to return for future purchases.
Capitalizing on Opportunities: Recognizing the opportunity in sustainable fashion, the company can introduce an eco-friendly clothing line or promote existing sustainable products. This can attract a new segment of environmentally-conscious customers who may become long-term loyal buyers.
Mitigating Threats: Keeping an eye on fashion trends and economic fluctuations allows the company to adjust their inventory and marketing strategies accordingly. By being proactive, they can minimize the impact of external threats on customer retention.
In this scenario, SWOT analysis guides the company to develop strategies that align with its strengths, mitigate weaknesses, seize opportunities, and defend against threats. These strategies collectively contribute to increased customer satisfaction, repeat business, and a boost in customer lifetime value.
Marketing Strategy – How Marketing Managers use SWOT Analysis
In the realm of marketing, the insights gleaned from your SWOT analysis are akin to the compass that guides your strategy. With a clear understanding of your internal strengths and weaknesses, you can tailor your messaging and positioning to accentuate your unique attributes. Externally, your grasp of market opportunities enables you to pinpoint niches where your offerings are a perfect fit, while an awareness of threats informs adaptive measures to stay ahead. This strategic alignment ensures that every marketing endeavor resonates with your audience, leverages your strengths, and navigates the dynamic landscape with agility, propelling your business towards sustained success.
Marketing managers leverage SWOT analysis as a dynamic tool to enhance their marketing efforts. By scrutinizing the internal strengths and weaknesses of their company, they identify areas for improvement and capitalize on existing advantages. Simultaneously, they assess external opportunities and threats to calibrate their strategies, ensuring alignment with emerging trends and customer preferences. For instance, if a company identifies a weakness in online presence, the marketing manager can focus on digital initiatives. This comprehensive evaluation equips marketing managers with a strategic compass, guiding them to craft campaigns that amplify strengths, mitigate weaknesses, seize opportunities, and deftly navigate potential threats, ultimately propelling their brand towards sustained success.
Example Case Study Kellton Tech Solutions (KTS):
In a compelling showcase of the practical impact of SWOT analysis on marketing strategies, Kellton Tech Solutions (KTS), a notable player in the IT solutions sector, harnessed this approach to refine their business trajectory. With a discerning eye on their internal and external landscape, KTS identified their forte in digital transformation expertise while acknowledging a gap in brand visibility. Armed with these insights, their marketing strategy shifted gears, spotlighting their strengths through thought leadership content and webinars, positioning themselves as stalwarts in digital innovation.
Capitalizing on market opportunities brought to light by their SWOT analysis, KTS focused on an emerging niche—the integration of AI-powered solutions for mid-sized companies. This alignment between their capabilities and market demands propelled their content strategy, resonating with businesses seeking cutting-edge solutions. However, their SWOT assessment also underscored the challenge of mounting competition. To combat this, they strategically tackled a weakness—direct customer engagement. By initiating personalized outreach initiatives, KTS not only safeguarded against competitive pressures but also nurtured lasting client relationships, marking a pivotal success achieved through SWOT-guided strategy.
In this insightful case study, KTS’ journey serves as a compelling testament to the potency of SWOT analysis in sculpting astute marketing strategies. The alignment of strengths with market opportunities and the shrewd mitigation of weaknesses against looming threats not only elevated brand recognition but also fostered enduring client engagement, epitomizing SWOT analysis as a driving force behind their strategic transformation.
WHY SWOT ANALYSIS?
Carrying out SWOT analysis gives you a perspective on the following;
- addressing weaknesses
- capitalizing on opportunities
- deterring business threats
- Developing business goals and strategies for achieving them.
- taking advantage of your strengths
- understanding your business better
SWOT analysis is a gateway to better understanding the market, client needs and your business position in relation to these. It gives you a comparative idea of the business suitability at a glance and is valuable in projecting a future direction your business.
HOW DO YOU CONDUCT THE BEST SWOT ANALYSIS?
Before carrying out a SWOT analysis, it is important to study the market for possible pointers to your competitor threats and your business opportunities.
WHEN AND WHERE IS SWOT ANALYSIS REQUIRED
It is advisable for businesses to undertake a SWOT analysis during planning, brainstorming or any forward thinking design session on the business service design and market direction. Time should be allotted to assess and analyze the generated data. Attendance at these sessions should be representative of all key company functions since SWOT looks at the overall position and wellbeing of the company.
MARKET OPPORTUNITIES ASSESSMENT
A SWOT analysis should also be carried out when an existing business is interested in understanding a prospective gap present in the market and how to fill it.
Data quality is key in applying the SWOT analysis technique. The output is only as good as the data used as input. Therefore, emphasis should be made on the quality of data inputs and the calibre of those involved in the analysis process.
While SWOT analysis may address the business challenges, it has a limited approach to proffering solutions to resolve the challenges. THE STRATEGY FRAMEWORK complements SWOT analysis and further assists in defining your business strategy and importantly generating the design and plans to successfully realise it .
No market is impenetrable; you can out-compete the market giants and control the customer allegiance when you have the right information at hand. It is important to take time to study the internal and external factors of your business to understand how best to conquer the market.
Read more about THE STRATEGY FRAMEWORK for end to end support on how to plan a business strategy and plan how to make it executable.