SWOT analysis is a very popular tool for all managers and entrepreneurs. It helps to put the company in a broader context and to evaluate its situation. How to prepare a SWOT analysis and how to evaluate it mathematically? All this, including specific examples, can be found in our article.
What is a SWOT analysis?
A SWOT analysis is one of the analyses that form the basis for developing a company’s strategy. It evaluates the current state of the organization and its environment. You can use it not only to evaluate the company, but also to evaluate individual products, departments or employees. The acronym SWOT is made up of four words:
The first two terms relate to the internal environment of the business (you are looking at what the strengths and weaknesses of the organization are) and the other two deal with the external environment (what opportunities and threats are presented to you by the environment).
1. Strengths of the company
Strengths are those characteristics of your company that help you increase profits, attract customers or otherwise meet your goals. (Do you know how to define smart goals?) However, these should not be normal characteristics, but something that your business really excels at. You can find out what your strengths are compared to your competitors by benchmarking.
An example of a strength in a SWOT analysis might be:
- a unique product
- low costs
- patented technology
- good relationship with customers
- education of employees
- speed of production
2. Weaknesses of the company
Weaknesses in turn reduce the value of the organization. Therefore, you should try to minimize them.
An example of a weakness in a SWOT analysis is:
- slow production
- poor product quality
- damaged reputation due to negative reviews
Opportunities are potential chances that can help you develop your business. These are opportunities from outside the company. In analyzing them, you can use the PESTLE method which says that you should evaluate:
- political influences
- economic influences
- social (societal) influences
- technological influences
- legislative influences
- environmental (ecological) impacts
Opportunities in a SWOT analysis can be, for example:
- grants and subsidies
- new technologies
- government support for entrepreneurs
- demographic development of the population
- new suppliers on the market
Threats, as well as opportunities, come from the company’s environment. The organization cannot directly influence them, so it is important to identify and describe them as accurately as possible. This is the only way it can devise effective solutions to prevent them.
Examples of threats in a SWOT analysis are:
- change in legislation
- environmental restrictions
- unstable government
- economic crisis
How to do a SWOT?
If you are wondering how to conduct a SWOT analysis, you can stay calm: It’s relatively simple. The method consists of creating a SWOT matrix that has 4 quadrants.
Once you have sketched your SWOT table, write down all relevant strengths, weaknesses, opportunities and threats. In the first phase, brainstorm (with other team members if necessary) and write down everything that comes to mind. In the second phase, sort your ideas and record only those ideas that are important for the company in a spreadsheet.
You should have at least five entries for each section. The quadrants should also be even: there should be approximately the same number of items in each. This is the only way to make the SWOT analysis objective and relevant.
Also focus on entering measurable facts, not mere opinions, into the matrix.
Evaluation of the SWOT analysis
Based on the analysis, you should come up with specific strategies to maximize strengths, exploit opportunities, reduce weaknesses and eliminate threats.
However, the evaluation of a SWOT analysis can be more complex. Compare the different parts of the SWOT matrix with each other:
- Strengths and Opportunities: How to use strengths to exploit opportunities?
- Strengths and threats: How to use strengths to eliminate threats?
- Weaknesses and Opportunities: How to use opportunities to reduce weaknesses?
- Weaknesses and Threats: How to ensure that threats do not exploit your weaknesses and threaten the organization?
You can also evaluate the SWOT analysis mathematically.
Mathematical evaluation of the SWOT analysis of a company
Rate each item in the SWOT matrix on a scale of 1 to 5 according to the following scheme:
For strengths and opportunities, the more points, the stronger the strength and the more promising the opportunity. For weaknesses and threats, the opposite is true: the more points, the weaker the area is and should be addressed.
Then multiply the importance of the item by its rating. This gives you a total number that tells you how much you should address the item. Let’s use the following example to illustrate this.
Mathematical SWOT evaluation: a practical example
Let’s suppose we are evaluating the situation of a candy store. One of its weaknesses is that its cakes are very calorie-dense – even twice as calorie-dense as other cake shops, according to benchmarking. It’s therefore a very weak area and we give it 5 points. Most customers, however, do not care about the calorific value of the desserts and indeed rarely ask about it. The importance of this weakness is therefore 2.
Another weakness is the poor location of the pastry shop. It is situated in a side street that leads from the square where another pastry shop is located. This is a moderate weakness, so we give it 3 points. However, the importance is quite high – visitors to the town do not want to walk far and where the patisserie is located plays a big role for them. We will award 4 points for importance.
3 main advantages of SWOT analysis
Why go into SWOT analysis at all? It has three main advantages:
- It is relatively simple. You don’t need anything more than paper, pencil and company data.
- You can use it both at the beginning of your business and in its later stages. If you do it regularly, you will see how your situation changes over time and you can evaluate your success.
- It is versatile. You can use it to evaluate the whole company, but also individual products or employees.
Take your business one step further
Consult your business with the experts at myTimi. We’ll help you with creating business strategy, setting the right goals or even conducting market research. Just contact us without obligation. We will discuss the details with you and suggest the most effective solution for your situation. See what we can help you with in the business area.