“There are two ways to extend a business. Take inventory of what you’re good at and extend out from your skills. Or determine what your customers need and work backward, even if it requires learning new skills.”
– Jeff Bezos, founder of Amazon
SWOT Analysis is the number #1 used competitive strategy tool, given its simplicity and ability to quickly frame situations. Though, by no means is it the best. There is a major flaw in how most people use it, which we will highlight and address.
SWOT analysis is a method for assessing and organizing the Strengths, Weaknesses, Opportunities, and Threats of a business model, and can be extended to products, services, and teams.
Opportunities and threats typically relate to external elements, such as trends and dynamics that create opportunities and threats within customer segments, markets, and geographies.
Strengths and weaknesses typically relate to the internal elements of a business model, including the customer value proposition (products, services, pricing), go-to-market (distribution, sales, marketing) and the organization (functions, processes, people, partners, infrastructure).
The problem is typical SWOT analysis is flawed.
So, what is the major flaw of SWOT analysis?
Let me explain. The many times I’ve worked with teams on SWOT analysis, there is typically a brainstorming session in some non-descript conference room. People start blurting out strengths, weaknesses, opportunities, and threats. Most of the time, people have a debate in a vacuum without the context of the competition.
Strengths and weaknesses must reflect the relative strength and weaknesses versus competitors. Think about a football league. While one team might have strengths against one competitor, those same strengths may be weaknesses against another team. Therefore, determine strengths and weaknesses against the leading competitors in the market. It is a very subtle flaw that is easily fixed.
A quick, but important aside, SWOT analysis is actually a nice tool to also help you think through a business model’s strategic alignment. Strategic alignment occurs within a business model, when the strengths of an organization reinforce the strengths of the customer value proposition & journey, which fully capitalizes on the customer opportunities and thwarts or negates potential threats.
Why is SWOT analysis important?
SWOT Analysis can be a powerful tool in assessing the potential gaps between the external opportunities and threats and the internal strengths and weaknesses of a business model. Often, the core strategy of an organization comes down to identifying the big customer opportunities and aligning the strengths or competitive differentiation of the customer value proposition & journey, and the subsequent necessary organizational core competencies to deliver those strengths and competitive differentiation.
How do you conduct a SWOT analysis?
Determine external opportunities & threats
Opportunities and threats should focus on customer segments, markets, and geographies. Asking basic questions can help determine the most significant opportunities and threats to a business model, including:
o What are the most significant customer trends or unmet needs? Where is the growth in customer segments, markets or geographies?
o Are there specific customer segments, markets or geographies that are being underserved, and we are uniquely prepared to better serve them than the competition?
o What are the primary current and future threats to our business model?
o Are there negative trends in customer behavior or needs that are threats?
o Looking at Porter’s 5 Forces, what are the current and future dynamics with supplier power, buyer power, potential substitutes, potential entrants, and current competitive intensity? What are the opportunities and threats tied to those dynamics?
Determine internal strengths & weaknesses
Strengths and weaknesses should focus on the customer value proposition, go-to-market, organization.
The first step is to assess the relative strengths and weaknesses compared to competitors of the customer value proposition & go-to-market. You can do this through a brainstorming session. If there is a need to go deep, a survey, ethnography or benchmarking will unveil how customers objectively view the products, services, pricing, marketing, sales and distribution versus the competitors. It can also be helpful to assess the competitive advantages of the company and the leading competitors. Competitive advantages can be in the form of brand loyalty, innovation, scale, network effects, proprietary information, intellectual property, locked-up supply, and location.
The next step is to assess the relative strengths & weaknesses of the organization versus competitors, which can be a bit trickier, given it may be hard to determine the strengths and weaknesses of competitors’ functions, processes, people, infrastructure, and partnerships. Though, companies typically have a good feeling for competitors’ strengths and weaknesses through interactions, external articles, or other competitive research. Regardless, some of the biggest insight doesn’t come from the relative competitive strengths and weaknesses but in the assessment of how aligned an organization’s strengths are to the strengths within the customer value proposition & go-to-market. As an example, if product innovation and IP are the strengths of a business model, they should be reinforced by a core competency in research and product development. A company with industry-leading low pricing, they should reinforce it with efficient and lean processes and scale advantages.
DOWNLOAD THE SWOT ANALYSIS POWERPOINT WORKSHEET
To get you going on SWOT analysis, download the free and editable SWOT Analysis PowerPoint Worksheet.[sociallocker] [/sociallocker]