Albert S. Humphrey is credited to have invented the SWOT analysis 1. It is a structured planning method that allows individuals, businesses and organizations to evaluate their internal and external factors to achieving a particular objective. In the specifics of a marketing strategy a SWOT analysis allows a business to identify their core competencies and use them as the foundation of their competitive advantage.
SWOT stands for:
- Strengths
- Weaknesses
- Opportunities
- Threats
It is my opinion that building a business that doesn’t display the owners strength is a mistake. In my professional experience, businesses that rely solely on the hard work of employees, most likely will have a very difficult time competing against businesses of people that have an incredible passion for what they do. An example of this very thing is the last five years of Apple versus Microsoft. Apple was losing the battle of the personal computer until Steve Jobs went back to its “baby”. And one man, Steve Jobs, was capable of injecting so much passion into the entire organization that Apple became the most valuable company in the world. In the meantime, Microsoft had an incredible amount of very talented and hard working people. The competitive advantage came by the focus that Steve Jobs brought through his passion. Imagine how difficult it would’ve been for Steve Jobs to make other companies succeed in the same way, for example his other venture Next.
The SWOT analysis has two parts. The internal factors: Strengths and Weaknesses and the external factors: The opportunities and Threats.
Internal Factors
The internal aspects deal with those items that the organization already has or doesn’t. For example a specific business may have a great tech support team, an incredible manufacturing facility or a well refined process. In terms of weaknesses, the organization may be too young, or it may be that the business has only one person that knows the intricacies of the product development and therefore it has a bottleneck, etc.
The importance of recognizing the strengths is that the focus of the business should be to compete in those areas. Offering services and products that highlight what makes you strong, will increasingly provide value to your audience because not everybody is as strong as you are.
On the other hand, identifying the weaknesses shouldn’t be just an exercise just to try to eliminate them, also it should provide feedback on the ways in which the business shouldn’t compete. For example, my perception of Hyundai cars doesn’t tend to luxury vehicles. And in the past, Hyundai has demonstrated that their strength lies in competing for low cost vehicles. Now, Hyundai is developing new cars that are “designed” to compete with the luxury market. In my opinion, strategically this is a mistake. Why? Because they can’t do a great job in both. The company can’t be as strong if they focus in both creating low cost vehicles and high cost vehicles. By focusing on both it takes away focus and resources from one or the other. Ultimately, it is in their best interest to choose whichever segment they are stronger at and compete there.
What about a small business owner, for example a therapist in private practice? Identifying the strengths and passion are fundamental to the success of the business. People want to buy products and services from people that are passionate about them.
External Factors
Externally you find the opportunities and the threats. Opportunities describe those aspects of the environment that could be exploited in the future for additional advantage. And threats indicate the potential risks that the environment may present that would undermine the competitive position that the company enjoys.
External factors are more difficult to determine since they involve a great deal of speculation. However, planning for unexpected events may prove beneficial in the long term.
The Most Important Part of SWOT
In my opinion, the most important aspect of a SWOT analysis is to identify your strengths. You should devote the vast majority of the analysis in the “S” part. Once you identify what you are really good at – you’ll be in a better position to compete online.
In my experience, most people that offer their products or services online have trouble identifying what is it that they do better than the competition. Sometimes they don’t even know their competitors and when they do, very rarely can they put into words what the competitors do better than them and vice versa.
The reason this is important, is because whether you like it or not, you are competing. Your audience will either buy your product or they will find somebody else to fill their need. It is a competition. So it is important to treat it like one. As it is unacceptable for an athlete to show up unprepared to the track, so its unacceptable for a business owner to not do their homework on their competition and most importantly on themselves. Make sure that you know what are you good at. This should give you a better idea on how to focus your business to become the best it can be.
Exercises:
1. Identify the strengths and the weaknesses of your internet business. Questions that may help you do that:
a. Do you have a larger promotion budget than your competitors?
b. Is your product or service significantly better than your competitors at reaching the outcome that your clients want? Why is it better?
c. What attributes do you offer that your competitors are not offering?
d. Do you see any clear weaknesses that your competitors have that you can exploit with your strengths?
e. Do you see any clear weaknesses in your business?
2. Identify the opportunities and threats of your internet business. Questions that may help:
a. Are there any significant trends that seem to be affecting your business environment?
b. Do you see any patterns of language in your industry or among your competitors?
c. Do you foresee any actions that your competitors, your industry or your government are taking that may lead to significant changes in the way that you do business?
1. Humphrey, Albert (December 2005). “SWOT Analysis for Management Consulting”. SRI Alumni Newsletter (SRI International).
