Before delving into the use of SWOT analysis in business competitiveness analysis, it’s important to first do a recap of this, popular, business analytics tool. SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. The strategic analysis tool is used to measure the competitiveness of a business organization in respect of its internal and external environment.
Simple SWOT Analysis and its Limitations as a Reliable Business Analysis Tool
Benefits of Using SWOT to Determine the Market Competitiveness of a Business
• Can Be Applied to Any Company and Situation
SWOT analyses shed light on the company’s existing resources which may have been ignored or have not been used to their full potential
• A Strategic Analysis Tool that Tells Four Stories
While other evaluation tools may only be able to assess one factor of competitiveness at a time, the SWOT framework can tell a company the significance of four environmental factors at once. This means you can have four comprehensive discussions about pertinent issues to the company at a go.
• Helps Companies Play Offense and Defense
The business analysis tool can enable you to create a plan take advantage of opportunities, maximize strengths, or to manage threats and weaknesses depending on the scenario.
Limitations of the SWOT Tool in Strategic Management
• Lack of Prioritization
The SWOT analysis does not have a built-in mechanism for prioritization. Therefore, the analysis can be overwhelming if you are not clear on what you’re going to prioritize.
• Lack of Clarity
The SWOT framework ignores the fact that a factor or condition can both be a strength and a weakness or an opportunity and a threat. There is no way to deal with overlaps.
• Lack of Ranking
One of the problems with SWOT analysis is that it doesn’t offer a way to rank each of the elements under the four headings. The lack of detail is a major drawback of the SWOT framework.
• Absence of Objectivity
Subjectivity is another drawback of the SWOT framework. The tool generally relies on observations. Using substantiated data is important for improving the integrity of the analysis. But people with no background in research design will not bother to, or be able to use the right method of data collection, analyzing, and presentation.
• Information Overload
SWOT analysis doesn’t tell you where to focus your efforts. It also doesn’t have a threshold for information. You’ll never know if you have too much or too little.
• It Can Be Too Simplistic
Another limitation of the SWOT framework is that it is too simple. It can be easily designed and utilized. This simplicity translates to susceptibility to identify misrepresented factors or conditions or misinterpretation of strengths, weaknesses, opportunities, and threats.
Advanced SWOT Analysis for Business Competitiveness Analysis
By recognizing the limitations of the simple SWOT analysis, the advanced SWOT analysis tool was developed to address some limitations of the simple SWOT framework. To get the most from the strategic analysis model, the Advanced SWOT framework helps managers to rank the internal factors of a business environment basing on their importance. It also considers the significance of external factors by evaluating the degree of probability of their occurrence.
By prioritizing the ranking and significance factors, you will be able to identify the most or least important factors to focus on in strategic decision making.
Specifically, the Advanced SWOT analysis tool helps you to address the following limitations of simple SWOT analyses:
• How do we prioritize the factors?
• Which strategic competencies do we emphasize?
• Which opportunities provide the best growth potential?
• Which weaknesses have the biggest impact on achieving sustainable, profitable growth?
• What are most significant threats that we need to be wary of?
Steps and Procedure for Developing Advanced SWOT Analysis Frameworks
Step 1. List both the internal and external factors
On the internal part, conduct analysis and identify both strengths and weaknesses. While on the external side, you provide the opportunities and threats as they impact your company. It is suggested that you identify 10-20 internal factors, and 10-20 external factors. But the more you can provide for the Advanced SWOT analysis, the better.
The number of internal and external factors selected has no effect on the weighted scores of the SWOT analysis because the weights will always sum to 1.0. For the internal environment factors, first list strengths and then weaknesses. While for the external factors dimension, first list the opportunities, and then the threats.
It is wise to be as specific and objective as possible when assigning the weighted scores of internal and external factors in advanced SWOT analysis. For that reason, you can use percentages, ratios, and comparative numbers on both dimensions.
Note: The key emphasis in doing advanced SWOT is to identify the factors that are the strengths or weaknesses in comparison to the current market competitors. Therefore, when looking for strengths, ask what do you do better than your competitors? In case of the weaknesses, ask what could you improve and at least catch up with your competitors?
Step 2. Prioritize the Factors
Priority of Strengths and Weaknesses, Importance, Rating & Score in Advanced SWOT Analysis
Strengths and weaknesses are evaluated based on 3 considerations, namely;
Importance shows how important a strength or a weakness is for the organization in its industry, as some strengths (weaknesses) might be more important than others. A number from 0.01 (not important) to 1.0 (very important) should be assigned to each strength and weakness. The sum of all weights should equal 1.0.
A score from 1 to 3 is given to each factor to indicate whether it is a major (3) or a minor (1) strength for the company. The same rating should be assigned to the weaknesses where 1 would mean a minor weakness and 3 a major weakness.
Score is a result of importance multiplied by rating. It allows prioritizing the strengths and weaknesses.
Priority of Opportunities and Threats, Importance, Probability & Score
In advanced SWOT Analysis, opportunities and threats are prioritized (slightly) differently from strengths and weaknesses. The evaluation of threats and opportunities is based on:
It shows the extent by which the external factor might impact the business. Again, the weighted scores from 0.01 (no impact) to 1.0 (very high impact) should be assigned to each item. The sum of all weights should equal 1.0 (including opportunities and threats).
The rating of probability of occurrence shows how likely the opportunity or threat will have any impact on business. It should be rated from 1 (low probability) to 3 (high probability).
The score of external factors – opportunities and threats, is the product of importance multiplied by probability to give a score by which you’ll be able to prioritize opportunities and threats. Therefore, pay attention to the external factors that have the highest score in advanced SWOT analyses and ignore the external factors that will not likely affect your business.
Step 3: Make Strategic Decisions
Strengths and weaknesses are internal to the company and can be directly managed, while the opportunities and threats are external and the company can only anticipate and react to them.
The advanced SWOT analysis framework that enables you to leverage on your organization’s strengths, improve weaknesses, take advantage of opportunities, and minimize external threats. Therefore, you should formulate your strategies based on the analysis conducted to set your organization in the right direction of creating a competitive advantage
Components of the SWOT Framework Template
Strengths are the internal factors, positive characteristics of the organization, which distinguish it in the environment and from the competition, and they are often called key success factors. Strengths can be intangible such as brand attributes or more general like a specific team or branch. It can also be strengths in a particular product or product development which could give a market advantage.
Strengths are attributes of the business that are supportive in the accomplishing the objectives. You need to consider this from your own point of view and from the point of view of your competitors. Don’t be modest. Be realistic in looking at your strengths.
Think about them in relation to your competitors – for example, if all your competitors provide high quality products, then a high-quality production process is not strength in the market, it is a necessity.
While listing your company’s strengths, focus on the core elements that brought your company to the point it’s at. Essentially, strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human resource competencies, process capabilities, financial resources, products and services, customer goodwill, brand loyalty etc.
To understand your strengths, you need to provide answers to the following questions:
• What makes your service the top tool for addressing consumer needs?
• What are your cutting-edge features, your novel capabilities that set your company apart?
• What is your competitive advantage?
• What assets does your company have?
• What do customers like about your company?
• What are the features that help your company make a difference?
• What do you do well?
• What advantages do you have?
• What tangible assets do you have – equipment, technology, IP or property?
• What do team members bring to the business – skills, contacts, reputation?
• What are your competitive strengths? Which qualities separate you from competitors
Weaknesses are the factors that prevent you from accomplishing your mission or achieving your full potential. Weaknesses are a critical part of SWOT for the same reasons that strengths are. Understanding your weaknesses helps you to prioritize what to work on next, and what opportunities you are most likely to succeed with. They are factors that detract you from the value you offer or place you at a competitive disadvantage.
Weaknesses stop an organization from performing at its optimum level. Weaknesses, like strengths, are inherent features of your organization. They are areas where the business needs to improve to remain competitive. For example, your weakness could be weak brand, lower-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital. However, it’s not easy to identify and accept your company’s downsides, but the better you indicate these factors, the quicker you will be able to take actions towards solving them.
Key questions to ask on your weaknesses
• What areas need improvement to accomplish your objectives or compete with your strongest competitor?
• What does your business lack (for example, expertise or access to skills or technology)?
• Does your business have limited resources?
• Is your business in a poor location?
• Are there any skill gaps on your team?
• Which business processes or products would benefit most from improvement?
• Are there things your business could do to be more competitive?
• What elements can be improved?
• What aspect of your company has room for growth?
• What do you do badly?
• What should you avoid?
The opportunities element of a SWOT analysis is where you start to shift your gaze away from your own company and to the market as a whole. It refers to favorable external factors that could give an organization a competitive advantage.
Opportunities are phenomena and trends in the environment that if used appropriately could stimulate the development of company and weaken the threat. Useful opportunities can come from such things as changes in technology and markets, changes in government policy related to your field, changes in social patterns, population profiles, lifestyle changes, etc.
Business strategy analysis tools such as PESTEL and Porter 5 Forces are useful tools to help you analyze your external environment for opportunities and threats. The primary purpose of opportunity analysis is to find factors that can be turned into strengths for the company in the future. Being able to spot and exploit opportunities can make a huge difference to your organization’s ability to compete and take the lead in your market.
Key questions to ask on your Opportunities
• Has there been recent market growth or have there been other changes in the market the create an opportunity?
• Is the opportunity ongoing, or is there just a window for it? In other words, how critical is your timing?
• Are things happening in the market that you could capitalize on?
• Are there any merger or acquisition opportunities that make sense to exploit?
• Are you missing opportunities to make additional revenue from existing leads or customers?
• Are there any countries or markets that you could enter with your existing products with little effort?
• Are there any markets with a poor competitor showing that you could take advantage of?
• Are there any emerging trends that you could take advantage of?
• What could be the next best move for your company’s growth?
• Are you taking advantage of current trends?
Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business. They compound the vulnerability when they relate to the weaknesses. Threats could include new businesses that could become competitors, new laws that might affect your company, up-and-coming competitor, or hash global business eenvironment.
In fact, it can be a very broad section of the analysis depending on how detailed you wish to be and how big impact threats you want to include. You have no control over these, but you may benefit by having contingency plans to address them if they should occur. It’s vital to anticipate threats and to take action against them before you become a victim of them.
Normally, many companies fail to consider the threats to their business, whether it’s a threat caused by the market, competitor or simply a financial threat as a result of increased resource costs in relation to revenue.
Here’s how you can identify your company’s external threats
• What obstacles do you foresee challenging your company’s success?
• Which competitors have the potential to threaten your business? You might be doing everything right, but a step your competitor takes can turn things upside down
• Are there any political or economic risks in the market you’re operating in?
• Are there emerging industries that threaten to take over your market?
• Are the required specifications for your job, products or services changing?
• What factors beyond your control could place your business at risk?
• Are there challenges created by an unfavorable trend or development that may lead to deteriorating revenues or profits?
• What about shifts in consumer behavior, the economy, or government regulations that could reduce your sales?
• Has a new product or technology been introduced that makes your products, equipment, or services obsolete?
• Could future developments in technology, regulation or environment change how you do business?