Problem Soving Part 7: SWAT Analysis

SWOT Analysis
Discover New Opportunities. Manage and Eliminate Threats.


SWOT Analysis is a powerful technique for understanding your Strengths and Weaknesses, and for looking at the Opportunities and Threats you face.
Used in a business context, it helps you carve a sustainable niche in your market. Used in a personal context, it helps you develop your career in a way that takes best advantage of your talents, abilities and opportunities.


Business SWOT Analysis


What makes SWOT particularly powerful is that, with a little thought, it can help you uncover opportunities that you are well placed to exploit. And by understanding the weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unawares.
More than this, by looking at yourself and your competitors using the SWOT framework, you can start to craft a strategy that helps you distinguish yourself from your competitors, so that you can compete successfully in your market.


How to use the tool:


To carry out a SWOT Analysis, answer the following questions:


Strengths:


What advantages does your company have?
What do you do better than anyone else?
What unique or lowest-cost resources do you have access to?
What do people in your market see as your strengths?
What factors mean that you "get the sale"?


Consider this from an internal perspective, and from the point of view of your customers and people in your market. Be realistic: It's far too easy to fall prey to "not invented here syndrome". (If you are having any difficulty with this, try writing down a list of your characteristics. Some of these will hopefully be strengths!)
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 a strength in the market, it is a necessity.



Weaknesses:


What could you improve?
What should you avoid?
What are people in your market likely to see as weaknesses?
What factors lose you sales?


Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any unpleasant truths as soon as possible.



Opportunities:


Where are the good opportunities facing you?
What are the interesting trends you are aware of?
Useful opportunities can come from such things as:
Changes in technology and markets on both a broad and narrow scale
Changes in government policy related to your field
Changes in social patterns, population profiles, lifestyle changes, etc.


Local events


A useful approach for looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities.
Alternatively, look at your weaknesses and ask yourself whether you could create opportunities by eliminating them.


Threats:


What obstacles do you face?
What is your competition doing that you should be worried about?
Are the required specifications for your job, products or services changing?
Is changing technology threatening your position?
Do you have bad debt or cash-flow problems?
Could any of your weaknesses seriously threaten your business?



Carrying out this analysis will often be illuminating - both in terms of pointing out what needs to be done, and in putting problems into perspective.
Strengths and weaknesses are often internal to your organization. Opportunities and threats often relate to external factors. For this reason the SWOT Analysis is sometimes called Internal-External Analysis and the SWOT Matrix is sometimes called an IE Matrix Analysis Tool.
You can also apply SWOT Analysis to your competitors. As you do this, you'll start to see how and where you should compete against them.


Tip:

SWOT can be used in two ways - as a simple icebreaker helping people get together and "kick off" strategy formulation, or in a more sophisticated way as a serious strategy tool. If you're using it as a serious tool, make sure you're rigorous in the way you apply it:
Only accept precise, verifiable statements ("Cost advantage of US$10/ton in sourcing raw material x", rather than "Good value for money").


Ruthlessly prune long lists of factors, and prioritize factors so that you spend your time thinking about the most significant factors.


Make sure that options generated are carried through to later stages in the strategy formation process.


Apply it at the right level - for example, at product or product line level, rather than at the much vaguer whole company level.


Supplement it with other option-generation tools - none is likely to be completely comprehensive.


Example:


A start-up small consultancy business might draw up the following SWOT matrix:


Strengths:

We can respond very quickly as we have no red tape, no need for higher management approval, etc.
We can give really good customer care, as the current small amount of work means we have plenty of time to devote to customers
Our lead consultant has strong reputation within the market
We can change direction quickly if our approach isn't working
We have little overhead, so can offer good value to customers.


Weaknesses:


Our company has no market presence or reputation
We have a small staff with a shallow skills base in many areas
We are vulnerable to vital staff being sick, leaving, etc.
Our cash flow will be unreliable in the early stages


Opportunities:

Our business sector is expanding, with many future opportunities for success
Our local council wants to encourage local businesses with work where possible
Our competitors may be slow to adopt new technologies


Threats:

Will developments in technology change this market beyond our ability to adapt?
A small change in focus of a large competitor might wipe out any market position we achieve.
The consultancy may therefore decide to specialize in rapid response, good value services to local businesses. Marketing would be in selected local publications, to get the greatest possible market presence for a set advertising budget. The consultancy should keep up-to-date with changes in technology where possible.

You can see this analysis in diagram format in figure 1 below.

Key points:

SWOT Analysis is a simple but powerful framework for analyzing your company's Strengths and Weaknesses, and the Opportunities and Threats you face. This helps you to focus on your strengths, minimize threats, and take the greatest possible advantage of opportunities available to you.

Risk Analysis & Risk Management

Evaluating and Managing the Risks You Face

Almost everything we do in today's business world involves a risk of some kind: customer habits change, new competitors appear, factors outside your control could delay your project. But formal risk analysis and risk management can help you to assess these risks and decide what actions to take to minimize disruptions to your plans. They will also help you to decide whether the strategies you could use to control risk are cost-effective.


How to use the tool:


Here we define risk as 'the perceived extent of possible loss'. Different people will have different views of the impact of a particular risk – what may be a small risk for one person may destroy the livelihood of someone else.


One way of putting figures to risk is to calculate a value for it as:


risk = probability of event x cost of event

Doing this allows you to compare risks objectively. We use this approach formally in decision making with decision trees.

To carry out a risk analysis, follow these steps:

1. Identify Threats:

The first stage of a risk analysis is to identify threats facing you. Threats may be:

• Human - from individuals or organizations, illness, death, etc.
• Operational - from disruption to supplies and operations, loss of access to essential assets, failures in distribution, etc.
• Reputational - from loss of business partner or employee confidence, or damage to reputation in the market.
• Procedural - from failures of accountability, internal systems and controls, organization, fraud, etc.
• Project - risks of cost over-runs, jobs taking too long, of insufficient product or service quality, etc.
• Financial - from business failure, stock market, interest rates, unemployment, etc.
• Technical - from advances in technology, technical failure, etc.
• Natural - threats from weather, natural disaster, accident, disease, etc.
• Political - from changes in tax regimes, public opinion, government policy, foreign influence, etc.
• Others - Porter's Five Forces analysis may help you identify other risks.
  

This analysis of threat is important because it is so easy to overlook important threats. One way of trying to capture them all is to use a number of different approaches:

Firstly, run through a list such as the one above, to see if any apply

Secondly, think through the systems, organizations or structures you operate, and analyze risks to any part of those

See if you can see any vulnerabilities within these systems or structures

Ask other people, who might have different perspectives.

2. Estimate Risk:

Once you have identified the threats you face, the next step is to work out the likelihood of the threat being realized and to assess its impact.
One approach to this is to make your best estimate of the probability of the event occurring, and to multiply this by the amount it will cost you to set things right if it happens. This gives you a value for the risk.

3. Managing Risk:

Once you have worked out the value of risks you face, you can start to look at ways of managing them. When you are doing this, it is important to choose cost effective approaches - in most cases, there is no point in spending more to eliminating a risk than the cost of the event if it occurs. Often, it may be better to accept the risk than to use excessive resources to eliminate it.

Risk may be managed in a number of ways:

By using existing assets:Here existing resources can be used to counter risk. This may involve improvements to existing methods and systems, changes in responsibilities, improvements to accountability and internal controls, etc.

By contingency planning:You may decide to accept a risk, but choose to develop a plan to minimize its effects if it happens. A good contingency plan will allow you to take action immediately, with the minimum of project control if you find yourself in a crisis management situation. Contingency plans also form a key part of Business Continuity Planning (BCP) or

Business Continuity management (BCM).

By investing in new resources:Your risk analysis should give you the basis for deciding whether to bring in additional resources to counter the risk. This can also include insuring the risk: Here you pay someone else to carry part of the risk - this is particularly important where the risk is so great as to threaten your or your organization's solvency.

4. Reviews:

Once you have carried out a risk analysis and management exercise, it may be worth carrying out regular reviews. These might involve formal reviews of the risk analysis, or may involve testing systems and plans appropriately.

Key points:

Risk analysis allows you to examine the risks that you or your organization face. It is based on a structured approach to thinking through threats, followed by an evaluation of the probability and cost of events occurring.

Risk analysis forms the basis for risk management and crisis prevention. Here the emphasis is on cost effectiveness. Risk management involves adapting the use of existing resources, contingency planning and good use of new resources.