SWOT analysis is an exercise meant to identify your strengths, weaknesses, opportunities and threats - hence the acronym “SWOT”.

Taking a critical look at internal and external factors that impact your business arms you with knowledge that can help you plan, manage or grow your business. It can help you meet challenges or take advantage of business opportunities.

Identify your strengths and weaknesses

An internal analysis is meant to determine where you have an advantage over your competitors, and where you are not as strong.

  • Identify success factors for your industry or market segment.
  • Assess your competitors' competencies with respect to these factors.
  • Compare them to your own strengths and weaknesses to determine where you may have a competitive advantage.

The success factors can vary depending on your industry. They include comparing your abilities to your competitors for factors such as:

  • Marketing: market share, reputation for quality and service, distribution costs, geographical coverage, promotion and sales force effectiveness.
  • Manufacturing: Facilities, economies of scale, capacity, workforce availability and skills, on-time delivery, technical manufacturing skill.
  • Finances: Availability of capital, profitability, financial stability.
  • Organization: Employee dedication, flexibility and responsiveness.

You will find some comparative industry standards through our Managing and growing section. Since it can be difficult to be objective when evaluating your own strengths and weaknesses, soliciting the views of your employees, customers and suppliers can help.

Identify opportunities and threats

An external analysis takes a closer look at the industry and markets where you do business by identifying opportunities and threats. You will want to find out:

  • Which opportunities could increase your profitability? Examples could include:

    • increased demand for your goods or services
    • access to new markets
    • new products and services that can fill a need
    • efficiencies in your operations
    • few or weak competitors
    • market not segmented
    • higher profit margins
    • stable price structure
    • low risk
  • What threats can affect your profitability?

    • obsolete products or services
    • shrinking market
    • existing or new competition
    • upcoming regulatory changes
    • increased market segmentation
    • reduced availability of materials
    • increased supplier prices
    • foreign exchange fluctuation
    • inflation or economic stagnation
    • political or social changes
    • environmental factors
    • takeovers or mergers

Done well, a SWOT analysis can provide a good scan of your business environment. It can help identify opportunities you may have overlooked and prepare you to meet challenges. A SWOT analysis should not be depended upon solely, but used in conjunction with your arsenal of planning and management tools.

To learn more about planning and growing your business, visit our sections on Business planning and Benchmarking.