SWOT analysis: Everything you need to know about the strategic thinking model

Sun Tzu’s famous saying, “Know thyself and know thy enemy; a hundred battles, a hundred victories”, holds true in modern business strategy.

Understanding your business alone is not enough, especially in an increasingly competitive market. This is where the SWOT analysis comes in as a vital tool, offering solutions for both micro and macro-level challenges. SWOT helps managers position their company’s strengths in the market and generates brilliant ideas for strategic implementation.

So, what exactly is SWOT, and how do you conduct a proper SWOT analysis for your business? Let’s dive into the details below.

What is SWOT?

What does SWOT stand for?

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It is a widely used strategic analysis method for evaluating the competitive position of an organization, project, or product, helping develop strategic plans.

What is SWOT analysis?

SWOT analysis involves identifying these internal (Strengths and Weaknesses) and external (Opportunities and Threats) factors. Based on these insights, you can create practical solutions for your business, such as market expansion, product development, or brand positioning.

This method can be applied to businesses, teams of various sizes, or individual projects.

For example, the marketing department can better understand competitors' strategies through SWOT analysis. This allows your company to develop a unique marketing strategy that capitalizes on your strengths while addressing areas your competitors have overlooked.

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Why should businesses use SWOT analysis?

Does SWOT analysis help companies expand their markets smoothly? Can the SWOT model help a company avoid budget losses due to market fluctuations? The answer is a resounding yes.

Specifically, SWOT analysis helps your business:

Plan more accurately: Instead of creating business plans without any solid foundation, SWOT analysis lets you clearly understand your current situation (Strengths and Weaknesses) and external environmental factors (Opportunities and Threats) that could impact your business, leading to more informed and effective decisions.
Identify strengths and weaknesses: With SWOT, your business can discover strengths to capitalize on and areas that need improvement.
Seize opportunities to expand your market and grow your business.
Manage risks: Effectively address risks such as market fluctuations or competitor actions to minimize potential losses.

4 elements of SWOT model

Before analyzing, every manager must understand the four key elements of the SWOT model (S, W, O, T). These elements have unique characteristics and offer specific benefits when applied.

Strengths

The first letter in SWOT stands for Strengths. Simply put, these are your company's positive attributes, the standout factors that set it apart from competitors.

Example: Skilled employees, advanced technology, and a strong brand reputation are considered strengths of a business.

Weaknesses

The second factor in the SWOT matrix is weaknesses, which are opposite to strengths. Weaknesses are obstacles to your company’s growth and "gaps" that need to be improved. In other words, weaknesses are areas where your competitors outperform you.

Example: In terms of products, having a pricing policy that is too high compared to customer affordability is a weakness, which could lead to declining revenue. Therefore, the company must adjust prices to be more competitive while maintaining profitability.

Opportunities

Opportunities are external factors and "leverage points" that allow the company to grow, increase revenue, or bring added value.

Example: After the COVID-19 pandemic, there was a surge in travel demand, presenting a significant opportunity for the airline industry to recover and grow.

Threats

Opportunities come with threats, the final key factor in the SWOT model. Threats are risks, losses, or obstacles that hinder your company’s growth now or in the future.

Example: A public relations crisis is one of the biggest threats, causing significant damage to almost any business. In today’s digital age, a single negative customer review can spread widely on social media, causing many potential customers to avoid your business.

How to make a SWOT matrix for your business

Analyzing SWOT goes beyond merely listing the four elements; it involves developing a comprehensive SWOT matrix through the following steps:

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Step 1: Define the objective of SWOT analysis

Objectives are always tied to projects or activities within the business. With clear objectives, managers can focus on aspects that align with those goals.

The objectives of a SWOT analysis may vary for each department or plan, such as expanding the market, launching a product, dealing with a PR crisis, or conducting a recruitment campaign.

Step 2: Gather information

To ensure objective SWOT analysis, conduct surveys within the company, with partners and customers, and collect broad industry and competitor data.

You can conduct interviews or create online forms for survey participants to fill out. Gather information from reputable news channels, industry expert opinions, and competitor websites for market factors.

Step 3: Brainstorm ideas

At this stage, divide a sheet of paper into four quadrants corresponding to the four elements of the SWOT model. Ask and answer specific questions for each quadrant to get a clear picture of your business’s current state.

To identify strengths, consider questions like:

What does your business excel at?
How does your business outperform competitors?
What are the core benefits of your product (or business)?
What unique qualities attract customers to your brand?
What keeps customers loyal to your product?
What resources does your business possess?

Conversely, identify weaknesses with questions such as:

What makes customers dissatisfied with your product/service?
Why do customers not purchase from you or use your services?
In what areas do competitors outperform you?
What are the resource gaps in your company?

After answering these questions, you’ll have a clearer picture of your company’s strengths and weaknesses. You can control these internal factors, making it easier to implement solutions or improvements.

External factors affecting the company are just as important as internal ones. Therefore, do not overlook analyzing these two elements in the SWOT model. To fully explore opportunities, consider questions like:

What can your business do to ensure customers love and remain loyal to you?
What potential marketing channels have high conversion rates?
What are the upcoming industry trends?
Which market segments should you explore?
What new technologies can you adopt?
What tools or resources are you currently underutilizing?

Pro tip: If you struggle to identify opportunities, look at your strengths and assess whether they can be developed or opened up into new opportunities. Similarly, consider your weaknesses and imagine how you could create new opportunities by overcoming them.

In addition to opportunities, your business will also face risks and challenges from the market. To identify these challenges, answer questions like:

How many competitors does your business have in the market?
How are customer preferences changing?
What plans do your competitors have?
What weaknesses in your business could competitors exploit?
Are there any changes in government policies or regulations that could pose challenges?

Remember, if your business cannot control or change the external environment, you must adapt to counter these factors. For example, you can't change the event if a competitor launches a new product that attracts your customer base. Still, you can research and launch a better product or invest in compelling marketing campaigns.

Step 4: Consolidate final results

With a diverse list of ideas covering the four elements inside and outside your business, it’s time to consolidate and filter out the most relevant ones. A helpful tip is to rank these on a scale of 1 to 10.

Step 5: Adapt strategies to SWOT analysis

This final step involves formulating strategies based on your analysis, commonly known as S-O, W-O, S-T, and W-T strategies (variants of the SWOT matrix).

S-O strategy

This strategy combines the two strongest elements in the SWOT matrix, helping the business use its internal strengths in conjunction with excellent market opportunities. In other words, it leverages strengths to capitalize on potential opportunities.

Example: A seaside restaurant known for its local specialties and excellent service attracts many tourists and locals. Recognizing the opportunity presented by its favorable location and growing reputation, the restaurant expands its services to include tourism-related offerings.

S-T strategy

This strategy combines strengths and threats, aiming to maximize the business’s strengths to counter external threats and minimize potential damage.

Example: The English learning app market is highly competitive, with many new applications emerging globally. However, the Virtual Exam Room app maintains market share and customer trust because its developers have effectively used AI and machine learning to offer unique, personalized features.

W-O strategy

This strategy combines weaknesses and opportunities, leveraging opportunities to overcome weaknesses.

Example: A startup entering the market with limited resources and management experience seeks investment from a seasoned venture capital firm. The firm provides funding and valuable operational advice, addressing the startup’s internal weaknesses.

W-T strategy

This strategy combines two vulnerable aspects of the SWOT model (weaknesses and threats). If S-O is an attack strategy, then W-T is a defense one. The goal is to improve weaknesses while simultaneously limiting risks, and it is often used when the company is in a declining state.

Example: A traditional electronics manufacturer facing a downturn due to rapid technological advancements and outdated products must innovate its traditional offerings and expand its product line to stay competitive.

Benefits and limitations of SWOT Model

Benefits

As one of the most renowned models worldwide, SWOT offers several significant advantages:

Cost-effective: SWOT analysis doesn’t require extensive technical skills. Any employee or department can conduct it without formal training.
Applicable to any business or product: The SWOT model can be widely applied, from small projects to large corporations, as the elements are easy to identify and implement.
Includes external factors: While companies typically focus on internal factors when making decisions, numerous external factors beyond their control can pose significant risks. SWOT emphasizes recognizing and evaluating these external elements.
Simplifies complex issues: By listing and ranking ideas in the SWOT matrix, individuals can easily visualize the overall business context and fully understand a problem, making solutions more feasible and straightforward.

Limitations

Despite its solid advantages and broad applicability, SWOT has certain limitations you need to be aware of:

Overly simplistic: SWOT doesn’t delve deeply into business aspects, focusing only on four elements. Therefore, relying solely on this model might not provide long-term strategic direction.
Subjective analysis: SWOT is often subjective, as it’s conducted by an individual or a specific department, lacking diverse perspectives. Different people may conduct different, even conflicting, analysis results.
Difficult to prioritize elements: Although you can rank opportunities and threats, the four SWOT elements are generally treated equally, making it hard to prioritize which elements or strategies to focus on at a given time.

When should businesses use SWOT?

Businesses should use the SWOT matrix at the appropriate time. Below are some common scenarios:

When creating a business plan: SWOT helps identify internal and external factors affecting the business, simplifying and improving the planning process.
When developing a strategic plan: Use SWOT to identify opportunities to exploit and risks to avoid.
Before making critical decisions: Before investing, expanding markets, or merging companies, use SWOT to get an overview of the current situation, assess your position, and determine the best course of action.
When facing intense competition: SWOT analysis helps you understand your business’s strengths and weaknesses compared to competitors, allowing you to develop appropriate competitive strategies.
When evaluating the business environment, SWOT helps you understand it and the factors influencing it, such as regulatory changes or market trends.
When managing internal company issues: SWOT helps you evaluate and improve internal processes, human resources, and organizational culture.

Example of SWOT analysis in business

F is a startup in educational product development, specifically an English learning app. The company’s main product is the Virtual Exam Room, a leading platform for international English certificate exam preparation, which pioneers the application of Gamification in education.

The product primarily targets elementary school students preparing for international certification exams. Its core value is to make learning and testing English easier and more time-efficient.

The company plans to develop a new product line for teachers, teaching centers, and schools. To effectively plan the new product launch, F conducted a SWOT analysis.

Strengths: - Few direct competitors in the industry - A leader in applying Gamification to products - The product is genuinely helpful to users - The development team consists of young, enthusiastic, and eager-to-learn individuals.	Weaknesses: - The brand is still new, limiting its reach to potential customers. - The product has many features but lacks detailed usage guides. - Occasional screen display errors due to heavy graphics. - The company’s resources are still limited.
Opportunities: - English is becoming increasingly popular. - Many users access social media to learn about English learning apps. - Many schools are preparing to offer elementary students with international English certificates direct admission.	Threats: - The niche market limits the customer base. - Operating in the tech environment means industry trends are constantly changing. - High technology investment costs. - Competitors may copy F’s product model.

From this SWOT analysis, F developed various strategies:

S-O Strategy: - Directly target the niche market (where there are few competitors). - Intensify communication about F’s products, highlighting their position as leaders in Gamification. - Leverage the success of user case studies on social media channels.	S-T Strategy: - Clarify the product's core benefits, demonstrate its superiority over imitations, and register for brand protection. - Invest in internal research and development activities.
W-O Strategy: - Increase brand advertising on social media. - Encourage customers to share their experiences and product reviews on social media. - Offer discounts or gifts for successful customer referrals.	W-T Strategy: - Partner with strategic allies to ease financial burdens while increasing brand awareness for F.

Start shaping your business strategies

This article has provided a detailed explanation of the SWOT model and guided you on how to implement it. SWOT is an analytical tool and a crucial step in shaping business strategies. Your business can effectively build and propel its development strategy by leveraging strengths, overcoming weaknesses, exploiting opportunities, and addressing threats.

We hope this article has given you deeper insights into SWOT and allowed you to apply it practically in your business operations.