Theodore Roosevelt once said: “In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing”.
Making decisions is essential in everyday life and the business world, and we can learn from those who have done it better. Good strategic thinkers tend to be not only good analysts but to be able to maintain a critical and fair attitude about their goals and the elements or factors needed to achieve them.
In business, one of the most effective ways to structure the decision-making process is called a SWOT analysis. It combines micro and macro factors to guide the company’s leadership into strategic planning and action based on a realistic, more precise understanding of the company’s current position rather than a gut feeling or a disorganized, superficial approximation.
The components of a SWOT analysis are: Strengths (S), Weaknesses (W), Opportunities (O), and Threats (T).
This analysis is used with a specific goal or project in mind, and is appropriate across industries, for all kinds of business ventures. A business owner with a good understanding of its principles can use the simplest model of a SWOT analysis, which is essentially a list of pros and cons, weaknesses and strengths, opportunities and threats. The result is a conclusion that will influence a future decision.
Strengths and weaknesses are micro-factors of the analysis because they depend on the micro environment of a business, its internal environment.
Opportunities and threats are macro-factors because they depend on the external environment: favorable conditions in the marketplace (opportunities) or unfavorable conditions (threats).
The table below shows some examples of each of these categories.
| Strengths:
· Company culture · Market share · Staff (skills, experience, performance) · Cash flow (high AR turnover ratio) · Brand strength · Customer base (demographics, loyalty, purchasing power)
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Weaknesses look at the flip side:
· Limitations in company culture don’t allow for growth and innovation · Low/precarious market share · Untrained, demotivated, overworked staff or bad management · Low cash flow (low AR turnover ratio) · Weak brand (low recognition and consumer loyalty) · Limited number of new customer acquisition · Obsolete inventory/services |
| Opportunities:
· Finding new markets · Revitalizing the brand through marketing · Using new technology · Offering extras to your clients · Deregulation · Globalization · E-commerce |
Threats:
· New competition · Decrease in market share · Customers using different products · Regulations (such as licensing) · E-commerce and globalization · Socio-cultural perceptions · Insurance requirements (health care, auto makers, etc) |
The components of SWOT interrelate in a network of beneficial dependencies and relational risks. For example, when is a threat disguised as an opportunity because your company’s main weakness will prevent you from taking advantage of it? When could taking an opportunity even damage some of your company’s strengths, such as its stability or loyal customer base?
The context within which you operate on a macro level often determines your micro-level status: the strengths and weaknesses of your business. Social, economic, political and legal factors influence not only your perceptions of the four components of SWOT but how others externally assess your company for those same factors. A bank may analyze the opportunities you’re not taking advantage of or that you missed (such as a cancelled merger) or your reactions to an economic downturn, and then decide whether to extend you a loan or not.
At any given time, the focus must be on balancing strengths and weaknesses, on optimizing the former and minimizing the latter. Actions such as fulfilling your KPIs, ensuring your staff recognizes and is prepared to respond to risk, boosting competencies, and making changes based on knowledge and skill, will ripple further, to enhance your opportunities, reduce limitations, and help you cope with threats.
The analysis of any one combination of these 4 elements can apply to virtually any situation, even in our personal lives. When you’re already weakened by an event and a new threat appears, your strategy should be of survival. Introduce a strength, and you may acquire enough leverage to make adjustments that may garner some benefits in the long run.
Flexibility is a necessary skill, along with clear, critical thinking. If your competitor changes its operations by introducing a new product, you can do a SWOT analysis to see what gives you or them a competitive edge. Just because they have a new product doesn’t mean they’ll be successful. Your analysis may conclude that, given all their known threats and weaknesses, this change will be detrimental to their business. At that point, you may decide to come up with a better or complementary product yourself, which will fill the gap left by their failing product in the future.
One of the best ways to conduct a comprehensive, informed SWOT analysis is to ask for feedback and honest opinions from staff and clients. A medical practice that receives constant complaints about its scheduling practices or public staff confrontations should take them very seriously. They may signal not only a clinical team whose members can’t get along and work efficiently, but failing management or internal oversight, customer dissatisfaction, weakening brand, low patient loyalty, all of which are not only weaknesses but threats as well. In that case, measures must be taken immediately, and a monitoring process set up to detect and prevent such things from happening in the future.
Staff feedback is also important. It may point out weaknesses and threats, or open the door to new opportunities. It may inadvertently identify contributors and key players in all of these categories. For instance, many good employees are able to detect inefficient processes and might have ideas to improve the workflow, increase receivables, acquire new clients or become more compliant with regulations. Your company could conduct an anonymous survey every few months, which would allow staff to express their opinions about how the company is doing and the direction it’s going.
Some companies put themselves through SWOT tests. They imagine different scenarios and determine if they have the capability to overcome tough situations or to recognize a competitive advantage. What will it cost your company to overcome a threat? Is it capable of improvising? Would it have the support it needs from investors and other business partners?
A long time ago, Sophocles wrote: ‘I have no desire to suffer twice, in reality and then in retrospect’. Planning and organizing should not be actions we wish we had taken in hindsight. The tools are at our fingertips, to help us reflect, learn, apply old and new tactics, and compete at our highest possible level while moving forward and growing.