The tools used in management are necessary to create effective management of the organization and strengthen its position in the market. More and more of them appear every year.
However, it often happens that managers spend a huge amount of time and material resources on learning and implementing new methods and techniques, while the results from these innovations are not as good as expected.
Fortunately, it is not always necessary to reinvent the wheel - it is enough to apply methods that have been introduced long ago and have proven their effectiveness many times.
The SWOT analysis matrix is just one of such useful tools that can be successfully applied not only in management, marketing, politics, but also to increase personal efficiency. We will talk about him.
The SWOT method combines strengths, weaknesses, opportunities and threats, and assesses the current and future potential of the enterprise. It is a four-part matrix, each of which denotes a required area of study.
For the first time, the world heard about this method from Professor Kenneth Andrews at a conference on business policy issues in 1963, and after 2 years it began to be widely used in developing the company's strategy. Today, it is often used by governments, non-profit organizations, and individuals, including investors and entrepreneurs.
For startups, SWOT analysis is part of the business planning process. It helps you organize your strategy so that you start on the right path and determine the direction in which to move.
It is also worth noting that a detailed analysis of strengths and weaknesses, external opportunities and risks is excellent not only for creating a company's strategy, but also for auditing its own resources and weak areas.
Let's get to know each part of the matrix in more detail.
To identify the strengths of the enterprise, several questions should be asked:
Strengths describe what an organization excels at and what sets it apart from its competitors: a strong brand, loyal customer base, strong balance sheet, unique technology. Each of these areas can be directly influenced by the company's management, changing, for example, the approach to management and business processes.
Questions to identify the presence of weak areas:
Weaknesses prevent the organization from performing at its optimal level. These are the areas that prevent an enterprise from being competitive: a weak brand, low professionalism of employees, poor service, high levels of debt, an inadequate supply chain, or a lack of capital.
To identify opportunities, the following questions should be answered during the SWOT analysis :
Opportunities are external factors that the organization cannot influence. However, the company must take into account all the favorable changes in the market in order to further strengthen its position and be ready for albeit positive, but changes.
For example, the head of an organization must be sure that when new customers come to his company after the bankruptcy of a competitor, its internal resources will be enough to provide them with the highest level of service. Otherwise, potential consumers of services can leave as easily as they appeared.
For example, a drought poses a threat to a wheat company as it can negatively affect the amount of the crop harvested. Other possible dangers for the company may be rising prices for materials, increased competition, labor shortages, etc.
When analyzing threats, one should understand:
Just like opportunities, threats are beyond the control of the company's management. However, this does not mean that they should not be taken into account in the process of developing a strategy.
It is thanks to the understanding of potential risks in the market that it is possible to build a competent and effective strategy, redistribute internal resources in a timely manner, and also think over a detailed crisis plan.
Taking into account all internal and external factors, using a SWOT analysis, you can understand what changes the company needs, as well as develop strategic plans taking into account all weak areas. It allows you to abandon ineffective and unsuccessful strategies by focusing on growth points and opportunities.
Among the disadvantages of the method are the following:
It is worth noting that management should not undertake this work on its own. To achieve the best results, it is necessary to assemble a group of people who have different points of view on internal and external business processes and are experts in different fields.
To do this, you should define a list of employees who will become representatives of various areas of the company: from sales and customer service to marketing and product development.
Some organizations run such an open business that they boldly invite regular customers, partners and suppliers to the analysis in order to get an objective view from the outside.
Engaging specialists from different departments will allow you to look at the situation from different angles and take into account as many aspects as possible when planning a strategy. The more points of view are presented during the discussion, the broader the picture of the current situation can be obtained.
Compiling a SWOT analysis matrix is like a brainstorming session, during which it is important to voice all the factors that in one way or another affect the company's position in the market. Each of the invited team members should make their own list of strengths, weaknesses, as well as opportunities and threats. Later, by joint efforts or by decision of the moderator of the discussion, the real factors are written out into a single structure.
After completion of the work, it is necessary to prepare a real and detailed strategy for the organization, taking into account all the circumstances identified.
To do this, you can follow a simple algorithm:
Based on the data obtained, it is worthwhile to draw up a company's strategy for the next period. It is important to remember that a SWOT analysis allows you to form an understanding of the situation in the enterprise for a specific period of time. That is why a detailed analysis should be carried out at least once a year. This will allow you to monitor compliance with the strategy and, if necessary, adjust the course.
SWOT analysis is just one of the few universal tools that are used simultaneously both in management, politics, economics, and to increase personal efficiency. To stay on top of everything important and useful, you should devote a lot of time to professional development and self-improvement. We bring to your attention the online program "The best techniques for self-education", which will acquaint you with interesting and useful techniques and methods necessary to activate thought processes and solve complex problems. In 5 weeks, you will have in your arsenal such self-education techniques as note-taking, interleaving, problem learning and many others that can make the education process not only effective, but also as interesting as possible.
As an example of a detailed analysis, let's take a look at Netflix, one of the largest streaming platforms in the world.
The company's experts regularly conduct an audit of strengths, weaknesses, opportunities and potential threats, on the basis of which they draw up a detailed action plan. Perhaps it is because of this responsible approach that Netflix quickly gained popularity among viewers.
By analyzing and strengthening its strengths, Netflix is actively pursuing a leading position in the streaming market and is generally not planning to give up its positions.
Weak areas of the company are not so critical. With the right approach and the right strategy, each of these shortcomings can be corrected by Netflix, thereby strengthening its position in the market.
Each of the listed opportunities can turn out to be an excellent chance for a company to get ahead significantly. To do this, it is necessary to conduct a more detailed analysis and develop a step-by-step strategy plan.
Threats to the company include:
Netflix's SWOT analysis shows the current position of the brand and the threats it faces today.
Based on the analysis, the company's experts developed a step-by-step strategy in which they proposed the companies to develop new geographic areas, working with local cable TV providers and broadcasting their local content, as well as international content in different languages. In this way, the company will be able to generate more profits and subscribers.
To avoid digital piracy, Netflix needs to strengthen its security and prevent user account hacks. The company should also consider developing a more flexible and generous subscription system for different economy classes.
Special attention should be paid to improving the mobile application and website, providing subscribers with a more user-friendly interface.
This tool impresses with its simplicity and efficiency. However, you should not rely solely on it, forgetting that an integrated approach is required for the full functioning of business processes.
However, it often happens that managers spend a huge amount of time and material resources on learning and implementing new methods and techniques, while the results from these innovations are not as good as expected.
Fortunately, it is not always necessary to reinvent the wheel - it is enough to apply methods that have been introduced long ago and have proven their effectiveness many times.
The SWOT analysis matrix is just one of such useful tools that can be successfully applied not only in management, marketing, politics, but also to increase personal efficiency. We will talk about him.
What is SWOT Analysis?
SWOT analysis is an incredibly simple yet effective tool used to assess the competitive position of an enterprise and develop strategic planning. This method is great for companies of all sizes, from a small start-up to a huge corporation.The SWOT method combines strengths, weaknesses, opportunities and threats, and assesses the current and future potential of the enterprise. It is a four-part matrix, each of which denotes a required area of study.
For the first time, the world heard about this method from Professor Kenneth Andrews at a conference on business policy issues in 1963, and after 2 years it began to be widely used in developing the company's strategy. Today, it is often used by governments, non-profit organizations, and individuals, including investors and entrepreneurs.
For startups, SWOT analysis is part of the business planning process. It helps you organize your strategy so that you start on the right path and determine the direction in which to move.
It is also worth noting that a detailed analysis of strengths and weaknesses, external opportunities and risks is excellent not only for creating a company's strategy, but also for auditing its own resources and weak areas.
Let's get to know each part of the matrix in more detail.
Strengths
Strengths are internal factors and characteristics that companies can control and change on their own. For example, the number of employees in the company, the level of their professionalism, the presence of patents or unique production.To identify the strengths of the enterprise, several questions should be asked:
- What internal business processes are successful?
- What intangible assets (knowledge, education, connections, skills and reputation) does the company have?
- What physical assets do you have (customers, employees, equipment, technology, cash and patents)?
- What competitive advantages do you have?
Strengths describe what an organization excels at and what sets it apart from its competitors: a strong brand, loyal customer base, strong balance sheet, unique technology. Each of these areas can be directly influenced by the company's management, changing, for example, the approach to management and business processes.
Weaknesses
Weaknesses, as well as strengths, are internal characteristics of the company that owners and managers are able to fix. These are the areas that you should pay attention to in the first place.Questions to identify the presence of weak areas:
- What tangible and intangible assets does your business lack to be competitive? Which of them should be developed first?
- What advantages do your competitors have?
- What business processes need to be improved?
- Do you need additional investment for your team? If so, which ones?
Weaknesses prevent the organization from performing at its optimal level. These are the areas that prevent an enterprise from being competitive: a weak brand, low professionalism of employees, poor service, high levels of debt, an inadequate supply chain, or a lack of capital.
Opportunities
Opportunities refer to favorable external factors that can give an organization a competitive advantage and improve its market position. For example, a situation where a competitor declares bankruptcy will attract additional customers.To identify opportunities, the following questions should be answered during the SWOT analysis :
- Are there any positive changes in your market?
- Are there certain trends that can induce people to consume more of your product (use services)?
- Are there any planned changes (political, economic, social) in the near future that your company can use to strengthen and develop its business?
- Could your competitors lose ground?
Opportunities are external factors that the organization cannot influence. However, the company must take into account all the favorable changes in the market in order to further strengthen its position and be ready for albeit positive, but changes.
For example, the head of an organization must be sure that when new customers come to his company after the bankruptcy of a competitor, its internal resources will be enough to provide them with the highest level of service. Otherwise, potential consumers of services can leave as easily as they appeared.
Threats
Threats are external factors that pose a potential threat to an organization that it cannot control and contain. They are understood as factors that are potentially dangerous for the organization.For example, a drought poses a threat to a wheat company as it can negatively affect the amount of the crop harvested. Other possible dangers for the company may be rising prices for materials, increased competition, labor shortages, etc.
When analyzing threats, one should understand:
- Do you have potential competitors who might enter the market?
- Will your suppliers and partners always be able to comply with all agreements?
- Could future technology developments change your business?
- Could consumer behavior change in ways that negatively impact your business?
- Are there trends in the market that could be a threat?
- Are there any planned changes (political, economic, social) that will harm your company in the near future?
Just like opportunities, threats are beyond the control of the company's management. However, this does not mean that they should not be taken into account in the process of developing a strategy.
It is thanks to the understanding of potential risks in the market that it is possible to build a competent and effective strategy, redistribute internal resources in a timely manner, and also think over a detailed crisis plan.
Advantages and Disadvantages of SWOT Analysis
SWOT analysis has many benefits for a company:- Allows you to look at the business in a new way.
- Shows possible resources to use.
- "Highlights" weak points that need to be paid priority attention.
- Allows you to develop a detailed action plan, taking into account many risks and crisis situations.
- Determines the main priorities in work.
- By analyzing the facts, it helps to form an objective picture.
- The versatility of the approach allows it to be applied in all areas (economics, management, planning, and even personal effectiveness).
- It is used both for a quick assessment of the current situation and for the development of a long-term strategy.
- It does not require special knowledge in the field of management, which allows a large number of people to use it.
Taking into account all internal and external factors, using a SWOT analysis, you can understand what changes the company needs, as well as develop strategic plans taking into account all weak areas. It allows you to abandon ineffective and unsuccessful strategies by focusing on growth points and opportunities.
Among the disadvantages of the method are the following:
- The analysis reflects only general factors. For a more detailed and specific immersion in the process, it is necessary to conduct a separate study.
- The method is only a preparation for the creation of a company's strategy, but is in no way able to replace it.
- The picture provided by the SWOT analysis depicts the state of affairs in the organization for a specific period of time.
- Strengths and weaknesses are not always shown objectively - it largely depends on who specifically conducted the research.
- A qualitative analysis and assessment of the situation involves the attraction of additional material and intellectual resources, which not every company can afford.
SWOT analysis algorithm
In order for the analysis to be objective and bring the maximum result, it should be approached responsibly. It can be conducted by both internal company specialists and invited experts. One way or another, company leaders or business owners should take a large part in drawing up the SWOT matrix.It is worth noting that management should not undertake this work on its own. To achieve the best results, it is necessary to assemble a group of people who have different points of view on internal and external business processes and are experts in different fields.
To do this, you should define a list of employees who will become representatives of various areas of the company: from sales and customer service to marketing and product development.
Some organizations run such an open business that they boldly invite regular customers, partners and suppliers to the analysis in order to get an objective view from the outside.
Engaging specialists from different departments will allow you to look at the situation from different angles and take into account as many aspects as possible when planning a strategy. The more points of view are presented during the discussion, the broader the picture of the current situation can be obtained.
Compiling a SWOT analysis matrix is like a brainstorming session, during which it is important to voice all the factors that in one way or another affect the company's position in the market. Each of the invited team members should make their own list of strengths, weaknesses, as well as opportunities and threats. Later, by joint efforts or by decision of the moderator of the discussion, the real factors are written out into a single structure.
After completion of the work, it is necessary to prepare a real and detailed strategy for the organization, taking into account all the circumstances identified.
To do this, you can follow a simple algorithm:
- Look at the identified strengths of the organization and determine how existing or potential opportunities can be used.
- Assess how the company's strengths will help to cope with the identified threats.
- Identify steps to strengthen weak areas.
- Develop a crisis plan for dealing with potential threats.
- Determine the dates for all events, appoint people responsible for them.
Based on the data obtained, it is worthwhile to draw up a company's strategy for the next period. It is important to remember that a SWOT analysis allows you to form an understanding of the situation in the enterprise for a specific period of time. That is why a detailed analysis should be carried out at least once a year. This will allow you to monitor compliance with the strategy and, if necessary, adjust the course.
SWOT analysis is just one of the few universal tools that are used simultaneously both in management, politics, economics, and to increase personal efficiency. To stay on top of everything important and useful, you should devote a lot of time to professional development and self-improvement. We bring to your attention the online program "The best techniques for self-education", which will acquaint you with interesting and useful techniques and methods necessary to activate thought processes and solve complex problems. In 5 weeks, you will have in your arsenal such self-education techniques as note-taking, interleaving, problem learning and many others that can make the education process not only effective, but also as interesting as possible.
Netflix SWOT Analysis Example
As we noted earlier, SWOT analysis has proven to be an effective tool that, when used correctly, significantly increases a company's chances of strengthening its market position.As an example of a detailed analysis, let's take a look at Netflix, one of the largest streaming platforms in the world.
The company's experts regularly conduct an audit of strengths, weaknesses, opportunities and potential threats, on the basis of which they draw up a detailed action plan. Perhaps it is because of this responsible approach that Netflix quickly gained popularity among viewers.
Strengths
Among the strong areas of Netflix, experts point out the following:- High growth rate.
- Excellent brand reputation.
- Large customer base around the world.
- Highest quality original content.
- Fast adaptation to various technologies.
- Customer focus.
- Affordable pricing.
By analyzing and strengthening its strengths, Netflix is actively pursuing a leading position in the streaming market and is generally not planning to give up its positions.
Weak sides
Weaknesses of the company include:- Limited copyright.
- Increase in the amount of debt.
- Lack of popular environmental initiatives.
- A small selection of tariffs, consisting of three levels: basic, standard and premium.
- Excessive dependence on the North American market.
- Lack of technical support.
- Low level of security for clients.
- Rising operating costs.
Weak areas of the company are not so critical. With the right approach and the right strategy, each of these shortcomings can be corrected by Netflix, thereby strengthening its position in the market.
Possibilities
An example of Netflix features identified during the SWOT analysis:- Low cost mobile streaming option to attract and retain subscribers in the international market.
- Increased ad integrations. Netflix can increase its revenue by adopting an ad-driven business model.
- Expansion of the global customer base.
- Updating the content library by increasing the number of contracts with various distributors of films.
- Possibility of cooperation with new communication service providers.
- Production of region-specific content in local languages.
- Supporting educational institutions for African Americans.
Each of the listed opportunities can turn out to be an excellent chance for a company to get ahead significantly. To do this, it is necessary to conduct a more detailed analysis and develop a step-by-step strategy plan.
Threats
The last point in Netflix's SWOT analysis is the part that contains detailed information about the potential risks from the outside.Threats to the company include:
- Competitive pressure from other streaming sites such as Disney, Apple TV, HBO, Amazon, Hulu, and YouTube to give their subscribers re-access to new and original content.
- Strict government rules and regulations for service providers like Netflix.
- Digital piracy.
- Market saturation.
- Hacking accounts.
- Pressure from the government over bandwidth problems. In March 2020, the European Union Commissioner complained that Netflix's large HD content was putting pressure on infrastructure and interfering with critical functions such as defense and hospitals. Netflix was asked to reduce the amount of data in video streams for European users by 30 days and encouraged users to watch standard definition video instead of HD.
Netflix's SWOT analysis shows the current position of the brand and the threats it faces today.
Based on the analysis, the company's experts developed a step-by-step strategy in which they proposed the companies to develop new geographic areas, working with local cable TV providers and broadcasting their local content, as well as international content in different languages. In this way, the company will be able to generate more profits and subscribers.
To avoid digital piracy, Netflix needs to strengthen its security and prevent user account hacks. The company should also consider developing a more flexible and generous subscription system for different economy classes.
Special attention should be paid to improving the mobile application and website, providing subscribers with a more user-friendly interface.
Conclusion
The SWOT analysis matrix, like many other management tools, with the right approach can not only eliminate current weaknesses and weaknesses, but also help develop a strategy taking into account the potential opportunities and threats for the company.This tool impresses with its simplicity and efficiency. However, you should not rely solely on it, forgetting that an integrated approach is required for the full functioning of business processes.
