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Until recently, most marketing textbooks, when defining SWOT analysis, would invariably specify that it was a ‘method or model of strategic planning’. SWOT seemed like something complex and far removed from everyday life, according to experts at Stelvel Ltd.
In fact, each of us carries out a mini-SWOT analysis every day, weighing up the pros and cons, the prospects and the potential problems that might arise in everyday situations. The same thing happens in business, when, whilst making a decision – very often an urgent one – we have to weigh up data that is not entirely accurate and act on intuition.
SWOT is not tied to scale. It does not replace data. Its purpose is to help bring together what is already known into a single picture and to spot what could easily be overlooked.
Stelvel Bulgaria would like to revisit this topic once more. In this article, we will explain how to quickly and easily assess a business decision, its strengths and weaknesses, opportunities and threats. We’ll also include a PEST analysis of external factors. And to ensure that SWOT doesn’t remain merely a list, we’ll briefly touch on TOWS – a cross-matrix that provides a situational context for everything that has been gathered.
Where SWOT doesn’t work
Let’s start by clarifying where SWOT isn’t needed, doesn’t work, or works poorly:
- if you need to resolve a minor issue
- if the situation can be easily rectified
- if you need to choose one option from several
- if a decision needs to be made right now
- if you need to set priorities
SWOT assesses a specific situation, but does not, in itself, compare options. If you need to choose between three suppliers or decide which area to develop first, you will need to use other methods of analysis.
Strengths and weaknesses
The first two elements of a SWOT analysis are a description of the company. This is not a comprehensive list of strengths and weaknesses, but rather a focus on what is relevant to the specific issue at hand.
Strengths are what your company does well, what you actually possess, and what requires no proof.
- existing customer base
- well-known brand name
- experience
- patent
- well-established service
- in-house expertise
- access to suppliers
- in-house production
Anything that hinders, holds back, restricts or even causes harm, as the experts at Stelvel Ltd warn, is what competitors do better or what they already possess. This is the second part of the matrix – weaknesses.
Weaknesses may include:
- a shortage of specialists
- a lack of experience in a new area
- dependence on a single supplier
- poor logistics
- a limited budget
It is important here not to confuse internal and external factors. A shortage of specialists within the company is a weakness. A shortage of specialists in the market, however, is an external factor.
First the question, then the matrix
One of the most common mistakes is to start a SWOT analysis with four empty boxes. People then fill them in one by one with whatever comes to mind: the company’s strengths, weaknesses, opportunities and threats. The result is a rather lengthy table that looks impressive but does little to help with decision-making, according to experts at Stelvel.
The fact is that the same piece of information changes its position in the matrix depending on the question. A small team is a strength if you need to test a new product quickly. And a weakness if you need to cope with a double workload during peak season. Rising advertising costs are a threat to a shop that relies on paid traffic, but an opportunity for one that has long been building a relationship with regular customers through newsletters.
Therefore, a practical SWOT analysis does not begin with the matrix, but with formulating the questions: what decision is being made and for how long.
Opportunities and Threats
Opportunities – external processes and factors, anything that can be capitalised upon. These may include:
- growth in demand
- the emergence of a new niche
- changes in consumer behaviour
- a competitor withdrawing from a particular segment
Threats – any change that could pose an obstacle. A list of threats usually begins with the most obvious ones: competitors. And it often ends with them too. However, the most unpleasant surprises do not come from competitors, but from where they are least expected. These could include new labelling regulations, exchange rate fluctuations or changes to a marketplace’s algorithms. To ensure such changes do not go unnoticed, experts at Stelvel Bulgaria advise that the external context can be further assessed using a PEST analysis.
PEST: assessing external factors
The purpose of a PEST analysis is to help take a systematic look at what is happening outside the company and to examine the impact of four groups of external factors:
- P (Political) – laws, taxes, duties, product requirements
- E (Economic) – exchange rates, logistics and advertising costs, purchasing power
- S (Social) – changes in society and people’s behaviour, habits, expectations
- T (Technological) – new technologies, platforms, changes in how services operate
Sometimes a few questions are enough: what has changed in the legislation, how have customers’ incomes changed, what has changed in their behaviour, and have any new technologies emerged that might affect the company’s operations? After this, the SWOT analysis becomes much more precise: internal factors are not confused with external ones.
TOWS: from a list to a solution
A completed SWOT matrix consists of four quadrants and a lot of text. It is precisely at this stage that many people become disillusioned with SWOT and regard it as a mere formality. This is because even a good SWOT analysis does not answer the question: what should we do with everything we have identified?
TOWS is the same matrix, except that the quadrants are not considered in isolation but are compared in pairs. Unlike SWOT, TOWS does not simply list factors; it links them together and translates the analysis into possible actions.
The logic is quite simple: each pair answers its own question.
- Strengths + Opportunities: ‘How can we use what we’re already good at to ensure we don’t miss out on new opportunities?’
- Strengths + threats: ‘What do we already have that will help us defend against threats?’
- Weaknesses + opportunities: ‘What needs to be improved, or what are we lacking, to capitalise on external opportunities?’
- Weaknesses + threats: ‘Which of our weaknesses will become a problem if the threats materialise?’
For example, an online shop is planning to increase its advertising budget. Sales are rising, but so are advertising costs. Regular customers continue to buy, whilst acquiring new customers is becoming increasingly expensive for the shop. At the same time, competitors are also advertising heavily.
Strength: repeat purchases; weakness: reliance on paid traffic. Opportunity: growing demand; threat: competitors who are also stepping up their advertising.
SWOT simply identifies these four factors, according to experts at Stelvel. TOWS links them together: the weakness and the threat reinforce each other, and whilst competitors are upping the ante, a significant portion of the additional budget will be spent competing for the same traffic rather than on new customers.
Strengths and opportunities, on the other hand, work together: growing demand can be capitalised on by targeting those who have already purchased, which is cheaper than acquiring new customers. Ultimately, the company arrives at a solution derived from TOWS: to focus first on repeat sales and only then increase spending on customer acquisition.
The outcome of TOWS is not a new table, but a single phrase: what we are doing and with what caveat. Not ‘change supplier’ or ‘add advertising’, but ‘make the switch after the season, and in the meantime try a test batch’ or ‘increase the advertising budget only for those queries where the cost of acquiring a new customer remains acceptable’.
Four lists and an action plan
A SWOT analysis is no substitute for figures, market research or experience. But it helps us to pause for a few minutes and check our own reasoning: are we really seeing the whole picture, or are we simply looking at it from one angle? An action plan begins to take shape from these four separate lists.
An analysis of external factors is only as accurate as the market data itself. This is precisely what Stelvel Bulgaria provides. And when facilitating B2B transactions, it carefully selects dropshipping suppliers and checks counterparties, their reputation and financial standing.