The Right Way to Create a SWOT Analysis

The Right Way to Create a SWOT Analysis

I wanted to be a fighter pilot when I was a young boy growing up in New Zealand. That was my first BHAG. I joined the Air Training Corps as a cadet as soon as I was old enough. I learned to fly solo in a glider when I was in high school. I studied math and physics because I knew you needed that to be a fighter pilot, and, as soon as I was old enough, I applied to join the NZ Air Force.

Here in the USA, you must be a college graduate to become a fighter pilot, but in New Zealand things were different, and I was able to apply at 17. After several weeks of exams and physical assessments, I found myself on the final shortlist of ten candidates being flown to an air force base in Auckland for the final, grueling three-day selection process.

I was by far the fittest on the course. I found the written exams easy. I was well-prepared, and I knew my stuff. I began to think that I might make it.

New Zealand has a tiny air force. That year, they only selected two people for pilot training. Unfortunately, I wasn’t one of them. The examiners told me that I didn’t have fast enough reactions to be a successful fighter pilot. That stung; I did not want to believe it. Unfortunately, that was the reality. I was good at sports in school. I played in the top teams for tennis and softball in the summer and soccer in the winter. I thought my reactions were one of my strengths, and maybe they were in the context of playing those sports, but in the context of becoming a fighter pilot, my reactions were a weakness. Context is decisive. You need to know where you are heading before you can properly evaluate your strengths and weaknesses.

It didn’t matter how big my goal was or how much I wanted it or how hard I was willing to work. I simply didn’t have the reactions that a fighter pilot must have. I could have become a navigator, but I realized that even though this was an opportunity, it was not my dream and I wasn’t passionate about it.

Now it’s time for your version of my air force testing. 

As part of the strategic planning process, you need to determine if your goals and plans make sense in the real world, in light of an honest assessment of your capabilities and the current environment. We’re going to use a tool that you’ve probably heard of and maybe even used. It’s called SWOT.

SWOT analysis was devised by Albert Humphries, who was at the Stanford Research Institute (now SRI International) in the 1960s and 1970s. Companies still use his basic definitions today:

  •       Strengths: characteristics of the business that give it an advantage
  •       Weaknesses: characteristics that place the company at a disadvantage
  •       Opportunities: external chances to improve performance
  •       Threats: external elements in the environment that could degrade performance

The Wikipedia article on SWOT describes the way most companies and consultants do it:

“Setting the objective should be done after the SWOT analysis has been performed. This would allow achievable goals or objectives to be set for the organization.”

In my time in the corporate world, I experienced many consultants and strategic planners who were brought in to work with my company. Most tried to start the whole strategic planning process with SWOT. I thought this was normal at the time, but I’ve since learned that is a big mistake!

How can you assess your SWOT if you haven’t chosen your BHAG and your 3 to 5 Year Strategic Moves and don’t know where you’re going? You can only assess if you are strong or weak at something in light of where you want to end up.

Before we start, though, let me remind you of Philip Kotler’s concept of dual vision:

“Companies need to operate with one eye focused on the short term and one eye focused on the long term.

Short term is about projects related to improving the current core business and meeting the needs of today’s target customers.

Long term is NOT about performance improvement. It is about forgetting the past and reshaping the business to compete more effectively in the future.”

Your SWOT analysis needs to be done with your long-term strategy in mind, and it also needs to be done with the current reality in mind. That’s what we mean by dual vision. You need to have one eye on the future, one eye on the present, and make sure your SWOT analysis bridges both timeframes.

One way you confront reality is to make it clear and obvious what you’re talking about. I’ve seen too many companies fool themselves by using platitudes and general language.

They tell you (and put in their promotional material) that “our people” or “our brand” or “our culture” are their major strengths. Using that kind of vague, general language is not helpful. Every company seems to want to say these things when I work with them, and I often wonder if it is only to make them feel better about themselves. But is it really true? Can you prove it? You have to dig around inside phrases like that to make what you really mean clear and obvious. You must use specific, concrete language.

What is it about your people that make them a strength? More specifically, what do they do and what are the results of what they do?

What, specifically, makes your brand a strength? How do you know?

Culture is a very vague term. What are the values and behaviors that define and demonstrate your culture? What are the specific, concrete ways that your culture is a strength?

Get real. Would an outside investor looking at buying into your company agree with you that these are the strengths they are investing in?

Those are just examples. I recommend that you describe each of your SWOT factors in short, concise, three- to five-word descriptive statements.

Context is important here. Identify your strengths, weaknesses, opportunities, and threats based on your BHAG and your 3 to 5 Year Strategic Moves. They are the moves you identified in the last chapter.

This isn’t easy, so don’t expect it to be. When I work with clients in person, this is a place where I have to push and pull and poke and prod them hard. I call them out on any b.s. I am hearing, and I drill down deep to get to the heart of the issues. They find it confrontational at the time, but they come away delighted with the result.

I help them to think differently and take a broader strategic perspective by asking questions like:

  • If I were a venture capitalist looking to invest in your firm, assessing your company rationally and dispassionately, what strengths would I be investing in that I can leverage?
  • What weaknesses would I uncover that need fixing?
  • What future opportunities would I want you to pursue with my investment funds?
  • What threats could prevent me from realizing a return on my investment?

Take the time you need to list your strengths, weaknesses, opportunities, and threats ranked in priority order. Most clients start with a list of each. Then they narrow down the list to the top five and rank those five in order.

Remember that your SWOT analysis will set the stage for the actions you’ll take in the next quarter. That means you must make sure that everything important is on your lists. Take the time to do it right.

Your SWOT analysis should define your current reality so clearly that a new person in your company, your banker, an investor, or an outside consultant like me should be able to look at your statements and say, “Yes, I get what you mean.” To get there, let’s review each dimension individually.

Strengths

Your strengths are the assets or the competencies within your current business that you can leverage. What would be your number-one strength as a company? If you could identify one thing that you would say makes you strong, what would it be? What makes you uniquely different in your industry? Remember to assess your strengths in the context of your 3 to 5 Year Strategic Moves and capture them in short, concise, three- to five-word descriptive statements.

What is your number-one strength? If there were two things that make you strong, what would that number-two thing be? If there were three things, what would that number-three be? I’m going to limit you to five. I would like you to list what you think are your top five strengths.

Weaknesses

Weaknesses are next: What are the biggest weaknesses in your current business that you think could be fixed or improved within a 12-month time window? Remember to assess your weaknesses in the context of your 3 to 5 Year Strategic Moves and capture them in short, concise, three- to five-word descriptive statements.

Again, if you could fix only one thing in your business, what would that most important thing be? If you could fix two things, what would be that second most important thing?

Remember that you need to list everything that’s important, even if it’s something that you don’t want to admit or that makes you uncomfortable. That’s where I’ve seen many firms come unstuck.

There is an elephant in the room, and they’re not addressing it. The elephant is almost always a weakness or a threat. Often it has something to do with a weakness in their business model concerning sales, future revenues, cash flow, or profitability. Or there is a threat that people may be aware of, but they are not doing anything about it other than “hope it doesn’t happen to us.” Do you have anything like that? Be brutally honest with yourself. Everything that needs fixing or improving or addressing for you to implement your 3 to 5 Year Strategic Moves should be stated here.

Opportunities

What opportunities can you pursue within the next 12 months? They should be aligned to your future strategic direction, your 3 to 5 Year Strategic Moves. What opportunities can you pursue that will move you in that direction? What can you do now that will position your company for future success? Again, use short, concise, three- to five-word descriptive statements and rank these in priority order. Remember that opportunities are outside your firm. What actions can you take to seize them, exploit them? Rank your top five in priority order.

Threats

What external threats do you need to reduce or closely monitor to ensure they do not derail your plans? If you have done a thorough industry analysis, you should have identified a number of different threats that could impact your industry or your firm. What are they? What are those things, ranked in priority order, that you need to keep an eye on? Which ones should you mitigate, take some action to reduce or eliminate? List the top five threats ranked in order, using short, concise three- to five-word descriptive statements.

You should end up with four lists, one for each letter of your SWOT analysis.  

Let’s look ahead for just a moment. Your next step will be to take your SWOT analysis and use it as the framework for deciding the important things you must do in the next quarter to move your company in the direction of your 3 to 5 Year Strategic Moves and toward your BHAG.

Let’s say you had one of those elephants in the room that I talked about. Maybe it was cash flow, and you decided that was your number-one weakness. To address that, you might decide to implement some initiatives to reduce your total outstanding receivables and your Days Sales Outstanding over the next quarter.

If you succeed, that would change your reality, wouldn’t it? While you’re working away building on your strengths and making your weaknesses irrelevant, your competition will be busy, too. A new threat may emerge in your industry. New opportunities can pop up, too. That’s why your SWOT analysis is never really done.

As part of the cadence of strategy execution, you should review your SWOT analysis every 90 days. They’re “Rolling Reality Checks.” That revised analysis becomes the basis for action in the next quarter. That’s how you stay agile and effective and achieve better RESULTS.

Now it’s time to use the SWOT analysis you’ve just completed to decide your actions over the next three months. It’s time to answer the question: “What should we do now?” It’s time to choose the right strategic projects (big rocks) for your business.

Excerpted from the book: Business Execution for RESULTS, by Stephen Lynch

***

Until next time…
Stephen

Previous Posts