135 Chapter Two – Lesson Two

Lesson 2: Using SWOT Effectively

Evaluating Internal and External Analysis

An internal and external analysis involves evaluating the current state of an organization from both an internal and external perspective. By conducting this strategic analysis, organizations gain a comprehensive understanding of their present condition.

Strategic analysis plays a crucial role in the strategic planning process. It is essential to have a clear understanding of an organization’s current state before diving into the core of strategic planning. By defining the current state, organizations can establish their future vision and create a roadmap to achieve it through their annual strategic plan.

Completing an internal and external analysis serves as the foundation for the strategic plan. It influences various aspects, including competitive advantages, growth strategies, and overarching themes that shape the entire framework of the strategic plan.

The output of an internal and external analysis is a comprehensive analysis of the organization’s current state, providing insights for growth. This includes identifying areas of strength and areas that require improvement, clearly defining competitive advantages, identifying market opportunities or areas for growth, gaining a clear understanding of competitors and their strengths, and establishing strategic themes that will serve as the framework for the strategic plan.

Capabilities, or lack of capabilities, are helpful to reference and identify internal strategic strengths, weaknesses, problems, constraints, and uncertainties.

You can consider the following questions for your internal analysis:

What do you do best?

What do we do best?

What do the people we interact with value most from our organization?

How do we uniquely serve the people we interact with?

What are our community of resources – assets, intellectual property, and people?

How are we using our resources well?

Where do we need to be more efficient?

How do our employees or shareholders perceive us?

The internal analysis yields several significant outputs that lay the groundwork for formulating and guiding your business strategy:

Output #1: A comprehensive inventory of the organization’s internal strengths and weaknesses.

Output #2: Identification of strategic issues that need to be addressed from an internal standpoint.

Output #3: A compilation of strengths to leverage as the basis for your competitive advantages. To identify these advantages, you will need to combine them with a competitive analysis.

Output #4: Development of key themes to integrate into your strategic framework and strategic plan. These themes provide a cohesive structure for guiding your organization’s strategic decisions and actions.

Questions to Consider for Your External Analysis

Assessing Your Marketing (External Factors):
What is happening externally and internally that will affect our organization?
Who are our ‘customers’?
What are the strengths and weaknesses of our organization?
What are important and potentially important markets?
What is happening in the world that might affect our community?

SWOT Analysis

SWOT Analysis serves as a widely utilized method for conducting an internal examination of an organization. SWOT is an acronym that stands for strengths, weaknesses, opportunities, and threats. The internal aspect of a SWOT analysis is dedicated to scrutinizing the fundamental strengths (S) and weaknesses (W) inherent within your organization.

As previously mentioned, the SWOT analysis serves as a predominant method to conclude your external evaluation. When delving into the external analysis aspect of SWOT, your focus will revolve around Opportunities (O) and Threats (T).

Competitor Assessment

In your examination of competitors, you’ll categorize them into three distinct types:

1. Direct Competitors: These are entities operating within your immediate market space and are consistently considered alongside your organization in a customer’s decision-making process.
2. Indirect Competitors: Although not precisely situated within your specific market sphere, these competitors warrant close attention, as they have the potential to evolve into direct competitors over time.
3. Substitutes or New Entrants: These are players who may offer alternative products or services, or those who have not yet reached the level of direct competition but pose a potential threat.

Identifying Competitors

In the context of competitor analysis, you should consider the following questions:

• Who are our primary competitors?
• Who are our secondary competitors, and how intense is their competition?
• Are there producers of substitute products we need to monitor?
• Can these competitors be categorized into strategic groups based on their assets, competencies, or strategies?
• Who are the potential newcomers to the competitive landscape, and what barriers do they face in entering the market?

Establishing and Connecting Key Performance Indicators (KPIs) with the Strategic Goals of the organization forms the cornerstone for harmonizing actions throughout the enterprise. Crafting user-friendly reporting tools or dashboards will enhance communication, facilitate informed decision-making, and bolster the effectiveness of performance tracking.

Once a performance indicator system has been put in place, it is imperative to periodically revisit and refine it to ensure its alignment with the evolving needs of the business. This process should be tightly integrated with an annual review of the strategic plan and the budget-setting procedure. Evaluating the effectiveness of existing metrics is crucial, distinguishing between those that have proven successful and those that have not. Particular attention should be given to identifying metrics that require modification in response to shifts in strategic objectives. In the event that new metrics need to be developed, a collaborative brainstorming effort should be undertaken to identify the key success factors and establish new performance indicators at various organizational levels.

Whether introducing new metrics or revisiting existing ones, it is essential to conduct an annual performance review and establish fresh targets for the forthcoming year. Once these targets are defined, it is vital to ensure clear and effective communication to the relevant levels of the organization.

Policies, in this context, refer to specific guidelines, methods, procedures, rules, forms, and administrative practices that are established to actively support and facilitate progress toward the organization’s stated goals. Changes in the strategic direction of a company do not happen automatically; rather, they rely on the day-to-day implementation of policies. These policies play a critical role in resolving recurring issues and providing guidance for the effective execution of the overarching strategy. Policies are indispensable tools for strategy implementation, and there are at least six key reasons for their importance:

1. Boundaries and Constraints: Policies delineate boundaries, constraints, and limits the types of administrative actions that can be taken to incentivize and regulate behavior.
2. Expectation Clarity: Policies clarify what is expected from both employees and managers, thereby increasing the likelihood of understanding and compliance.

Start brainstorming your SWOT analysis by answering the following questions

How can we best maximize our strengths?

How can we minimize our weaknesses?

How do we leverage our opportunities?

How do we protect against threats?

 Roles of SWOT

Conducting a SWOT analysis enables you to evaluate both internal and external factors that can impact your business. These factors include strengths, weaknesses, opportunities, and threats, and it is important to take action based on the results of the analysis.

To ensure the success of your SWOT analysis, keep it concise and straightforward, while still providing critical details. For instance, be specific about your staff’s strengths and how they can help you achieve your business objectives. Additionally, seek input from different sources, such as employees, suppliers, customers, and online feedback.

Avoid being too narrow-focused, and consider performing an overall business SWOT analysis. Finally, always ensure you link the findings of the SWOT analysis to your business plan by aligning them with your defined objectives and goals.

In the overall strategic planning process, SWOT analysis, issue identification, strategy development, and implementation play crucial roles.

Let’s look at each of these elements:

1. SWOT Analysis: SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis involves assessing an organization’s internal strengths and weaknesses, as well as external opportunities and threats in its operating environment. The purpose of a SWOT analysis is to identify key factors that can impact the organization’s strategy. By understanding its strengths and weaknesses, the organization can leverage or address them accordingly. Similarly, by identifying opportunities and threats, the organization can determine how to capitalize on favorable conditions and mitigate potential risks.
2. Issue Identification: Issue identification involves identifying and understanding the challenges or problems that an organization faces or is likely to face in the future. These issues can be internal or external and may arise from various factors such as market changes, technological advancements, competition, regulatory requirements, or internal inefficiencies. Effective issue identification is crucial for strategic planning as it helps the organization focus its efforts on addressing the most critical and relevant issues that impact its performance and success.
3. Strategy Development: Strategy development is the process of formulating a set of actions and initiatives that will guide the organization towards achieving its long-term goals. It involves analyzing the information gathered from the SWOT analysis and issue identification to develop a strategic plan. This plan outlines the organization’s mission, vision, objectives, and the strategies it will employ to achieve them. Strategy development requires making choices about resource allocation, competitive positioning, target markets, product or service offerings, and other important aspects of the organization’s operations.
4. Implementation: Implementation is the phase where the strategic plan is put into action. It involves executing the strategies and initiatives outlined in the plan, allocating resources, assigning responsibilities, and monitoring progress. Successful implementation requires effective communication, coordination, and alignment of efforts across different functions and levels of the organization. It also involves adapting to changing circumstances, learning from experiences, and making necessary adjustments to ensure the plan’s effectiveness.

In summary, SWOT analysis, issue identification, strategy development, and implementation are integral components of the strategic planning process. SWOT analysis and issue identification help identify relevant internal and external factors that inform strategy development. Strategy development involves formulating a plan to address the identified issues and capitalize on opportunities. Finally, implementation is the execution phase where strategies are put into action to achieve the organization’s goals.