D&M 002: Building and protecting your business with SWOT analysis

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Summary: In this session of the Dan and Matt Podcast we discussed the importance of SWOT analysis when searching for niche markets to capitalize. We also address that neglecting this critical analysis is a ?common cause of unforeseen business hardship.Miro Video Player

Bringing the S.W.O.T Analysis into the 21st Century

Businesses should never overlook the humble S.W.O.T analysis as the basis for their entire strategic decision making. Yet it is perhaps the most under-utilized weapon in the marketing arsenal for many businesses.

A S.W.O.T analysis is the tool used to list a business? internal strengths and weaknesses as well as the prevailing external opportunities and threats in their market place.

Strengths and weaknesses are usually listed relative to your key rival businesses. For example, if you have cash reserves of $10,000 (which is undoubtedly an asset), you may regard it as strength. If, however, all your key rivals have at least $500,000 cash reserves, your $10,000 is in fact a relative weakness.

Traditionally the S.W.O.T analysis has been presented as a window diagram with four quadrants and in each quadrant you have key bullet points for each of the four areas: strengths, weaknesses, opportunities and threats.

For example, a typical SWOT analysis for a given firm might look something like this:

STRENGTHS:

  • Prime CBD location
  • Experienced and skilled staff
  • Reliable referral network
WEAKNESSES:

  • Limited cash reserves
  • Little computer skills within the business
  • Undifferentiated service offering
OPPORTUNITIES:

  • Key rivals shutting down soon
  • Government incentives being proposed to stimulate demand for your service
  • Expanding market need
THREATS:

  • New business opening in the same vicinity
  • Increased reliance on e-technology
  • Negative ?attitudes in some clients ?towards some aspects of your service

Critics of this model would ask, ?what do you do with it now?? and although there is nothing wrong with the traditional approach, its greatest drawback is simply that it treats the points listed in a static way, and not as dynamic items that need to be acted upon and reviewed over time.

So is there a better way to present this data? A way that will list each point, and direct your thinking specifically to how it may effect your business and what needs to be done about it.

Consider the following model as we examine each of the four new columns to see how it may help to make your next S.W.O.T analysis more insightful and actionable.

S/W/O/T Implication Indicated action Resources Opportunity Cost

Items listed . . . .

Indicated Actions

Each point listed in the SWOT analysis will almost certainly have some implication for the business and consequently some desired action linked to it that should be performed or at least be considered by the business. Each of these desired responses is called an INDICATED ACTION.

In the case of the Business with a relatively modest cash reserve, it might not be possible to take advantage of upcoming opportunities. Therefore, the indicated action for this business would be to investigate and arrange for an appropriate line of credit (or equity loan). You must know exactly how much additional capital you can borrow, by when, from whom, over what time frame, at what interest rate, etc.

It is not enough to know you do not have enough liquidity; you need to act to take control of the situation.

Resources

Once appropriate indicated actions are formulated, it is important to decide on the level of resources required to carry out each indicated action. Again, using the example of the firm requiring additional access to cash, different types of resources will be needed to negotiate this.

To begin with there is the obvious financial resource (cost) in the form of an establishment fee which financial institutions typically charge when creating new business loans. Moreover, in the longer term, these borrowings will require additional funds to be paid off.

From the point of view of non-financial resources the most precious resource is time, i.e. someone from the business will need to prepare the appropriate documentation.

Opportunity Cost ? ?

The final aspect of a thorough SWOT analysis is to include any thoughts on Opportunity Cost. Put simply, Opportunity Cost is the cost of not doing the next best alternative. For example, if you are thinking of spending money in one area, the idea of Opportunity Cost challenges you to think about where else that money could be spent, possibly with a better result.

It is possibly the least understood cost and yet potentially, can give great insight into how valid (or not) your contemplated actions are. Opportunity Cost forces you to consider alternative actions as well as the preferred action.

Using the ongoing example of the firm needing to organise a line of credit, the opportunity cost could be as follows. In addition to approaching a bank, the business owner may consider other ways of generating the cash. For example, by selling off non-essential assets (or surplus stock in the case of? a manufacture of retailer), or perhaps redirecting a portion of projected profit previously earmarked for another use.

In this instance, given the relatively low cost of choosing the original bank option, it is likely that the alternatives would not be viable.? In other words, the opportunity cost of not implementing the next best alternative is low and therefore the original action is likely to be carried out.

Below is a summary of some examples, as they would appear in a SWOT analysis.

S/W/O/T

Implication Indicated action Resources Opportunity Cost

Strength:

Experienced and skilled legal and administrative staff.

Need to maintain a high level of retention of key staff members. Incentivise and reward employees to both maintain motivation levels and loyalty to the business. Funding of incentive programme. Divert proposed incentive funding to other capital expenditure items.
Weakness: Lacking cash reserves when compared to key rivals. Decreased ability to quickly respond to opportunities and changing conditions which require prompt cash outlays. Organise relevant documentation and arrange interviews with preferred financial institution to discuss the business needs with regards to an equity loan. Financial and human resources to facilitate the specifics.

Redirect some income to this function or conduct a partial sell-off of any surplus assets to increase cash reserve.

Two rivals closing down in the new year. Potential to gain client base from these rival businesses. Incentivise rivals to selectively direct business your way. Funding allocation to cater for B- to- B incentives. Use resources to fund other areas of immediate need and growth potential.
Major new rival opening soon in the same area. Potential for lost business as clients are made aware of and potentially attracted to this rival firm. Gather market research to uncover why clients ?might be attracted to this rival and whether you are meeting your customers? needs, based on the known key drivers of both client demand and dissatisfaction Funding and time to confirm market needs and to conduct competitor analysis. Continue to support marketing activities at the current level, without any regard to the potential impact from the new rival.

In summary

All businesses need to perform an annual analysis for the business. From this analysis it will be able to capture the key findings that make up its SWOT analysis. The new SWOT analysis template discussed here will allow your business to identify all the key issues, action them in a timely manner and follow the progress of each to ensure that each item is carried out properly.

The SWOT analysis needs to be done each year and reviewed at least quarterly to ensure that it remains current and reflective of what is relevant today and into the future.

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