Risk management essentials: SWOT analyses can still help your business
Among the best ways to guard against risks is to know your strengths. Of course, it also helps to know your weaknesses, watch out for threats and target opportunities for growth. For these reasons, the SWOT analysis — the acronym for “strengths, weaknesses, opportunities and threats” — is a long-standing risk management essential.
From where did SWOT originate? Many observers believe it came from a business study that dates back to the 1960s. But interest in these analyses blossomed over the last several decades and, indeed, one can still help your business in many regards.
To get started on your companywide SWOT analysis, you’ll need to assemble an effective team. Invite all upper management and department heads to participate, and consider also asking such influential outsiders as trusted customers and suppliers. You could use a customer satisfaction survey to gather external opinions.
In a typical SWOT study, strengths and weaknesses will be internal aspects of a company, while opportunities and threats will be found externally. So, for instance, having a healthy stable of promotable employees is a strength; whereas, failing to adequately update your technology would be a weakness. Moreover, local economic trends could point to opportunities for expanded sales, but relying too much on a single key customer could be a threat.
Think strong (and weak)
Strengths are often a good place to start, because they’re easiest to identify and get the group started on a positive note. List your advantages and the things your company does well. How are you better than your competitors? What does the marketplace see as your strengths? The group should cover internal areas such as:
- Accounting and finance, where strengths would include a strong cash flow and balance sheet,
- >Marketing, where you might pride yourself on a powerful brand name,
- Production, where modern, efficient and low-cost facilities are a plus, and
- Human resources, where a skilled, motivated and relatively conflict-free workforce would be the ideal.
To identify weaknesses, group members might list the areas in which you lack resources, or what customers see as your weak points. Also, ask yourself what keeps you from improving.
Obviously, weaknesses are harder to discuss than strengths, because they highlight your company’s negative aspects, and because they’ll likely be the responsibility of a SWOT team member. This is where you may get the least-biased responses from customers and suppliers, or from your customer satisfaction survey results.
Opportunities arise from external factors or changes. When identifying opportunities, keep in mind the strengths that will allow you to take advantage of them. You might ask what new trends your company can profit from, and what regulatory or political changes may help your sales or cost structure. Competitors’ problems could work to your benefit. For instance, if a major competitor is going out of business or is in financial difficulty, and you are financially sound, this may be the ideal time to acquire that company.
Just like opportunities, threats exist outside your organization that may adversely affect it if you don’t plan ahead. For example, what would be the consequences if new technologies rendered your products obsolete, or if a significant customer or supplier went out of business? And what would your company do if energy costs skyrocketed, forcing suppliers to raise prices?
Whatever threats you pinpoint, the purpose of your SWOT analysis is to create awareness and prepare action plans. A good place to start is protecting against threats that involve your weaknesses. Say one of your weaknesses is high employee turnover, and you perceive the tightening labor market as a threat. It might be wise to develop better employee relations and retention plans sooner, rather than later.
Don’t let it slip
How often should you perform a SWOT analysis? The safe answer is likely “once a year.” But if you’re fighting to regain your competitive position or want to grow aggressively, doing an analysis each quarter could pay off. Whatever you decide, don’t let this risk management essential slip off your radar for too long.
No article, email, web site content, or other communication from Fox, Byrd & Company, P.C. (the Firm) may be considered advice or a recommendation to any person, business or other entity. The Firm renders advice and recommendations only to its clients. The reader may not rely on any article, email, web site content or other communication from the Firm to create a client relationship with the Firm. Advice and recommendations are rendered by the Firm only when the Firm has been specifically engaged to provide advice and/or recommendations.©Copyright, Fox, Byrd & Company, P.C., Dallas, Texas.