There are many useful tools available to help businesses gain a better understanding of the environment in which they operate. A SWOT analysis, looking at strengths, weaknesses, opportunities and threats is one of the most popular means by this can done.
Conducting a SWOT analysis focuses the attention of the entrepreneur on several aspects of the business and highlights important factors which affect both its internal and external environment.
The first component of a SWOT analysis is strengths and this is primary concerned with the competitive advantages which the business has in relation to others in the same industry.
An individual attribute can only be classed as a strength if it exists internally within the organisation but is not common among other business’ competitors. Common factors applicable to all or most participants in the sector can be listed as a strength unless the business has more of it than others.
Strengths are relative and therefore must be uncommon or scarce throughout that particular industry.
Some examples of strengths which might exist within a road side assistance business are:
- A greater number of vehicles able to service customers who have broken down. This could be used to promote the business as having better response times to customer requirements.
- Higher trained and better qualified mechanics. By insisting that all mechanics have attained a certain qualification or level of experience, the business can distinguish itself from its competition.
Just as strengths are classified as elements which are distinct to a specific business, weaknesses gleamed from a SWOT analysis is defined as negative aspects which affect the organisation and not others within the industry.
Depending on the list of weaknesses which exist, the business may have significant competitive disadvantages which if not rectified, could threaten the longer term feasibility of the operations.
Examples of weaknesses which could exist are:
- The levels of wages and salaries paid to staff might be higher than in other businesses due to agreements which were brokered in past negotiations.
- The computer systems used in the business could be antiquated and thereby mean that it is disadvantaged in setting up new customers and tracking the whereabouts of drivers.
Potential avenues to future profit and growth are covered in s SWOT analysis under the heading of opportunities. The business might already process the means and resources necessary to exploit these opportunities or it may need to change certain aspects of its operations and buy in new resources in order to take advantage of them.
Opportunities in this context are different from possibilities which are more remotely connected to where the business is now. The former may require some alterations to be made internally but the fit with the current business is generally more evident.
Two scenarios where opportunities could exist are:
- The introduction of a car breakdown home start service which operates in conjunction with or in addition to the road side cover which is currently offered.
- Offering Europe wide cover by teaming up with foreign car breakdown organisations might present an opportunity to charge increased amounts for a premium service.
Items identified during a SWOT analysis as threats are those external environmental factors which may potentially prove harmful to the business’ operations.
Threats to a business need to be countered, perhaps by exploring some areas of activities identified within the opportunities category. Non action towards changes in the external environment can then result in business weaknesses once they materialise and begin affecting the organisation’s competitiveness.
Examples of potential threats to a road side assistance business might include:
- Plans to introduce substantial levies on petrol and diesel fuels. In addition to increasing the business’ running costs, the demand for services might reduce as customers seek alternative means of short and long distance travel.
- The intention of the foreign business to establish a significant presence in the UK. This may add a substantial supplier in the market without the corresponding increase in customers. The affects on pricing and the efficiency of operations could be profound.
The use of a SWOT analysis can aid entrepreneurs to be conscience of the external factors which influence their plans as well as identifying internal attributes which can be natured and exploited and those which require action in order to prevent them from crippling the business.
It encourages businesses to stand back from the day to day running of the operations and consider the future from a strategic standpoint.
SWOT analysis is a versatile tool, which is free and can serve as a beginning in the top level business plans for an organisation.