How to Use The Advanced SWOT Analysis to Determine Competitiveness

Introduction

SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT was developed in 1960 by Albert Humphrey of the Stanford Research Institute. Since its creation, it has become one of the most useful tools for internal and external environments analysis. The key purpose of SWOT analysis is to identify the strategies that will create an organization’s specific business model that will best align its resources and capabilities to the requirements of the external environment in which the company operates. Ideally, a SWOT analysis is like a roadmap: it points out things you should take notice of and it highlights key areas for immediate action and consideration. As a result, once you have analyzed your SWOT results, you can use them to develop short-term and long-term strategies for your business. Essentially, the true value of the exercise is using the results to maximize the positive influences on your business and minimize the negative factors. However, at the most, the simple SWOT is considered to be only a reference to further analysis as it has too many limitations and cannot be used alone in strategy formulation. As a result, the Advanced SWOT analysis was developed to address most of the limitations of the simple SWOT framework.

 

The following are the benefits and limitations of SWOT analysis.

 

SWOT Benefits

 

  • Can Be Applied to Any Company and Situation: The SWOT Analysis is so simple in its composition that it can be applied to any company in any industry. It can also be used among a wide range of situations and strategic initiatives.
  • Simple: There is no need for training or technical skills to complete the process. Also, its simplicity makes it easier for others to easily understand the results generated
  • Identifying Core Competency: SWOT analysis helps in identifying core competencies of the firm. Therefore, it enables you to know where to focus your attention
  • Resource Utilization: SWOT analysis sheds light on the company’s existing resources which may have been ignored or have not been used to their full potential
  • A Tool that Tells Four Stories: While other evaluation tools may only be able to assess one scenario at a time, the SWOT framework can tell a company four things at one time. This means you can have four comprehensive discussions about pertinent issues to the company at one time
  • Helps Companies Play Offense and Defense: The tool can enable you to create a plan take advantage of opportunities, maximize strengths, or to manage threats and weaknesses depending on the scenario.

SWOT Limitations

  • Lack of Prioritization: The SWOT analysis does not have a built-in mechanism for prioritization. Therefore, the analysis can be overwhelming if you are not clear on what you’re going to prioritize.
  • Lack of Clarity: The SWOT framework ignores the fact that a factor or condition can both be a strength and a weakness or an opportunity and a threat. There is no way to deal with overlaps
  • Lack of Ranking: One of the problems with SWOT analysis is that it doesn’t offer a way to rank each of the elements under the four headings. The lack of detail is a major drawback of the SWOT framework.
  • Absence of Objectivity: Subjectivity is another drawback of SWOT analysis. The tool generally relies on observations. Data are important to improve the integrity of the analysis. But people with no background in research will not be able to use the right method to get or analyze the right data
  • Information Overload: SWOT analysis doesn’t tell you where to focus your efforts. It also doesn’t have a threshold for information. You’ll never know if you have too much or too little.
  • It Can Be Too Simplistic: Another limitation of the SWOT framework is that it is too simple. It can be easily designed and utilized. This simplicity translates to susceptibility to identify misrepresented factors or conditions or misinterpretation of strengths, weaknesses, opportunities, and threats.

Advanced SWOT Analysis

 

By recognizing the limitations of the simple SWOT analysis, the Advanced SWOT analysis was developed to address some of the limitations identified in the simple SWOT framework. To get the most from SWOT model, the Advanced SWOT framework help you to rank the internal factors base on their impotence, and also provide the probability of occurrence of the external factors. By prioritizing the factors, you will be able to identify the most or least important factors to focus on in strategic decision making.  Specifically, the Advanced SWOT analysis help you in addressing the following limitations that bothers on:

  • How do we prioritize the factors?
  • Which strategic competencies do we emphasize?
  • Which opportunities provide the best growth potential?
  • Which weaknesses have the biggest impact on achieving sustainable, profitable growth?
  • What are most significant threats that we need to be wary of?

                                      Steps to Developing Advanced SWOT Analysis

 

Step 1. List the factors:

On the internal part, conduct analysis and identify both strengths and weaknesses. While on the external side, you provide the opportunities and threats as they impact your company. It is suggested that you identify 10-20 internal factors, and 10-20 external factors. But the more you can provide for the Advanced SWOT analysis, the better. The number of factors have no effect on weighted scores because the weights will always sum to 1.0. For the internal dimension, first list strengths and then weaknesses. While for the external dimension, first list the opportunities, and then the threats. It is wise to be as specific and objective as possible, and so, you can use percentages, ratios, and comparative numbers on both dimensions. Note: the key emphasizes in doing SWOT is to identify the factors that are the strengths or weaknesses in comparison to the competitors. Therefore, when looking for strengths, ask what do you do better than your competitors? In case of the weaknesses, ask what could you improve and at least catch up with your competitors?

Step 2. Prioritize the Factors.

 

Strengths and Weaknesses

Strengths and weaknesses are evaluated on 3 categories:

  • Importance. Importance shows how important a strength or a weakness is for the organization in its industry, as some strengths (weaknesses) might be more important than others. A number from 0.01 (not important) to 1.0 (very important) should be assigned to each strength and weakness. The sum of all weights should equal 1.0
  • Rating. A score from 1 to 3 is given to each factor to indicate whether it is a major (3) or a minor (1) strength for the company. The same rating should be assigned to the weaknesses where 1 would mean a minor weakness and 3 a major weakness.
  • Score. Score is a result of importance multiplied by rating. It allows prioritizing the strengths and weaknesses.

Opportunities and Threats

Opportunities and threats are prioritized slightly differently than strengths and weaknesses. Their evaluation includes:

  • Importance. It shows to what extent the external factor might impact the business. Again, the numbers from 0.01 (no impact) to 1.0 (very high impact) should be assigned to each item. The sum of all weights should equal 1.0 (including opportunities and threats).
  • Probability. Probability of occurrence is showing how likely the opportunity or threat will have any impact on business. It should be rated from 1 (low probability) to 3 (high probability).
  • Score. Importance multiplied by probability will give a score by which you’ll be able to prioritize opportunities and threats. Therefore, pay attention to the factors having the highest score and ignore the factors that will not likely affect your business.

Step 3: Make Strategic Decisions

 Strengths and weaknesses are internal to the company and can be directly managed, while the opportunities and threats are external and the company can only anticipate and react to them. Advance SWOT analysis is a framework that enables you to leverage on your organization’s strengths, improve weaknesses, take advantage of opportunities, and minimize external threats. Therefore, you formulate your strategies based on the analysis conducted to set your organization in the right direction of creating a competitive advantage

 

                                                    Components of the Analysis

Strengths

Strengths are the internal factors, positive characteristics of the organization, which distinguish it in the environment and from the competition, and they are often called key success factors. Strengths can be intangible such as brand attributes or more general like a specific team or branch. It can also be strengths in a particular product or product development which could give a market advantage. Strengths are attributes of the business that are supportive in the accomplishing the objectives. You need to consider this from your own point of view and from the point of view of your competitors. Don’t be modest. Be realistic in looking at your strengths. Think about them in relation to your competitors – for example, if all your competitors provide high quality products, then a high-quality production process is not strength in the market, it is a necessity. While listing your company’s strengths, focus on the core elements that brought your company to the point it’s at. Essentially, strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill, brand loyalty etc.

To understand your strengths, you need to provide answers to the following questions:

  • What makes your service the top tool for addressing consumer needs?
  • What are your cutting-edge features, your novel capabilities that set your company apart?
  • What is your competitive advantage?
  • What assets does your company have?
  • What do customers like about your company?
  • What are the features that help your company make a difference?
  • What do you do well?
  • What advantages do you have?
  • What tangible assets do you have – equipment, technology, IP or property?
  • What do team members bring to the business – skills, contacts, reputation?
  • What are your competitive strengths? Which qualities separate you from competitors

Weaknesses

Weaknesses are the factors that prevent you from accomplishing your mission or achieving your full potential. Weaknesses are a critical part of SWOT for the same reasons that strengths are. Understanding your weaknesses helps you to prioritize what to work on next, and what opportunities you are most likely to succeed with. They are factors that detract you from the value you offer or place you at a competitive disadvantage. Weaknesses stop an organization from performing at its optimum level. Weaknesses, like strengths, are inherent features of your organization. They are areas where the business needs to improve to remain competitive. For example, your weakness could be weak brand, lower-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital. However, it’s not easy to identify and accept your company’s downsides, but the better you indicate these factors, the quicker you will be able to take actions towards solving them.

 

Key questions to ask on your weaknesses:

  • What areas need improvement to accomplish your objectives or compete with your strongest competitor?
  • What does your business lack (for example, expertise or access to skills or technology)?
  • Does your business have limited resources?
  • Is your business in a poor location?
  • Are there any skill gaps on your team?
  • Which business processes or products would benefit most from improvement?
  • Are there things your business could do to be more competitive?
  • What elements can be improved?
  • What aspect of your company has room for growth?
  • What do you do badly?
  • What should you avoid?

Opportunities

The opportunities element of a SWOT analysis is where you start to shift your gaze away from your own company and to the market as a whole. It refers to favorable external factors that could give an organization a competitive advantage. Opportunities are phenomena and trends in the environment that if used appropriately could stimulate the development of company and weaken the threat. Useful opportunities can come from such things as changes in technology and markets, changes in government policy related to your field, changes in social patterns, population profiles, lifestyle changes, etc. Strategy analysis tools such as PESTEL and Porter 5 Forces are useful tools to help you analyze your external environment (opportunity and threat). The primary purpose of opportunity is to find factors that can be turned into strengths for the company in the future. Being able to spot and exploit opportunities can make a huge difference to your organization’s ability to compete and take the lead in your market.

 

Key questions to ask on your opportunity:

  • Has there been recent market growth or have there been other changes in the market the create an opportunity?
  • Is the opportunity ongoing, or is there just a window for it? In other words, how critical is your timing?
  • Are things happening in the market that you could capitalize on?
  • Are there any merger or acquisition opportunities that make sense to exploit?
  • Are you missing opportunities to make additional revenue from existing leads or customers?
  • Are there any countries or markets that you could enter with your existing products with little effort?
  • Are there any markets with a poor competitor showing that you could take advantage of?
  • Are there any emerging trends that you could take advantage of?
  • What could be the next best move for your company’s growth?
  • Are you taking advantage of current trends?

Threats

Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business. They compound the vulnerability when they relate to the weaknesses. Threats could include new businesses that could become competitors, new laws that might affect your company, up-and-coming competitor, or hash global business environment. In fact, it can be a very broad section of the analysis depending on how detailed you wish to be and how big impact threats you want to include. You have no control over these, but you may benefit by having contingency plans to address them if they should occur. It’s vital to anticipate threats and to take action against them before you become a victim of them. In fact, many companies fail to consider the threats to their business, whether it’s a threat caused by the market, competitor or simply a financial threat as a result of increased resource costs in relation to revenue.

 

Here’s how you can identify your company’s threats.

  • What obstacles do you foresee challenging your company’s success?
  • Which competitors have the potential to threaten your business? You might be doing everything right, but a step your competitor takes can turn things upside down
  • Are there any political or economic risks in the market you’re operating in?
  • Are there emerging industries that threaten to take over your market?
  • Are the required specifications for your job, products or services changing?
  • What factors beyond your control could place your business at risk?
  • Are there challenges created by an unfavorable trend or development that may lead to deteriorating revenues or profits?
  • What about shifts in consumer behavior, the economy, or government regulations that could reduce your sales?
  • Has a new product or technology been introduced that makes your products, equipment, or services obsolete?
  • Could future developments in technology, regulation or environment change how you do business?

Case Study

Okoroh Energy Services

Okoroh Energy Services is an energy services company that provide solutions to oil & gas companies, power plants and petrochemical companies in Nigeria. The company is into maintenance, fabrication, E&I, and installation services. At the moment, the company want to have a deeper insight on the competitiveness of each of the four divisions of the company, but with particular focus on the fabrication division. The idea is that each division has different strengths and weaknesses or opportunities and threats, and therefore, the peculiarities of each of the divisions need to be taken into consideration. Essentially, the analysis is informed by faience competitive environment that resulted to slow growth, and therefore the company need to re-strategizes by identifying the factors that are most important to focus on, or by prioritizing factors that have the highest probability of occurrence on both the opportunities and threats of the company.

 

To analyze the competitiveness of the fabrication division, the company needs to understand it strengths & weaknesses, as well as the opportunities & threats. The information on the internal and external environments would inform its strategy formulation. To effectively conduct the analysis, Okoroh Energy Services has decided to use the Advance SWOT analysis framework. The Advance SWOT analysis is resorted to because of the limitations that are inherent in the simple SWOT analysis. The Advance SWOT model would give the company a critical perspective on the key factors that determines its competitiveness by ranking and prioritizing the internal and external factors base on their importance or probability of occurrence.  The result of the analysis conducted would enable Okoroh Energy Services to formulate its strategy that take into consideration the internal and external factors based on their importance or probability of occurrence

 

The overall goal is that the company wants to formulate a strategy to create a competitive advantage. Therefore, with such information on its internal and external environments, the company would be able to understand the strengths and weaknesses of the fabrication division, as well as the opportunities and threats in a much-detailed insight than a conventional SWOT analysis could give. Essentially, the objective is to identify the factors that determines its strengths to capitalize on; the factors that determines its weaknesses to improve on; the opportunities the industry presents that it should try to take advantage of; and the threats to the industry it needs to beware of. The results obtained from the Advance SWOT analysis would also help Okoroh Energy Services to benchmark it performance against competition to see how it fare relative to competition. Eventually, the results from the analysis would help the company to improve the enterprise-level planning, enhances decision-making, improves communication and helps to align decision-making.

                                  Analysis of Okoroh Energy Services Advanced SWOT

On the strengths part, the factors that gives the company the highest strengths are: revenue from fabrication division up by 35% (.33), vendor confidence level has increased by 12% due to our operational efficiency (.45), and cash reserved up by 18 % from last year figures (.3). On the other hand, the factors that pose the highest weaknesses are: management turnover has increased by 13% in the last 3 years (.36), fabrication unit in power plant is down 11% from last year (.33), and debt servicing has been up by 12% due to accumulated debt (.19). On the external part, the factors that provide the greatest opportunities are: Nigeria has power deficit of over 60% (.45), more oil and gas reserve discovered, and that increased more project to be executed (.36), and Nigeria is the 6th largest oil producer, and has over 2 trillion cubic feet of gas unexploited (.39). Lastly, on the threat part, the factors that expose the company to the greatest threats are: the interest rate is over 30% (.381), the inflation rate is now 16% year-on-year (.27), and high level of skill shortage in the industry (.303).

The essence of the analysis is to identify the factors to pay greater attention. Not that the other factors are not important, but the factors where we score the highest are the ones that can either make or break the company. Now that we have identified the factors to pay greater attention on both the internal and external environments, the next step is to formulate the right strategies that would enable us to capitalize on our strengths, improve on the weaknesses, take advantage of the opportunities in the industry, and beware of threats that could jeopardize the company. Although all factors on both the internal and external environments are important, given the limited resources and multiplicity of competing factors, we need to prioritize our attention and focus our strategy on areas that provide the highest value. That is essentially the advantage of the advanced SWOT analysis over the simple SWOT framework. It enables us to prioritize the strategy, given the analysis conducted     

                                     Conclusion

SWOT analysis is a framework used to evaluate a company’s competitive position and to develop strategic planning. The primary objective of a SWOT analysis is to help organizations develop a full awareness of all the factors involved in making a business decision. At the most, SWOT is considered to be only a reference to further analysis as it has too many limitations and cannot be used alone in effective strategic decision-making. To address the limitations, the Advance SWOT analysis was developed. The advanced SWOT analysis enable us to address the limitations inherent in the simple SWOT framework. The Advance SWOT analysis is a much more robust framework that enables prioritization of factors. Without prioritization, some factors might be given too much or too little emphasis and the most relevant factors might simply be overlooked. As a result, the Advanced SWOT analysis provides a deeper insight in strategic decision-making

Omodiaogbe Samuel, MSc. CMC, ChMC, FIMC

Omodiaogbe is a Strategic Management Consultant, and he the Principal Consultant/CEO at Vast Thinking Consults Ltd where he help organizations and business leaders to create superior value. Omodiaogbe holds BSc. and MSc. in Economics. Also, he is a Certified Management Consultant (CMC), a Chartered Management Consultant (ChMC), a Fellow, Institute of Management Consultants, Nigeria. He is an Instructor on Coursera, where he teaches 25 courses in Strategic Management. Omodiaogbe is one of the world’s leading learners on Coursera and Edx with over 500 Certificates from top-ranked Universities and Business Schools, and Organizations

Contact him:
Email; somodiaogbe@vastthinking.com.ng
Visit: www.vastthinking.com.ng

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