The SWOT Analysis Method: Introduction to 9 Classic Business Strategy Planning Tools (Part 2)

SWOT Analysis (also known as TOWS Analysis or the TOWS Matrix) is a strategic situational analysis method. It was first proposed in the early 1980s by Professor Heinz Weihrich of the University of San Francisco, and has been in use for over four decades. SWOT is an acronym formed from the first letters of Strengths, Weaknesses, Opportunities, and Threats, as illustrated below.

Areas where SWOT analysis is commonly applied:Strategy, vision formulation, strategy decomposition, and goal-setting;Competitor analysis and benchmarking;Product analysis and marketing campaign analysis;Project achievement analysis and feasibility analysis for change projects;Other topics such as employee satisfaction analysis and team cohesion analysis, etc.

In modern enterprise management, SWOT analysis enables an objective evaluation of a company’s external environment and internal capabilities. It helps to clearly identify the organization’s strengths, weaknesses, opportunities, and threats, so that competitive strategies can be formulated in advance to ensure the company remains invincible in the market.

This article introduces the application of SWOT analysis from the following six aspects:

1. S-W Strengths and Weaknesses Analysis (Internal Environment Analysis)

Competitive advantage refers to a company's ability to surpass its competitors, or the unique attributes that enhance its competitiveness. Competitive disadvantage refers to areas where a company performs poorly or fails to perform compared to its competitors, placing it at a disadvantageous position. SW analysis primarily focuses on the following areas: Q, C, D, M, and S:

Q - Quality: Product safety, stability, reliability, aesthetics, durability, and cost-effectiveness.

C - Cost (Price): Production, sales, and service costs as well as sales prices of products at the same grade level.

D/D - Volume, Efficiency, and Delivery Capability: Total production output, production capacity (CT), overall efficiency, per capita output, per capita added value, and on-time delivery in full quantity.

D/L - Product Technology and Manufacturing Technology: New product design and development capabilities, development cycle, patented technologies, and technological innovation capabilities.

M - Manpower / Equipment / Materials / Methods / Measurement: Outstanding management and technical talent; advanced, high-efficiency production lines and modern, high-precision production equipment; high-quality, low-cost, and stable material supply; advanced management methods, management systems, and smooth information flow; advanced measuring instruments, scientific measurement methods, and complete quality control systems.

S - Sales / Service: Strong sales networks, excellent sales teams, outstanding brand value and market recognition, and good customer relationships; comprehensive after-sales service systems, high-quality service, and satisfied customer bases.

2. OT Opportunities and Threats Analysis (External Environment Analysis)

Environmental opportunities are attractive areas for company operations where the company can gain competitive advantages. Environmental opportunities are significant factors affecting corporate strategy, and business operators should identify and fully capitalize on each opportunity, evaluating the growth and profit potential each brings to the enterprise. Environmental threats refer to challenges arising from unfavorable trends in the environment; without decisive strategic action, such adverse trends will weaken the company's competitive position. Factors such as policies, economic conditions, social environment, technological barriers, and competitors that pose threats to the company's current or future operations should be identified one by one by business operators, and either avoided or addressed with corresponding countermeasures to reduce business risks. OT analysis primarily employs the following two methods:

1）PEST Method

 

2）Porter's Five Forces Model

For external environmental analysis, Porter proposed the 'Five Forces Analysis' for analyzing industrial structure, building upon SWOT analysis to achieve more detailed and in-depth strategic analysis. Members within an industrial environment are jointly determined by five competitive forces, which are collectively referred to as the 'Five Forces.'

 • Existing Competitors

When formulating strategies and conducting business operations, any enterprise must first confront existing competitors. The intensity of competition among peers is determined by the strategic layout and structure of the competing parties, as well as the development prospects of the industry in question. The competitive landscape of an industry can be categorized into the following types:"

　

If among various enterprises:

Competitor Analysis Indicators:

Market Share

Sales Growth Rate

Product Profit Margin

• Potential Competitors

Entry threat depends on two factors:

※ Height of Entry Barriers

Market barriers — barriers under competitive market conditions;

Non-market barriers — barriers created by government regulation (statutory approval conditions for entry).

※ Retaliation Methods and Intensity of Existing Incumbents

Price suppression;

Material monopoly;

Market monopoly;

Supply chain integration, etc.

• Substitutes

Substitutes refer to products that have the same functions as existing products. However, whether substitutes can actually produce substitution effects depends on whether they can provide greater 'cost-performance ratio' than existing products. Therefore, the actual function of substitutes is to impose price constraints on existing products, thereby affecting the profitability of the entire industry.

Once substitutes can provide a higher 'cost-performance ratio' than existing products, they pose a significant threat to existing products, sometimes even causing disruption to the entire industry. Therefore, existing product manufacturers must never take this lightly.

• Customers

Selecting high-quality customers is extremely important:

Market share of customer products;

Share proportion in customer procurement (position in the customer's mind);

Customer bargaining power;

Customer credit and payment delinquency;

Profitability of customer products;

Customer's backward integration capability, etc.

• Suppliers

Selecting high-quality suppliers is equally important:

Supplier pricing;

Supplier quality and service level (position in the supplier's mind);

Supplier payment terms;

Substitutability of supplier products;

Monopoly of supplier products;

Supplier's forward integration capability, etc.

Markets are constantly changing, and enterprises are all within this dynamic environment. Therefore, any static analysis cannot promptly reflect rapid industry changes. Thus, timely and flexible application of the 'Five Forces Analysis' is essential to achieve optimal results."

 3. Constructing the SWOT Matrix

In the process of constructing a SWOT matrix, the analyzed elements should be prioritized according to their urgency and degree of impact. Factors that have direct, significant, substantial, urgent, and long-term effects on company development should be ranked with priority, while those with indirect, secondary, minimal, non-urgent, and short-term effects should be placed lower in the sequence.

4.  Formulating Strategic Plans

Leverage strength factors, analyze weakness factors, and overcome weakness factors. Capitalize on opportunity factors, identify threat factors, and avoid or neutralize threat factors. Consider the past,stand firm in the present, andfocus on the future. Employ comprehensive systematic analysis methods to match and combine the various environmental factors that have been prioritized and considered, thereby deriving a series of alternative strategies for the company's future development.

5.  SWOT Application Example

6.   Common Mistakes and Precautions

Conducting SWOT analysis immediately without preparation;

Analysis results lacking focus;

Failure to conduct dynamic analysis of SWOT factors;

Unreasonable composition of discussion participants, with no presentation of different viewpoints;

Poor process planning.

The key points to note during analysis will be elaborated based on the five common mistakes mentioned above:

1）SWOT must be used in conjunction with other tools. Conduct SWOT from different perspectives to ensure comprehensiveness and effectiveness, and to avoid significant omissions. As shown in the figure:

2）Forward-looking Thinking on SWOT

Neglecting the critical dimension of time and failing to consider future changes in important aspects of SWOT. This omission can be avoided by raising key questions across different SWOT dimensions and answering them effectively. As Drucker pointed out in his book The Future That Has Already Happened: We cannot predict the future, but that does not mean we cannot engage in forward-looking thinking based on what has already occurred.

Examples of classic questions:

3）Focus on Key Factors

Novice SWOT analysts often believe that the more factors identified, the better, and the greater their sense of accomplishment. However, this represents another typical mistake in SWOT analysis. Having numerous factors in preliminary analysis is not inherently problematic, but if too many factors remain in the final stage, it becomes an issue—leading to superficial strategic thinking, unfocused measures, overly dispersed resources, and lack of execution priorities. Strategy represents what we prioritize doing within a certain timeframe, not everything we must do.

4）Present Diverse Perspectives

Drucker stated that good decisions always begin with disagreement. Decisions that receive unanimous agreement from the outset are certain to have serious problems—either the decision itself is flawed, or participants have not engaged in deep reflection. One key to strategic analysis is finding the right people. Strategic analysis itself is a process of listening: listening to the external environment, listening internally, listening to the present, listening to the future, listening to customers, listening to competitors... The collection and understanding of this information requires different individuals to complete, and this knowledge resides in different people's minds and hearts. Therefore, we need to incorporate diverse participants. "Different people" refers to seasoned sales veterans, experienced R&D professionals, new recruits from other companies, and individuals with deep expertise in specific domains. When applying different analytical tools, we should prioritize introducing different people to share their insights. Through effective methods, we surface differences and build consensus upon diverse viewpoints—this also serves as effective assurance for subsequent strategic execution.

5）Apply Facilitation Techniques and Carefully Plan the Workshop Process

The SWOT facilitation process requires clarification of 6 key elements, along with an introduction to the 7 stages of process planning.

SWOT analysis is only the first step in strategic development. Enterprises need to go further to identify the intersection points between internal elements and the external environment, effectively adjust and integrate internal factors to align with or surpass changes in the external environment, thereby obtaining sustainable competitive advantages.

Stay tuned for continued introductions.

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