Imagine being blindfolded, loaded into a helicopter and then dropped into the middle of nowhere with just a backpack of key supplies and your survival instincts. Your main focus is first on your own survival and then eventually to find your way back to civilization. Sounds like the making of a reality television show.
For many business owners, this scenario becomes reality as they lead their company on a daily basis. Leaders often find themselves in situations where they are left with little more than their knowledge, skills, abilities and their cunning in order to navigate their businesses through the external environment.
First Establish Your Position
What is your first task to be completed when your boots touch the ground after being dropped in the middle of nowhere? Do you begin marching off in just any direction? No. The first thing you do is remove the blindfold and assess your surroundings. You assess the environment that you have been dropped into. You take inventory of the tools and supplies that you have in your backpack. Once you have assessed where you are and what you have, you then begin to formulate a plan for survival.
In similar fashion, do you, as a business leader, immediately take the reins of the organization and march off in any one or all directions at once? Attempting to set off in any direction before taking the time to assess the organization and its assets puts the company in peril and increases the risk of the company failing. Before you begin to move in any direction, it is strongly recommended that you evaluate your organization to determine its position within the market that the company serves.
One such tool that leaders can use in order to evaluate their organizations is a SWOT analysis. The term SWOT is an acronym. The SW stands for strengths and weaknesses which is focused on the internal business operations. The OT stands for Opportunities and Threats which is focused on the external environment to the business.
Internal Analysis: Strengths and Weaknesses
The purpose of the internal analysis is to develop an understanding of the strengths and weaknesses of the business. The first part of the analysis focuses on the internal operations of the business and can be applied broadly to the entire enterprise, or zero in on a specific department or location. As the leader, you must ask yourself and your team to honestly evaluate the current status of the business.
The strengths of your business are the primary reason for its success and competitive advantage. If you are in the construction industry you may have strengths such as an extensive amount of capital equipment for your specific trade. You may also have a unique set of skills or an employee base with knowledge and abilities that provide you with a competitive advantage in the marketplace.
When assessing your strengths, be aware that your strengths can often become your weaknesses. For example, you may have a group of employees who are exceptionally strong in a group of skills that gives you that competitive advantage. However, this may be a weakness if your business is too dependent on a group of employees who may decide to leave abruptly and go to a competitor.
Weaknesses in a business are those areas that the company struggles with and what your competitors may exploit to take business from you. They are also areas where the company may have a significant opportunity to improve. It is important to assess your weaknesses from a perspective of how the company’s competitive advantage would improve if the weakness were turned into strengths.
External Analysis: Opportunities and Threats
The second part of the analysis focuses on the external operations of the business. Similar to the internal analysis, this process can be applied to the entire organization, or you may isolate a specific business area.
The external analysis focuses on the environment surrounding the business. These are conditions that are beyond the control of the business. As a business leader, you recognize these external factors and direct the company to react in a way that creates a favorable outcome. Opportunities are external factors that you see as favorable conditions that if handled correctly will create growth for the company. An example of an opportunity for heavy highway may be the decrease in asphalt prices as a result of the drop in crude oil pricing. This may create an increase in infrastructure projects leading to an increase in business volume for your company.
The opposite of opportunities are the threats created by the external environment. These threats are beyond the control of the company. The leader is responsible for recognizing these threats and navigating the company in a way that reduces the impact on the business operations and profit position. Threats may consist of proposed changes in employment law or the weather patterns. A potential threat for a commercial roofing contractor may be a drought that impacts the region where they are working.
A key responsibility for a business owner is to navigate their enterprise through the headwinds that can derail their business. They must be aware of their strengths and weaknesses as a company, and also aware of the opportunities and threats that exist that can impact the future success of the business.
Leaders must be able to discern between the factors that they can control and those that they must respect and navigate around. They must practice discernment, deciding when and where to invest the company’s resources in. The ability to choose correctly will help sustain the organization through the up and down swings in the market.
Using the SWOT analysis as a management tool benefits the business owner and ultimately the business because it provides a consistent method for evaluating the company’s position in the market. The tool can be used as frequently as necessary. It’s use will improve the chances of survival and eventually its prosperity as the business owner guides the company through its external environment.