Internal and external factors
The SWOT in SWOT analysis stands for Strengths, Weaknesses, Opportunities and Threats. These key elements can be divided into two parts: internal and external factors. The Strengths and Weaknesses belong to the internal environment, factors which occur within a company. So for example you have to take into account areas such as financial, physical and human resources, and current processes.
On the other hand, the Opportunities and Threats relate to the external environment, forces which influence and affect a company from outside. So for example you have to take into consideration the latest market trends, stakeholders and other factors that might not be under your immediate control. Another popular acronym might help you here: PEST Analysis – which stands for political, economic, social-ecological and technological environment. A good PEST analysis may help you discover and evaluate the macro environment, and as such can be an essential tool to identify external factors in a successful SWOT analysis.
Now let’s take a closer look at each element of the internal and external environment in order to better understand how to discover the big picture.
As you’ve probably already guessed, this element identifies internal areas where a company has a strong competitive advantage compared with its competitors. A great place to start is to simply ask yourself: What does our company do well?
This is the stage where a company has to be honest and admit its weak points compared to its competitors. What do your competitors do better than you? The ability to identify the weaknesses within a company is the first step to minimising the negative consequences for the performance of a company.
Now it’s time to get more familiar with external factors. Firstly consider positive circumstances which could influence your company. It’s essential that a company is always on the look out for external opportunities and takes advantage of them. The ability to correctly spot new trends early can bring huge success.
Unfortunately, the external environment can deliver negative news as well. This part of the analysis will hopefully reveal any potential dangers for your company and offer a chance to minimize or even avoid these threats with early action.
Example of a SWOT analysis
To help you master SWOT analyses, we will apply this tool to a fictional low-cost airline based in Europe.
First of all, we need to identify the strengths of this company. An obvious advantage is their ability to sell tickets online, since that means a wider audience. Also, the airline has low airport charges because it flies to smaller airports with longer journeys to the city, and accepts distant parking slots. Lastly, the company invests in modern aircraft to ensure security, minimize unplanned maintenance time and reduce delays. On the other hand, the company has some weaknesses. Unfortunately it doesn’t enjoy much loyalty from its customers because they’re only interested in low prices. Moreover, customers are frustrated because of the inconvenient airports and distant parking slots. Lastly, the current customer target group is limited to those wishing to fly within Europe.
Turning to the external environment, the company has to keep in mind the latest trends. For example, Europeans are increasingly willing to travel outside the continent and discover completely different cultures. What’s more, it’s becoming ever more popular to shop online, for flight tickets like everything else. However, there are some external threats, which the company can’t control and must keep an eye on. Global warming presents various threats to airlines, one of which is that temperatures are rising above the maximum limit for aircraft ground operations in some countries. Consequently airlines need to consider an operations strategy adjusted to climate change. Moreover, there is a risk that the cost of aircraft might increase due to the limited number of suppliers in the industry, and the ever present threat of fuel price fluctuations. Lastly, there is increasing rivalry in the market due to new low-cost airlines, which offer even cheaper tickets to potential customers.
Strategies & recommendations
When all the key factors are defined, you can turn the SWOT analysis into actionable strategies. To this end you can make use of a TOWS matrix, which is derived from the SWOT analysis model. The letters of TOWS stand for a different arrangement of the word SWOT: threats, opportunities, weaknesses and strengths. This tool is used to generate, compare and select strategies after a SWOT analysis, and helps to define a strategic plan of action for future years. The four TOWS strategies are Strength/Opportunity (SO), Weakness/Opportunity (WO), Strength/Threat (ST) and Weakness/Threat (WT).
If you want to define an SO strategy, you need to ask yourself which of your company’s strengths can be used to maximize the opportunities identified. Based on our example above, one strength of the company is that they sell tickets online. Considering this strength, the matching opportunity is that more and more people purchase online. Therefore, the SO strategy is to become a leader in online ticket sales.
The purpose of a WO strategy is to find out how to minimize or eliminate the company’s weaknesses by using the opportunities identified in the SWOT analysis. For instance, a weakness of our example company is that the airline mainly works in Europe. The opportunity is that customers increasingly desire flights to other continents. Therefore, the WO strategy is to start or increase flights to other continents.
When it comes to an ST strategy you need to think about how to use the company’s strengths to minimize the threats. In our example we noted that investment in modern aircraft was considered a strength. With this strength in mind, the chosen threat is a risk of temperatures higher than maximum for ground operations due to global warming. Consequently, the ST strategy is to modernize the aircraft in the best possible way to deal with heat waves.
The last strategy considers weaknesses and threats. In this case, you need to figure out how to minimize the company’s weaknesses and avoid the threats. Based on our example, a weakness of the airline is the lack of customer loyalty. At the same time one of the threats is the many new low-cost airlines, which might offer lower prices to the potential customers. Therefore, the WT strategy is to sell cheaper tickets than these competitors on the affected routes.
SWOT analysis is one of the most beneficial business tools. However, it must be conducted thoroughly in order to uncover the key factors and the best strategic recommendations. Content is key therefore, but you do also need to keep in mind the design of your SWOT analysis. An eye-catching design can highlight the identified factors and help make them memorable. And a professional design is even more important if you plan to present
the SWOT analysis to your stakeholders! Therefore, Xara offers a wide choice of templates that you can use for your SWOT analysis (and indeed for all your documents). You can personalize these templates according to your requirements, including auto-applying a color palette from your chosen image or brand.
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