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Why Is a SWOT Analysis Important [+ Examples]

By Cristian Oana, Feb 04, 2022

Why Is a SWOT Analysis Important

For small businesses, SWOT is one of the most important acronyms. SWOT stands for an organization’s strengths, weaknesses, opportunities, and threats.

Why is a SWOT analysis important when creating a business strategy? It’s a powerful tool to assess internal and external factors that give a business a clear advantage and help it keep abreast of consumer trends.

In this guide, we’ll share how SWOT analyses help business owners identify areas of improvement and find competitive advantages in the industry.

Haven’t conducted a SWOT analysis before? Venngage makes it easy to create a SWOT analysis report with numerous templates and customization options.

 

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What are the four elements of a SWOT analysis?

A SWOT analysis examines a business’s position in the market, its potential growth, and the factors that make the business vulnerable.

The SWOT framework takes into account a company’s internal concerns, as well as negative external factors, as you can see in the example below.

why is a swot analysis important
 

This is why a SWOT analysis is also referred to as internal-external analysis. It plots the company’s internal strengths and internal weaknesses while assessing external opportunities and threats.

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What questions to ask for a SWOT analysis?

All businesses should regularly conduct a SWOT analysis to assess their strengths, weaknesses, opportunities, and threats in relation to their competitors. (Hint: SWOT analyses are especially useful for marketing departments, sales organizations and in highly changeable industries like healthcare.)

To do so, it is important to have a checklist of questions for each of the four quadrants so you can create a SWOT analysis internal diagram like the one below.

why is a swot analysis important
 

How to identify strengths

To determine your company’s strengths, start taking advantage of these internal factors:

  • What is my company’s competitive advantage within the industry?
  • What is our unique selling proposition?
  • Do our employees have skills or technical expertise that our competitor’s employees lack?
  • How well-financed is our business?
  • What makes our product line stand out in the market?
  • Do we have any unique technology that our competitors don’t?

How to find weaknesses

To find possible weaknesses in your organization, ask these questions:

  • What complaints do we commonly hear from customers and clients?
  • Are the business’s technology, equipment, and machinery outdated?
  • Is the business adequately staffed?
  • Does the company suffer from cash flow problems?
  • Does the company suffer from supply chain problems?
  • Does the company have excessive debt?

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How to discover business opportunities

Find and create opportunities for your organization by looking into the following external factors:

  • Are there market requirements that the business is currently ignoring?
  • What opportunities for geographic expansion exist?
  • Is the organization capitalizing on current market trends?
  • Are there potential new sources of financing that could help the business?
  • Do competitors have any weaknesses that could benefit the company?

How to anticipate threats facing your business or projects

Recognize and brace for threats by considering these points:

  • What possible new industry trends could hurt the company?
  • How might technological advances negatively affect the business?
  • Is our loyal customer base shrinking?
  • Does the business rely too heavily on one big customer?
  • Could possible social changes negatively impact demand for our product and service?

You can see how asking these questions can help you build a SWOT matrix, like the one below.

why is a swot analysis important
 

Easily design a branded SWOT analysis with Venngage’s My Brand Kit feature. Enter your website when prompted and our editor will automatically add your brand logo, colors, and fonts to your designs.

why is a swot analysis important

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What is the importance of SWOT analysis for businesses?

For companies to respond proactively to the changing dynamics of the industry (especially in light of the global pandemic), executives need to understand the importance of using a SWOT analysis.

A SWOT analysis improves your business’s adaptability

When you are aware of the possibilities that your company can achieve, it is easier to adapt to market trends.

Knowing your own strengths and limitations can help you penetrate the market and meet your targets. For example, the SWOT analysis below goes into more detail about the organization’s strengths and opportunities.

why is a swot analysis important
 

Plus, if your organization is aware of its weaknesses and potential areas of improvement, it becomes easier to mitigate future roadblocks and ensure long-term growth.

A SWOT analysis leads to better use of resources

Regardless of its size, every company has finite resources, such as human resources and capital.

Evaluating your company’s strengths will allow you to determine how to allocate your resources efficiently. This will help you achieve revenue growth and profitability.

Share your SWOT analysis with potential partners with Venngage. Generate a private link to share online or upgrade to a paid plan to download your SWOT analysis as a PNG, PNG HD, PDF, Interactive PDF, or PowerPoint presentation.

why is a swot analysis important

A SWOT analysis improves business operations

Assessing a company’s weaknesses doesn’t mean you are looking for someone to blame for past shortcomings.

Instead, this exercise will identify the most vulnerable areas that need improvement so the organization will be better able to compete within the market.

That’s one of the major points in this SWOT analysis example.

Orange Brewery SWOT Analysis Template
 

The continuous improvement of a company’s operations in all aspects is extremely important to be able to stay ahead of competitors.

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A SWOT analysis leads to the discovery of new opportunities

A business that does not seek out new opportunities is bound to fail, one way or another. A SWOT analysis works best when a company is assessing new ideas.

These include reaching out to a new customer base, broader product distribution, development of new products and services, and geographical expansion.

Improve strategic planning by adding charts to your SWOT analysis. With Venngage templates, you can create a variety of charts that give a quick overview of how your company is staying ahead of the competition.

Import data directly from a Google spreadsheet, CSV, or XLSX file, and our editor automatically populates the chart with your data.

why is a swot analysis important

A SWOT analysis helps your business deal with risks

Threats in a SWOT matrix are generally external factors that can have a negative impact on a company’s performance. These include sudden changes in government policy or even intellectual property.

Such threats can happen suddenly. But with a SWOT analysis, like the one below, a company can prepare for the worst.

why is a swot analysis important
 

When your organization takes the time to develop contingency plans that are quickly implemented when the threats become a reality, risks become less of a threat.

This is how a SWOT analysis can help your company prepare better for whatever it may encounter in the external environment.

A SWOT analysis gives businesses a competitive advantage

A SWOT analysis helps determine a company’s position in relation to the industry. An analysis like the example below also shows the areas that perform well and where the organization’s competitive advantage lies.

why is a swot analysis important
 

Your organization can continue to grow if you regularly examine business news to find new ways to build on your strengths. For more customizable templates and tips, check out our post: 20+ SWOT Analysis Templates, Examples & Best Practices.

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How to do a SWOT analysis for your business?

Achieve your organization’s goals and objectives with the information you gather from your SWOT analysis. Use the following steps to conduct an effective SWOT.

Step 1. Establish your business objectives

From the beginning, you have to have a clear objective or problem that the SWOT analysis will solve.

For example, in preparation for the launch of a new product or service. Or when you’re planning to expand your team and don’t know whether those internal factors will benefit your brand, like in this example.

why is a swot analysis important
 

Step 2. Conduct research

Understand where your company stands in relation to the industry it belongs to before you begin the SWOT analysis. This is crucial for strategic planning for a company of any size.

Hold a brainstorming session with your team, partners, investors, and clients to get a diverse range of perspectives. Don’t forget to take competitors into account so find time to research them.

Step 3. List your business’s strengths and weaknesses

Identify and list down your business’s strengths and weaknesses. Your strengths could be internal factors, like your workforce, financial resources, competitiveness, or even your location. Weaknesses could be a lack of innovative products or employee absenteeism.

why is a swot analysis important
 

Your goal should be to look back on your SWOT analysis and find that your weaknesses have already been resolved.

Despite the emergence of new weaknesses over time, the fact that you have already addressed the old ones is a good indicator.

Step 4. Examine your business’s potential opportunities and threats

Identify all possible internal and external factors that will create opportunities or threats for your organization.

Opportunities could include innovative technologies, potential investors and partnerships, training programs, and a diversified market, like in this SWOT analysis example.

why is a swot analysis important
 

Threats may include unemployment growth, the emergence of competitors, and uncertainty in global markets.

Step 5. Determine the hierarchy of business priorities

Determine the hierarchy of the issues you’ve listed in all four quadrants, from the most important concerning to the least.

Step 6. Develop strategies for your brand

Review the prioritized list by asking how, with your strengths and weaknesses, you can improve internal factors to create more opportunities and counteract potential threats.

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Use customizable templates for your SWOT analysis

SWOT analyses are a necessary exercise for analyzing and understanding the health of an organization.

Not only does a SWOT analysis allow decision-makers and business leaders to determine where the company stands, but it also identifies areas that need to be improved.

This information will help the company make strategic plans to reach its target audience and remain competitive.

Make your own SWOT analysis with Venngage’s customizable templates and improve your internal processes, market position, and boost business opportunities.

 
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