Business success is not an accident - it is planned. Scientific studies have established a link between strategic planning and business success and failure. Yet, only one out of five small-business owners practice any type of strategic business planning regularly.
Regardless of whether you develop a full-blown strategic plan or not, you certainly want to do some planning for your business. Planning is about setting objectives, prioritizing, allocating resources and establishing milestones to better manage your business. A SWOT analysis is a good place to start.
In the 1960s, Albert Humphrey of Stanford University developed the SWOT analysis technique as a strategic planning tool. The concept is simple and easy to apply to any business. SWOT stands for Strengths, Weaknesses, Opportunities and Threats of an organization as follows:
- Does your company have strengths that are an advantage over your competition?
- Are weaknesses unnecessarily holding you back?
- Are there opportunities within your market that you might pursue?
- Are there some unknown threats to your company that you need to address?
Begin a SWOT analysis by getting key players involved and brainstorming. If you run a very small business, invite a trusted friend who knows your business and your accountant, attorney or consultant. Brainstorm a list of the strengths, weaknesses, opportunities and threats to your company. Record this information on a flipchart and then identify the most important ones based on likelihood of occurring and degree of impact. Remember that brainstorming means generating a lot of ideas, not just good ideas, and then editing them down to a concentrated most important, high impact strategic list.
Every organization has certain strengths such as dominant market share, a highly skilled labor force, or a strong balance sheet. Even companies not experiencing success, have strengths. Sometimes companies over look their strengths. For example a small company may be able to innovate much faster than a large company and that is a strength. Some of the questions to ask to determine company strengths are listed below:
- What is the company's market share?
- What are the company's most successful lines of business?
- Does the company have a pool of skilled employees?
- Are the company's sales & marketing functions effective?
- Does the company have a strong financial position? Can it raise capital?
- What are the company's historical operating results?
- Has the company demonstrated the ability to adapt and change?
- Has the company built customer loyalty?
- How is the company different than the competition? Is it a positive difference?
List Company Weaknesses
Every organization also has weaknesses, such as an inability to find skilled labor or cumbersome processes. Ensure you really dig deep because not every weakness is evident. Bad morale or key employee turnover are often overlooked but still are weaknesses in today's highly competitive search for exceptional talent. Every company, even those that are dominant in their markets, has weaknesses. How much these weaknesses will affect the company is a matter of analysis. Some of the questions to analyze weaknesses are listed below:
- What are the company's least profitable areas of business?
- Are any of the company's projects losing money?
- Is the company losing talented employees?
- Is the company's financial position weak? Can it raise capital?
- Is the company innovative?
- Is the company able to take on higher capacity to grow?
- Is the company able to recruit technical talent?
- What is the biggest drain on your employees' time or what hurts your productivity the most?
All organizations have opportunities within their marketplace. A thorough review of the company's market will unearth opportunities which the company should pursue. Opportunities may also be identified as a goal for the future but must be worked on each year. Use the list below to spark your thinking:
- Are there new technologies that the company can use to innovate?
- Are there opportunities to extend work into related areas?
- Are there reasonable acquisition opportunities?
- Can the company move up the value chain?
- Are there opportunities for strategic partnerships?
- Are there money-losing ventures that can be divested to increase profitability?
- Does the company excel in an area needed by larger companies?
Threats in the Marketplace
No organization is immune to threats. Threats come from external factors that your company may have no control over. By answering the questions below your company can avoid or overcome potential threats.
- An inability to provide secure supply.
- Does the company have adequate reserves to withstand a down cycle?
- Is there trade union activity that could have an adverse effect?
- Are out of state competitors eating away market share or driving down prices?
- Does lack of access to capital limit the company's ability to invest?
- Are economic, political, environmental or labor issues affecting your business?
- Are there new technologies emerging that can hurt your business?
Strengths and weaknesses are about you and your company, its nature, history, and what it does and doesn't do well. You can change them over time, but it will take commitment and forward planning. Threats and opportunities are external factors outside of your business. Your strategy should play on your strengths and away from weaknesses to take advantage of opportunities and avoid threats.
As a contractor, you do not need a strategic plan to build jobs, bid work, and make money. On the other hand, how do you build something more than just jobs, make better than average profits, expand your capacity and build your businesses? The answer is you really do need a strategic plan and the first step to building business success is to complete a SWOT analysis.
Linda Hanson, CMC, is a certified management consultant and author of 10 Steps to Marketing Success. She writes, speaks and consults on marketing, management and customer service issues and can be contacted at www.llhenterprises.com. Sign up for her free newsletter The Superior Performance Report.