Insufficient support in the right strategies will sooner or later affect the readiness to respond and the further development of the business.
It is unfortunately a sad practice that in the early and more advanced stages of business, analyses and strategies are not given much importance.
However, if you want to sustain your business in the long term, you need a functional business strategy that can respond to changes and market needs. Ideally, it should be based on thorough analysis, the right strategies and possible strategic scenarios.
1. Analyze thoroughly
The right strategic decisions require thorough analysis. Get to know your current situation, the opportunities and threats you face by developing a functional analysis. One of the most common analytical methods is SWOT analysis. You have most likely already encountered some form of it.
By taking an in-depth look at the internal and external factors of the analyzed area, SWOT analysis will help you identify your strengths and weaknesses, opportunities and threats. The abbreviation SWOT itself is derived from the English names of the categories into which the individual factors are classified: S – strengths, W – weaknesses, O – opportunities and T – threats.
If you are facing any decision where a desired goal can be defined, a SWOT analysis will help you identify your position within the environment in which you operate, effectively respond to constant changes, assess your potential for further development, anticipate customer and competitor behavior, and identify risk factors relevant to your strategic objectives.
As an input tool, download our free template for creating a SWOT analysis to your Google drive from the link https://bit.ly/3IFJorZ and you can get started.
Carry out a SWOT analysis in these 4 steps:
1. Preparation of the analysis – Before carrying out a SWOT analysis, carefully select the key people who will participate in it. In general, the more people, the more opinions. However, this can ultimately mean a longer and more demanding analysis. The ideal number is 3-6 people. In the next step of the preparation phase, determine the goal of the analysis and the area to be analyzed. For example, if you are starting a new business, the goal of the SWOT analysis may be “Marketing opportunities for e-commerce business”. During the analysis, focus on ensuring that all factors are related to the set goal. Do not forget about their objectivity and justifiable nature. Facts are important, not assumptions.
2. Identification and assessment of strengths and weaknesses (S, W) – Strengths and weaknesses represent currently existing factors that are directly related to you and are always internal to the analyzed area. In the case of strengths, answer what are the current benefits of your product or service, what you are good at, what are your strengths, resources and capabilities. In the case of weaknesses, identify what can currently be improved, what is not working, what you are not doing correctly or have not been sufficiently processed or covered. A simple tool for correctly classifying factors as strengths or weaknesses is the correct formulation of questions. Ask yourself: “Is this phenomenon here and now? Can I change it?” And based on these questions, adjust the formulations, because you will only find a solution if you define the problem correctly. Then rate the identified strengths and weaknesses by importance from 1 to 10 for each category separately, with 1 = the least weight, or. the least serious or important factor, 10 = the greatest weight, or. the most serious or important factor.
3. Identification and assessment of threats and opportunities (O, T) – Threats and opportunities represent the estimated future development of the external environment – that is, everything that can be, or will be outside of you and that you cannot fully influence. They combine socio-economic factors with market developments and all other factors that can affect your business. When defining them, be as objective as possible and always sufficiently justify their choice. See things that you cannot currently apply as opportunities and factors that you may lose as threats. As with strengths and weaknesses, you can apply a simple tool to correctly classify factors by correctly formulating questions. Ask yourself: “Is this phenomenon a matter of the future and not internal in nature? Can I really change it?” And adjust the formulations based on these questions. When assessing threats and opportunities, you need two columns: the probability of occurrence in % and the size of the impact on your intention, if the given situation occurs – the so-called business impact. To simplify, you can use four categories for probability: 0% (will not occur), 25% (more likely), 50% (may, may not), 75% (more likely) and 100% (definitely yes). For business impact, use the values 0 (no impact), 1 (moderate impact) and 2 (strong or liquidating impact). Evaluate all opportunities and threats, but again be as objective as possible and average the individual results in case of disagreement.
4. Evaluation of the analysis – this includes adding up strengths and weaknesses and multiplying opportunities and threats, creating a matrix, formulating TOWS strategies and focus areas. However, since this is a more complex step, we have developed it separately for you below).
What to watch out for when conducting a SWOT analysis:
- Make sure that the factors relate to the defined goal of the analysis.
- Insist on a sufficiently extensive list and identification of factors. Invite key people, partners and try to look at the goal from different angles.
- Avoid excessive subjectivity. Invite someone to the SWOT analysis who will purposefully question your inputs, assessments and opinions.
- Always sufficiently justify the given factor and its inclusion. Take your time.
- Formulate the individual factors as clearly and precisely as possible.
- Always ask whether it is an internal-current or external-future factor. There is nothing in between.
- Divide the time for developing a SWOT analysis correctly. Do not spend 80% of your time on the first half of the analysis, the second part is just as important. Do not rush the analysis. The right decisions need enough time and space.
Always approach the SWOT analysis with maximum precision and the highest degree of objectivity, so that the things contained in it are clear and distinct to you, even if you return to them several months or years later. Similarly, the correct identification and classification of factors determines the authoritative function of the analysis results. Their incorrect classification leads to incorrect interpretation and inefficiently invested resources.
As an example, we can cite “website improvement”. Many clients mistakenly classify similar formulations as opportunities. However, the website is an internal factor, and this phenomenon is with you at the present time (here and now). It is therefore assigned to strengths or weaknesses. If you see the need to improve it, it means that it is your weakness.
2. Evaluate into the right strategies
In the last step of the SWOT analysis, get the most out of the analysis by thoroughly developing a matrix. From all the factors listed, select the strategically important factors with a long-term duration.
It is a good idea to start by estimating the threats to the plan and estimating the current opportunities. This will allow you to evaluate the limitations and opportunities of your position before identifying weaknesses and strengths. The main purpose is to add a relationship to the selected factors to reduce threats, take advantage of opportunities, use strengths and eliminate weaknesses.
Create a TOWS matrix from the selected factors:
Based on the key factors and their combinations, establish 4 TOWS strategies. Formulate them as text blocks, suggestions or recommendations based on individual factors. And how to connect them correctly?
- Offensive strategy (SO) uses strengths leading to the evaluation of opportunities. When formulating it, help yourself with the questions: Which strengths will help me take advantage of opportunities? What internal and external factors can I use if I want to go on a business offensive? How can I get the most out of the current situation from the given factors?
- Defensive strategy (ST) uses strengths leading to overcoming threats and is the answer to the questions: Which strengths can I overcome threats with? Which threats can I eliminate by using strengths and which ones?
- Alliance strategy (WO) overcomes weaknesses with opportunities from the environment. Help yourself with the question: Which identified opportunities can I minimize weaknesses with and how? Which weaknesses do I need to work on to take advantage of the opportunities?
- The escape/liquidation (WT) strategy eliminates weaknesses and avoids threats, and is the answer to the question: By minimizing which weaknesses will I avoid the identified threats? Which threats can affect my weaknesses the most, and which ones?
When processing the outputs from the SWOT analysis into TOWS strategies, formulate the so-called focus areas — recurring areas in all strategies that will significantly help prepare your business for the implementation of the specified scenarios. Examples of focus areas can be: the need to invest in marketing, building a strong internal development team, or developing a marketing strategy or business plan. In general, these are recurring areas across all your TOWS strategies.
Focus areas can also look like this. They will provide a simple top-level view of individual scenarios.
After determining the focus areas and TOWS strategies, evaluate the pros and cons of each strategy and choose the one that will be most suitable for your problem. The choice of the final strategy depends on your problem, context or your own decision. When choosing it, take care. It will become your guide for further direction.
Plan the selected strategy in detail into specific steps, measures and deadlines with personnel deployment within the established budget so that it is ready for implementation.
For proper constructive questioning and refinement of the strategy, it is worth hiring an out-of-the-box partner to the team. If the selected strategy stands up to him, its chances of success will be higher.
3. Work with critical scenarios
If things in business go according to plan, no one thinks about the bad things. However, if you want to respond quickly and correctly to small and major changes and market needs, you need to know where your business is most vulnerable and what the worst can happen.
Based on a detailed analysis of your weaknesses and threats, develop so-called critical scenarios, in which you define the vulnerabilities of your business and identify everything that can go wrong. Critical scenarios are a great crisis management tool and a form of strategic planning. They will help you minimize unforeseen situations that could lead to serious problems or even disasters. They will also make it clear to your sponsors and stakeholders whether the benefits of your business outweigh all possible risks.
It is ideal to create critical scenarios at the same time as you create your business plan and strategies. If you identify possible pitfalls for your business right from the beginning and regularly revise critical scenarios later, you will be able to prepare for unforeseen situations in advance.
For each identified crisis situation, propose functional countermeasures that will guide you in the further procedure if the given situation arises. It is ideal to develop them in detail step by step. One such measure is to regularly assess threats and the status of countermeasures.
This way you will be prepared for anything. And if you need help, do not hesitate to turn to professionals.
A final note: Remember that analysis and individual scenarios are always contextual things. They are tied to the knowledge you are working with, the state you are in, and the period in which you are doing them. All of these factors change over time, so it is advisable to regularly update individual scenarios.
