Honest, Four-Square Analysis Helps You Make Profitable Decisions
There are two old business adages that have been proved time and time again:
Change or perish.
It’s hard to hit a moving target.
If you read the stories in last month’s issue of Tire Review about the winner and finalists of our first Top Shop Awards, you saw these adages at work. Each of those top tire dealers are constantly “on the move,” so to speak, open to and welcoming change as a necessity for continued growth and success.
They are constantly evolving, staying steps ahead of their competition, bringing new products and services (and levels of customer service) to a strong existing customer base, reinforcing their relationship with these key customers each and every day. At the same time, top tire dealers also stay ahead of ever-evolving customer tastes and desires, working to develop a new cadre of business-building customers.
These dealers aren’t really any different than you or other dealers. But one thing they do is constantly analyze their businesses, looking at their unique strengths, weaknesses, opportunities and threats, and developing and executing plans to leverage the positives and fend off the negatives.
In other words, they are doing what are called SWOT analyses. A SWOT analysis is an audit of a business and its environment, useful considerations for any decision.
Don’t be fooled by the fancy terminology. You have probably done a SWOT analysis in your head (or on a piece of paper) at least once. Certainly, if you have done a written business plan and have done annual updates you have unknowingly done a SWOT analysis of sort.
The formalization of SWOT analysis SWOT stands for strengths, weaknesses, opportunities and threats came from Albert Humphrey and a team at Stanford Research Institute. Humphrey’s team conducted research in the 1960s, basing their original efforts on the failed planning work done for decades by major corporations.
The problem, these corporations found, was that long-range planning was a futile effort, primarily because corporate management at the time was unfocused and often compromised. Because these large corporations were the result of entrepreneurial efforts, and top managers were often part of that start-up group, most decision-making was based on instinct and not fact. Under those circumstances, getting top management focused and committed to a set action plan was next to impossible.
Furthermore, much like trying to turn the Queen Mary in a tight canal, getting middle and lower management buy-in and focus was next to impossible. The fiefdoms that formed at the lower rungs of the corporate ladder often prevented change; middle managers were scared of losing what control they had over their careers, and would harpoon anything that appeared threatening to their positions.
Thousands of Fortune 500 companies were interviewed and examined, and common threads were uncovered and considered. What Humphrey and his team ultimately created, in short, was a simple means for executives to examine all sides of a corporation and any major decision the corporation is considering a form of deep self-evaluation that laid all of the understood facts on the table for analysis.
While SWOT analysis is considered a strategic planning tool, it can be applied to both the business as a whole (such as in the case of developing a business plan) or to an individual project (to assess its likelihood of success and/or adjustments that are necessary).
SWOT involves detailing the objective of the business or project and then spotlighting all of the external and internal factors (strengths and weaknesses are internal factors; opportunities and threats are external factors) favorable or unfavorable that will impact, impede or assist in meeting that objective. From there, in turn, a firm action plan can be created to steer the company large or small to success.
By doing this type of deep, truthful analysis, the researchers found companies were more willing to establish an action plan, commit the appropriate resources to achieving an objective, and, most importantly, get the cooperation of the entire company (the buy-in) toward meeting an objective.
Even though it was born out of mega-corporations, SWOT analysis is a convenient, useful tool small business owners can apply. Many dealers have relied on a similar tried and true means of decision-making: the old “Pros/Cons List.” By examining a choice by listing its pros or positives on one side of a piece of paper and its cons or negatives on the other, you have probably done a rough version of SWOT analysis.
SWOT takes it a few steps further, and gets your entire team involved in the process. Not only can you use SWOT for more sweeping tasks such as business and strategic planning, you can apply it to competitor evaluation, marketing plans, new product consideration, even the purchase of new tools and equipment.
Many small businesses use SWOT as a team building exercise, bringing the entire company into the process. This gets the viewpoints from all aspects of a business; after all, the tire dealer president generally doesn’t change tires, so what would he or she really know about the positives or negatives of a particular piece of equipment? Plus, getting the team involved on the front end means they are more likely to champion the decision.
Even major changes, like the addition of other locations or the addition of new products or services, would be tremendous subjects for a thorough SWOT analysis.
But enough about the ‘why.’ Let’s look at what a good SWOT analysis entails.
By definition, a SWOT analysis is an objective assessment of data, as organized into a logical order, to help understanding, discussion and decision-making. In fact, SWOT analyses often contain many subjective responses, and experts say that is fine. Try to be as objective as possible, but don’t disregard especially if they are coming from employees or outsiders subjective comments.
A SWOT analysis can best be illustrated by a large square that is divided into four equal boxes, each with its own heading: Strengths, Weaknesses, Opportunities and Threats.
Into those boxes, you organize each of those subjects as they pertain to your business or the decision you are considering. To be effective, this work must be honest and truthful, which can make SWOT a sometimes painful process. Done right, a good SWOT analysis can not only lead to well-reasoned and successful decisions, it will point out specific areas of a business that may need improvement.
When starting a SWOT analysis of your own, it is important to clearly identify the specific subject you are considering. SWOT will not help with broad, sweeping questions. Instead of considering a broad subject like “Should we take on a new product?” a better SWOT approach would be to examine “Should we take on a new line of UHP tires?” You can get even more specific if you wish, such as “Should we take on X brand of UHP tires?” or “Should we take on X brand of UHP tires from Y distributor?”
Remember that a SWOT analysis is a deep perspective of a single thing, such as a company, product, idea, proposal, method, option and so on. SWOT can be used to assess a company (market position, viability, etc.); a method of selling or distribution; a brand or product; a business idea (new or expanded); a strategic option (new markets, new products, etc.); expansions, investments, acquisitions or partnerships; changes to suppliers, services, alliances, etc.; or acquiring new equipment, outside services, resources, adding personnel, etc.
Before undertaking a SWOT analysis, it is vital that you define and agree on an objective. SWOT analyses cannot be done on abstract questions, only on a desired end state. SWOT analysis is not like the Magic Eight Ball. Don’t consider, for example, whether to buy a particular tire/wheel balancer, but assume that you ARE buying a particular one. In this way you are examining the ramifications, not the buying process.
SWOT analysis is often confused with developing potential strategies, which couldn’t be further from the truth. SWOT describes conditions as they exist, while strategies define specific actions.
Whether you are doing the SWOT analysis yourself or involving others, make sure that the question being considered is clearly presented. This will help keep you (and the others) focused. If you have assembled a team to conduct SWOT, give them ample time to deliver their analysis. Be firm with the deadline, but flexible to allow sufficient time for their consideration.
And make sure you and others clearly understand what SWOT analysis is, how it will be applied to the question being considered and the potential implications of the analysis.
Here are a few simple rules for a successful SWOT analysis:
Be realistic about the strengths and weaknesses of your dealership when conducting the analysis.
SWOT analysis is designed to distinguish where your business is today and where it could be in the
SWOT analysis should always be specific, so avoid gray areas.
Keep the analysis short and simple, and avoid complexity or over analysis.
Only use precise, verifiable statements, such as specific costs, prices and percentages.
Prioritize factors to maintain focus on the most significant ones.
So just what are all of the parts of a thorough SWOT analysis? Well, a strength is any aspect of your business that adds value. This could include your specific product/market expertise; a new, innovative product or service; the location of your dealership; quality processes and procedures; or your staff’s training/education.
A weakness could be a lack of marketing expertise; undistinguished or undifferentiated products or services (relative to competitors); the location of your business; poor quality goods or services; a damaged reputation; and poor pricing or product selection.
Opportunities could include a developing channel (Internet) or market niche (high performance); mergers, joint ventures or acquisitions; and a new market area or an area vacated by a competitor.
Threats could include a new competitor in your market area; price wars with competitors; a new, innovative product or service; competitors with superior distribution channels; government action; or new taxation that impacts your business.
Here is a general SWOT analysis outline with some but not all of the points that could be considered under each heading:
Advantages of proposition
Unique selling proposition
Resources, assets, personnel
Experience, knowledge, data
Financial resources, possible ROI
Marketing, distribution, awareness
Location or geography
Price, value, quality
Existing processes, systems, communications
Cultural, attitudinal, behavioral
Management ability, succession
Disadvantages of proposition
Problems or gaps in capabilities
Lack of competitive strength
Reputation, presence, reach
Financial issues, cash flow, start-up funds
Deadlines and pressures
Impact on core activities, distraction potential
Reliability of data and plan predictability
Impact on morale, commitment, leadership
Needed accreditations, education
Necessary processes and systems
Management ability, succession
Vulnerability of competitors
Industry or lifestyle trends
Technology development, innovation
Outside even global influences
New markets or vertical/horizontal
Niche target markets
New unique selling propositions
Business and product development
Information and research
Partnerships, outside agencies, distribution
Volumes, economies of scale
Seasonal or weather influences
Political or legislative effects
Infrastructure or IT developments
Competitor intentions or reactions
New technologies, services, ideas
Important partnerships, contracts, commitments
Ability to sustain capabilities
Obstacles internal or external
Potential loss of key staff
Sustainable financial backing
Economy local, regional, national
Seasonal or weather effects
These are just some of the things that can be considered in doing a SWOT analysis. The subjects can be broad (as above) or more detailed depending on the question at hand. In some cases, they can be purely personal in nature; if you are, for example, thinking about bringing in an all-new computer system, your IT person may not have the free time to work longer hours necessary to assure proper installation and training. As a result, you will have to consider the need for outside resources.
THE NEXT STEP
With the basics of SWOT in hand, let’s take it a step further and look at translating SWOT into actions.
Experts say that strategic planning is not a precise science, but rather a matter of choices to identify and explain issues. With SWOT, strategic planning can be more of a science by translating data and facts into reasoned action and predictable results.
In his research, Albert Humphrey addressed the issue of strategic planning, and advocated applying SWOT principles to six key business categories:
Product: What is being sold?
Process: How is it being sold?
Customer: Who is buying?
Distribution: How do we reach customers?
Finance: What are the prices, costs and investments?
Administration: How do we manage?
Why these six categories?
Humphreys was convinced that in the way businesses work, this approach makes the resulting action more quantifiable and measurable and makes the team more accountable, thereby making the required activities more manageable.
As far as identifying actions from SWOT results, it really depends on your reasons for using SWOT and your ability to manage others who are likely to be involved in the delivery of actions.
PUTTING IT ALL TO USE
SWOT essentially unveils what is good and bad about a business or a particular proposition. If SWOT is being applied to the business and the goal is improvement, then focus on translating the outlined strengths (maintain, leverage, build), opportunities (prioritize and optimize), weaknesses (fix), and threats (counter-attack) into realistic actions that can be agreed upon and “owned” by your team.
If you have applied SWOT analysis to assess a proposition, it may show that the proposition is too weak (possibly in comparison with alternative propositions) to warrant further investment of time and resources.
If you have done a good job of identifying a clear objective, SWOT analysis can help you pursue that objective. In this case, SWOT analysis reveals the attributes of the business that will help achieve the objective, the attributes that could prevent achieving the objective, external conditions that are helpful to achieving the objective, and those external conditions that could prevent achieving the objective.
If the objective you have laid out appears possible, then you can apply SWOT analysis to gather input execution:
How can we use each strength?
How can we thwart each weakness?
How can we exploit each opportunity?
How do we defend against each threat?
This is where putting together a cross-functional team is ideal. This task force should include representatives from different aspects of your business, including accounting, sales, customer service, techs, managers and even a trusted customer.
Keep in mind, also, that a SWOT is not simply “just another list.” Avoid becoming a list gatherer or generating SWOT analyses just for the sake of doing so. Use it as a tool to address one issue at a time. Do the analysis, develop the plan and execute. Then you can move on to the next issue.
There are dozens of great Web sites and books with helpful tips on conducting your own SWOT analysis. If you are serious about moving your dealership forward, those would be ideal places to start.