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SWOT analysis is a breakdown of companies to help you to understand what another company is doing. It’s also a way to know whether or not the other company is a competitor.
We just gave an example of eating all kinds of cookies. While this doesn’t sound like SWOT analysis, we’ll explain soon. SWOT analysis is research and the wording is an abbreviation. SWOT represents strengths, weaknesses, opportunities and threats. The reason a company wants to understand what these are in another company or a competitor is to help them find out if you can work with them or against them.
Companies that sell similar products have to know what other companies are doing. When you look at a company like Staples, if you are Office Depot, you want to know whether or not Staples is a strong competitor. You also want to know if you should move next door to them. That is why you have to do an analysis.
This is strategic, so that means a lot of reports and a lot of research are done. They will have a lot of records and information on file online such as:
- research reports
- marketing techniques
- and even all the items that they sell in their stores
Office Depot has to know for sure whether or not they can compete with Staples. That’s why they want to do SWOT analysis. What they’re going to do is better understand how to see what the competitor has in a break down of their strengths, weaknesses, opportunities and threats. Let’s do it and see what we come up with. Then we’ll discuss all of those cookies a little bit later.
When Office Depot looks at Staples, they are going to see that Staples has a lot of stores. That’s a big strength and they also have a lot of coupons that they sell. Also, a lot of people know the Staples name. They also know the red lettering on the outside of their stores. That means they’re easy to recognize. Is that making sense?
You have to look at it like this because Staples is going to have strengths and weaknesses and any competitor is going to have strengths and weaknesses. You want to find out what the weaknesses are to make them work for you. Now let’s tie in the cookie example to help you understand this a little bit more.
Lots of cookies
Let’s just say you want cookies. You want to find the best cookies and you want them to have chocolate chips in them and you want them to be all natural. Maybe you have a real sensitive stomach and you can’t take a lot of preservatives and processed food so you want the best homemade cookies that you can find.
When you go up and down the cookie aisle, one way to find out which cookies have what you’re looking for, is to test them all out. You may find that Oreos are processed. You may find that Chips Ahoy are really sweet. You may find that Keebler cookies are for sale because they’re stale, so that’s probably a weakness on their part.
You might also find that there’s a homemade version that has really good cookies by Famous Amos. Another cookie company is called Annie’s Cookies. So now you’ve found two cookies that you like.
The problem is when Famous Amos sells cookies, they’re made fresh but when they ship them they have to use a lot of preservatives to keep them fresh – sort of. Annie’s Cookies, on the other hand, are made fresh because they have factories all over the country. That’s an opportunity for Annie’s.
As you can see as we get back to the Staples and Office Depot example, even with cookies, you have to do your homework in your research to find the best one. As Office Depot continues to look at Staples, they’re going to continue to go through the analysis and look at the various types of opportunities that Staples has.
Just like those cookies where you want to know whether or not they meet all the requirements based on what’s on your list, we are going to do the same thing with each company we research.
Now you might ask things like if Staples has overnight shipping, if they have in-store copy services, and other things that you may think are advantages and opportunities.
When you look at threats, keep in mind, a threat is any competitor. Remember with the cookie example, we said that the threat was Annie’s and Famous Amos because they sold similar products that were more natural.
With Staples, you have to question whether or not they have competitors. These are their threats. You’re going to probably look at Office Depot, Kinko’s, FedEx Copy Services, and other stories.
That’s how a company will narrow down the competition, and you have to do this every time that you look at a particular company that you want to work against as a competitor or work with. When we say we’re against, it means if you want to move in the neighborhood and that will be your top competition or just a fellow competitor. If you’re going to work for them or with them, it may be that you’re thinking about buying out a company and you want to know what they have to offer. You may also want to merge with them.
Let’s look at another example.
FedEx is thinking about moving into a neighborhood and merging with UPS. The problem is when they do their SWOT analysis, they found out it wasn’t a good deal because they work in the same areas and use similar trucks along the same route.
This is one area where combining the companies may not work because there may not have an extra advantage.
If FedEx or UPS wanted to work with DHL, which is a smaller service but works in more remote regions, that means they work further away and they go further out. Then it might be a better deal for them.
Remember that cookie company example? If you ever thought about wanting to have a cookie company that made homemade cookies and served a wider area, or had a bigger market, you have to do your SWOT analysis and your research. You want to see which is the best cookie company that’s making the most money. That way you have an idea how to get it done by yourself. It also helps to eat a lot of samples!
Image: Natali Zakharova/Shutterstock.com