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SWOT Analysis

FastTrac, Kauffman Foundation

A useful tool to help you better understand your business’s current prospects for success is the SWOT analysis. Factors that are internal to your business, such as key management personnel, are evaluated as strengths or weaknesses. External factors, such as the economic environment, are described as opportunities or threats. Your SWOT analysis will create a snapshot of your business’s situation.

Strengths can be used to gain a competitive advantage. You will want to nurture your strengths.

Examples: recognized as market leader, adequate financial resources, strong management team, proprietary technology

Weaknesses are important because they need to be corrected in order to meet your goals.

Examples: costs disadvantage with competitors, weak market image, no clear strategic direction, lack managerial depth, outdated facilities

Opportunities could allow you to improve your position in the market or grow your business.

Examples: expand product line, add related service, form strategic alliance, target new market

Threats represent potential problems that you should consider and address.

Examples: entry of strong competitor, increased regulation, change in customer buying preferences

Take a look at items in one category and you may see how, from a different perspective, they can fit into the opposite category. For example, if you ignore an opportunity, it can become a threat if a competitor decides to use it.

Core Competencies

You can use the SWOT analysis to help determine your core competencies. Competencies are those skills and tasks at which you excel and are valued by your customer. A core competence is a capability that could help your business achieve a competitive advantage, such as an expert sales team, strong branding, efficient processes, proprietary technology, or another asset that is critical to your success.

Your business may have many competencies, but your core competencies are those that help differentiate it from the rest of the market. For example, Toyota is currently the car company with the most advanced core competency in building hybrid vehicles. Starbucks has core competencies in brewing full-flavored coffees, having the dominant coffee brand, the largest network of distribution outlets, and a predictable customer experience.

Looking at your business’s strengths is a starting point to identify its core competencies. Once core competencies are identified, they can form the cornerstone of your business strategy. Think of your core competencies as your invisible assets. Though they do not show up on your Balance Sheet, they are resources that you can use to beat the competition.

Your core competencies will change over time. For example, your business may have superior technological skills that give it a competitive edge. Eventually competitors will catch up or new technological skills will supercede the current ones. When they do, your business will need to explore its opportunities and determine what changes it needs to make before it loses its competitive advantage. The name Schwinn used to be synonymous with quality bicycles. After losing touch with their market and outsourcing their production, they lost their competitive advantage and ended up in bankruptcy.

© 2006 Ewing Marion Kauffman Foundation. All rights reserved.

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