SWOT Analysis- A Simple Technique for Planning Sustainable Growth for SMEs
SWOT analysis is a simple and handy technique for SMEs in India to undertake a holistic review of the business before setting on the growth plan. This will eliminate blind spots and make growth transition sustainable.
In the previous fortnight, we had published a blog on managerial capacity (Relation between Growth of Business & Managerial Capacity- A Riddle for SMEs in India). After going through the blog, one of the entrepreneurs opined that SMEs normally overlook various challenges they will have to confront after commercial operations when a business moves from startup to growth stage. He is the view that managerial capacity is not only one but there are many challenges they should address while planning for growth.
It prompted us to ponder over and we started to explore whether there is any simple tool to bring in a holistic perspective of the growth plan in a nutshell for an entrepreneur to understand the whole gamut of challenges and remedies.
When I was exploring the solutions I found that SWOT analysis is widely used in the examination of new opportunities and plans by large corporates. It is also widely used many investors and lenders to undertake an analysis of internal and external factors that influence the success of the target business/project.
What is SWOT Analysis?
SWOT analysis is a technique that can be performed for products, services and markets when deciding on the strategy for achieving future growth or new business. The process involves identifying the strengths and weaknesses of the business and opportunities and threats present in the market it operates. The first letter of each of these four factors creates the acronym SWOT.
Strengths: Strengths are usually all the positive qualities within your organisation that may be related to either the resources available to you or, in general, all the things that make you strategically advantageous.
Weaknesses: Your weaknesses may often be things you can turn around and improve in order to become competitive.
Opportunities: Opportunities are the external elements that could potentially provide possibilities to advance your business.
Threats: Threats are generally above your control and may cause instability in your business.
Please refer- Performing SWOT Analysis
Limitations of SWOT analysis:
The SWOT analysis is a popular and versatile tool, but it involves a lot of subjective decision making at each stage. It should always be used as a guide rather than a prescription. In addition, it is an iterative process.
There is no fixed SWOT for any firm because the strengths, weaknesses, opportunities and threats depend to large extent on the business of the firm under consideration. Also, timing plays an important for relevance of such as analysis as changing circumstances in the external world (not necessarily in the marketplace) may reverse the strengths and opportunities (Ex new emission standards may impact negatively the auto component firms)
Another aspect is that the definitions (identifying a factor as strength or weakness)are open for interpretation and can be highly subjective and it depends upon business objective.
Should SMEs attempt this analysis on their own?
The strength of SWOT analysis is that it can be applied to many different organisational scenarios, but its drawback is that it requires clear thinking and unbiased judgement to obtain any real value from using it.
Many SMEs are having limitation to do such highly skilled job in house. It is better to hire an advisor.
The advisor who carries the discussion should be familiar with SWOT process so that he can successfully manage discussion drawing out key points and bring on board all the attendees of the firm.
The advisor should be allowed to take an active role in encouraging attendees to contribute to such discussions and brainstorm through the SWOTs in order to identify as many factored as possible.
Making attendees agreeing to strengths is the easiest thing. Opportunities are obviously tempting by the virtue of their novelty. However making people accept weaknesses and visualising threats is most challenging and definitely going to be resisted. The most difficult thing for anybody including business owners is to accept the factors that will cause discomfort to them.
Why SWOT Analysis:
- The fast changing global economic situation, as well as evolving domestic economy, are influencing the viability of every business and making operating environment unstable.
- Secondly, regulations like Demonetisation, the introduction of GST and upcoming new legislations like Real estate Regulations are changing the business environment in India in a significant measure. For some businesses, these will become risky and for few others, these will open up new opportunities.
- It is very common fact that challenges and opportunities co-exist and our strategy need be dynamic and responsive to stay afloat against all the odds.
- It is not uncommon to find entrepreneurs focusing on key strategic aspects (while undertaking expansion or even at starting the project) and at the same time ignoring the rest of the factors which will have bearing on the sustainability of business. Many a time these important yet less attended aspects become such an obstacle that they not only fail the firm to exploit the opportunity newly created but may unsettle the entrepreneur and likely to lead to distress.
- Many entrepreneurs are ignoring fast changing consumer preference and assumed it is constant. That may make the project render non-viable in the long run if there is a strong undercurrent of shifting of preference.
- What makes SWOT particularly powerful is that, with a little thought, it can help you uncover opportunities that you are well placed to exploit. By understanding weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unaware.
It is commonly observed that many SMEs in India are very vulnerable to factors that influences conduct of business as their risk bearing ability is quite low. Maximising your strengths and opportunities and minimising the weaknesses and threats will allow your business to become more competitive and less risky. Having been armed with better awareness about your strengths, weaknesses, you will be better placed to craft a strategy that not only supports you to feel confident in your growth plans but also encourages you to dream bigger.