When the first step in SWOT analysis is setting objectives, the second step is understanding the business environment in which a business operates. Sound market research is not limited to a company internal operations but extends to understanding the entire industry, competition as well as government regulation (Ferrell & Hartline, 2012). Understanding these factors helps in conducting a more detailed and specific market research. After understanding the market in which a business operates, the next step involves identification of internal factors which give a company an advantage of its competitors. Such factors include adequate capital, patents or business location.
This is mainly a brainstorming session where all real and assumed strengths are listed. According to Ferrell and Hartline (2012), it is important to consider weaknesses inherent in a business so as to address them and minimize their potential to ruin the future success of a business. In a business case several factors such as a thin product line, inadequately qualified staff, shrinking customer base and loss making products. It is imperative that the SWOT team analyze how a business unit has tried to mitigate these weaknesses and with what success over a given duration of time.
Consider opportunities that are external to operations of a business but have the potential to impact positively on the success of a business. Such factors include changing consumer trends, favourable government regulation or even changing technology. For example, a manufacturer of energy-efficient or electric cars can consider rising oil prices as a potential opportunity and should be taken into consideration while conducting a SWOT analysis. At this stage, external threats to a business potential success are listed and analyzed.
External threats could include entry of a competitor in a market previously dominated by a few players, rising interest rates, forex fluctuations as well as other global factors like increase in global oil prices.
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