Business Growth Fundamentals part 2: Business Growth with SWOT

Once upon a time, some 20 years ago in Finland, there was a huge company called NOKIA. NOKIA was one of the most profitable companies worldwide when it came to mobile phones. NOKIA? Mobile phones? Ask a 20-year old today which phone models NOKIA produced and they can’t even answer it anymore! But what happened?

Let’s use our next model to analyze what exactly happened to NOKIA, because this can in fact happen to any business! Our next model is the SWOT Analysis and it will help us understand what went wrong with NOKIA with respect to their huge market share in mobile phones.

 

What is SWOT?

The SWOT analysis is, similar to the PEST analysis (see PEST ARTICLE), a model to analyze your business and to look at what your business is doing better than others, and where you see certain opportunities or threats. It is not entirely clear who first formulated this model. Some authors attribute it to Albert Humphrey, but he himself denied having invented the SWOT model as we know it today.

Instead of trying to credit someone for this useful model, let’s take an in-depth look to understand it:

 

S trenghts

W eaknesses

O pportunities

T hreats

 

STRENGTHS:

Analyze what you have in your company that nobody else has. This is all about the unique selling proposition and what you do better than your competitors. It is important to know this point because it differentiates you from the market. Please don’t forget: When your competitors also have this, then it is not a strength! It needs to be a real differentiator.

For NOKIA, their biggest strength – and what they were known for – was building reliable, durable phone. You could let it drop from 2m height, no scratch. You could drop it in the bath tub, remove the battery, dry phone and battery for a day and then the phone would work again.

Another big strength of NOKIA was their adaptability to change. The company started in 1865 as a pulp mill, produced rubber and cables and developed into telecommunication infrastructures and finally mobile phones. This shows that NOKIA is able to adapt to technological changes and re-invent itself. Great assets in a fast-changing environment.

 

WEAKNESSES:

Weaknesses are the exact opposite of the strengths. Where are you not as good as your competitors? That is crucial, because it reveals where you are vulnerable. What makes you lose profit? Why do prospects buy at your competitors and not from you? Where are your competitors better than you? Where should you improve? Always put it in relation to your competitors: If you think that you are bad, but your competitor is even worse, it’s not a weakness. Actually, that’s a strength, so always consider the aspect in relation to your competitors.

For NOKIA, their biggest weakness was to ignore client feedback and to see developments in the market. When the Smartphone era started, they did not believe that a phone without physical keys would ever be accepted by consumers. They totally ignored the trends and simply kept developing what they thought was the best for the customer.

 

OPPORTUNITIES:

Which opportunities do you see in the market that might benefit you? What developments are favorable for you? Where can you develop your business further with the strengths that you have? Where is an opportunity for you to grow your business further?

The advancement of technology in general is a big opportunity for NOKIA because they have highly qualified staff to adapt to changes. They are able to produce innovations and make the best out of new trends. Also, their involvement in developing technical standards like GSM, 3G and LTE positions them greatly in the market place.

 

THREATS:

Where do you see developments that could destroy your business? What developments do you see in the market that are going to create problems in the future? Are there new regulations that could destabilize your business model? How do you solve them? This is really an important point to always keep an eye on what could threaten your business, because if there is something, it might destroy your whole business and you don’t even see it coming.

For NOKIA’s mobile phone market, Apple was the biggest threat. NOKIA considered the development of smartphones as not consumer friendly and evaluated that this would not be wildly successful. Other competitors like Samsung invested heavily in smartphones which reduced NOKIA’s mobile phone market share from approx. 30% in 2000 to selling their devastated mobile phone division entirely to Microsoft in 2013.

 

The SWOT model has some inherent relationships that you should be aware of:

Strengths and Weaknesses look at the inside of your company. These are internal factors and assets that you can leverage or points that you need to fix. All of those things are in your control. You can manage this!

Opportunities and Threats look at your environment. They are external factors. This is nothing you can directly influence, but you can adapt to changes that you identify. The PEST analysis from part 1 of this series can help you identifying opportunities and threats, because here you look at the company’s environment. You look at developments that are currently going on and identify which ones are favorable or not for you. Opportunities and Threats usually derive from changes in your environment: new laws, new technologies, aging societies, an economic boom etc. Each external factor can be used to your advantage or is a potential risk you need to manage. Learn more about the PEST model here.

The second relationship you need to understand in the SWOT analysis is the relationship between Strengths and Opportunities and between Weaknesses and Threats. Strengths usually help you leveraging opportunities. You may see an opportunity in the market to develop a new product. Your strengths will enable you to implement that idea and differentiate you from your competitors. Same is true for the weaknesses and the threats. Usually your weakness is causing that a threat might take you out of business. If your business model highly depends on e.g. the AirBnB model (which is a weakness), but a law forbids the usage of properties for AirBnB or makes it very difficult (which is a threat), you may lose significant profits or even go out of business. Unless you find a way to manage your risk. For example, you could think about diversifying, going to different locations where your business model still works or think about a new way of positioning your business. This is also a relationship you need to understand.

 

Let’s look at NOKIA once more:

NOKIA had great personnel and was able to adapt to change. Just to give you an idea of the dimensions we are talking about: At its peak in the year 2000, NOKIA alone accounted to 4% of the GDP of Finland! They did phenomenally great!

But they ignored the smartphone trend and once they realized their mistake, it was already too late to catch up. Apple and Samsung already took major parts of the market share and positioned themselves as the go-to providers. NOKIA tried for 3 years to get back into the market, but failed to meet expectations. Therefore, they decided to sell the whole department to Microsoft.

However, if you think NOKIA is not “dead”, you are mistaking. NOKIA bethought themselves to their strengths and focuses on new trends and adapting to new technologies. Today, NOKIA focuses on developing improved technology standards like G5, invests in digital health and Internet of Things. They have a net sales of €23.1 billion in 2017 and employ 103.000 employees in 130 countries. Thus, they did the best possible after realizing their mis-interpretation of the market development: Re-evaluate their current situation and focus on their strengths.

 

How can you use the SWOT analysis for yourself?

Think about which assets you have. Do you have access to certain sources, information or assets that the others don’t have? What do you do different? Are your processes different? Do you generate more value than the others? What is it that you do better than the others? Are you better branded? Do you generate better results?

Do the same analysis for the weaknesses. Then add the results of the PEST analysis: which opportunities and threats do you see in the market?

Usually threats derive from weaknesses which are not solved, whereas opportunities can be generated because of your strengths and that you play to your strengths. That is important to understand. If you turn a weakness into a strength, you can create new opportunities.

If you have several product lines in place or are active in different markets, you should execute the SWOT analysis for each business line and market as they might differ depending on the environment. When you see a development in the PEST analysis that may have an impact on your business, you should also go through the SWOT analysis once more to identify potential opportunities and threats and decide how you want to implement changes to grow your business.

 

If you monitor your business’ SWOT analysis, you can always bounce back – just like NOKIA.