Many business owners spend most of their time developing strategic plans, overseeing day-to-day operations and, of course, putting out fires. Yet an underlying source of both opportunity and trouble can be human resources (HR).

Think about it: The performance of your HR department determines who works for you, how well employees are supported, and to what extent the business complies with laws and regulations pertaining to employment and benefits. One way to ensure that your strategic HR decisions are likely to yield positive, cost-effective results is to apply a strengths, weaknesses, opportunities and threats (SWOT) analysis.

Strengths and weaknesses When used for general strategic planning, a SWOT analysis typically begins by identifying strengths — usually competitive advantages or core competencies that generate value, such as a strong sales force or exceptional quality of products or services.

Next, you pinpoint weaknesses. These are factors that limit business performance, which are often revealed in comparison with competitors. General examples include a negative brand image because of a recent controversy or an inferior reputation for customer service. When applying a SWOT analysis to HR, think about that department’s core competencies. These include filling open positions, administering benefits, and supporting employees who need help or are in crisis. What are its strengths? What are its weaknesses? You can use various HR metrics to put a finer point on these relatively broad questions.

For example, calculate “time to hire” to determine how long it’s taking to fill open positions and “early turnover” to see how many new hires you’re losing in the first year of employment. External conditions The next step in a typical SWOT analysis is identifying opportunities and threats. Opportunities are favorable external conditions that could generate a worthwhile return if the business acts on them. Threats are external factors that could inhibit performance or undermine strategic objectives.

When differentiating strengths from opportunities, or weaknesses from threats, ask yourself whether an issue would exist if your company didn’t. If the answer is yes, the issue is external and, therefore, an opportunity or threat. Examples include changes in hiring demographics or government regulations regarding benefits.

How to apply it Let’s say you determine, by benchmarking yourself against similar businesses, that “time to hire” is a strength. This means that your HR staff is skilled at placing targeted, effectively worded ads; working well with recruiters; and interacting in a timely, efficient and positive manner with applicants. In today’s environment, a strong hiring mechanism is undoubtedly a competitive advantage. If hiring and retention are weaknesses, however, you could be headed toward a crisis if you lose too many employees — particularly in today’s tight job market. Opportunities and threats are important as well.

For example, if your company seeks to strengthen employee retention through expanded benefits, you’ll need to anticipate the opportunities and challenges for your HR staff. You may need to invest in training and upskilling to make sure that they can effectively communicate with employees about the broader package and administer the specific benefits therein. And there are likely external threats to consider.

For example, an aggressive competitor may begin poaching your employees. Evolving tax regulations and compliance requirements for health and retirement benefits could catch your HR staff off-guard if they’re unaware of the changes.

Advisable and feasible Sometimes business owners assume that HR will run itself while they dedicate themselves to growing the company. But the truth is that HR departments need to set strategic goals, just like the business does.

A SWOT analysis can help ensure that these goals are advisable and feasible. © 2023