Before we were talking a lot about the Balanced Scorecard. BSC’s strategy map needs a company’s strategic objectives as an input. The question is how are we supposed to get this input? How can one come up with a strategy? One of the business frameworks that promises to help with identifying actionable objectives is SWOT analysis. The SWOT acronym stands for the strengths, weaknesses, opportunities, and threats. Let’s talk about this framework; what is it and is there any benefit of SWOT outside MBA classrooms?
SWOT and its modifications
The visual representation of SWOT analysis is about a chart with 4 sectors – strengths, weaknesses, opportunities, and threats respectively.
Strengths and weaknesses are considered to be “internal,” while opportunities and threats “external.” On the other hand strengths and opportunities are positive, while weaknesses and threats are “negative.”
The same idea can be presented in a different way often called “TOWS” (a different acronym of the same words – threats, opportunities, weaknesses, and strengths) where internal strengths and weaknesses are supposed to be matched with external opportunities and threats.
Bad news. SWOT doesn’t work.
At least not in a real business environment. Authors of the research “SWOT Analysis: It’s Time for a Product Recall”  investigated SWOT empirically. They had an opportunity to interview executives of 20 UK manufacturing companies that used SWOT. The results of the research revealed that:
- SWOT analysis typically helped to generate a long list of various factors (the results of matching sectors of the SWOT chart);
- These factors had a vague, general descriptions, which in most cases were meaningless for a business;
- Found factors were neither prioritized nor verified;
The main consequence was that none of these companies used the outputs of the conducted SWOT analysis for a future strategy design.
There might be a space for a critique of this research, for example 20 manufacturing companies is obviously not a representative sample. Executives could not truthfully say that they were not influenced in any way by the results of the SWOT-based brainstorming. But if you will read an original article, then you will agree that something is wrong with SWOT. It is not a magic pill like it is promoted by strategy consultants!
Why is SWOT so popular then?
Info-products on SWOT
I did a short search on the Internet. These are various guides, forms, templates, and reports based on SWOT. For example, one can find the results of SWOT analysis for virtually any company from the Fortune 500 list. These reports were not prepared by the company’s executives, so as a result they have nothing to do with an actual strategy design process. In most cases these reports work as front-end products that are supposed to attract the attention of prospects to some consulting business.
- Consulting boutiques are the biggest beneficiaries of the SWOT magic pill. They are ready to provide forms to fill in, conduct SWOT analysis and do motivational training on strategy.
SWOT as a magic pills from consultants
The reason for such interest from the consulting business is simple. SWOT analysis allows them to sell consulting services to any company without a deep learning of its products and service. Consultants can focus on asking “right” questions and generating long lists of factors and ideas. If a company cannot do anything with this list (as it was shown in the research  mentioned above), then it is the problem of a strategy execution, which is formally divided from SWOT.
SWOT in MBA classrooms
SWOT analysis is popular in MBA classrooms. The idea is simple: let’s take a company, write a case study and ask students to come up with a strategy by matching weaknesses with opportunities. That is an excellent idea for a company that is functioning on the paper only! But not for a real world!
It seems that lectures pay too much attention to SWOT in the classroom, and as a result managers see SWOT as a panacea to any business problem even a minor one .
If you still not convinced about the danger of such a formal approach in the long term, then check out the “Marketing Myopia”  article that was written back in 1960. Don’t be confused by the title: the author is reasoning about both marketing and a strategy.
SWOT from inputs to the results
I’d like to discuss the SWOT process from its inputs to the bottom line results in seeing where its weak points are and if/how these weaknesses can be avoided.
The first obvious limitation of the SWOT analysis is that it assumes that the business situation is stable enough, so that one could make an abstraction of the real business using the simple four-perspective model. It won’t work so well for industries that have to deal with uncertainty and complexity every day. Are there any company that enjoys this kind of stable environment? Probably, these companies exist not only in MBA cases. But as Levitt showed in his famous article with a railroads case, sometimes executives are not willing to change anything and call it stability.
Another assumption of SWOT method is that inputs are supposed to appear during the brainstorming. They do, but there is no guarantee that these assumptions are correct ones, and what is more important SWOT analysis doesn’t suggest implementing any system that would inform a strategy planner on time that these assumptions, and strategy based on these assumptions are not working.
The SWOT analysis cannot be underestimated as a brainstorming method. It gives a different perspective, which might help a team to come up with some ideas. The magic is supposed to happen when one is matching strengths and weaknesses with opportunities and threats. But it won’t happen by itself. In this sense SWOT doesn’t give us any method to make an informed assumption. Everything depends on the team and its experience. No magic here!
As any brainstorming method, SWOT generates a list of ideas. These ideas will be formulated in vague terms (especially if a company employs an external consultant), these ideas need to be carefully researched, tested and formulated as tangible objectives. These steps are not done by consultants, because he or she would need a deep knowledge of the product and an industry.
Another problem with SWOT outputs is that the resulting ideas are given in a list. It is hard to track back how the idea appeared on the paper and more over, it is impossible to say how generated ideas are connected with each other. Instead of seeing the big picture and interconnection between ideas (something that can be achieved with a strategy map) a company is presented with a long list of vague definitions.
Automation of SWOT
Basically, there is no need for an automation of SWOT. What you need is a paper and pen to put down ideas that you come up while brainstorming. Users of BSC Designer can apply “Framework – SWOT and TOWS.bsc” from “Sample Scorecards” folder of BSC Designer installation to support their SWOT analysis.
It is not only about nice charts on “Strategy map” tab. On the “Business goals” there are factors that were mapped and that can be analyzed with SWOT. Another benefit for users of BSC Designer is a possibility to specify a cause and effect connection between these factors and the results of a SWOT analysis.
Two major flaws of SWOT
Two words “customers” and “education.”
- Where is the customer? SWOT suggests to do an analysis in an impersonal business landscape. Customer is not directly involved in this framework. What strategy can be built without being focused on customer needs?
- We need to learn this before! Most “opportunities,” as well as most “threats,” are not always obvious. They need to be carefully analyzed and tested. Education is a big deal of finding and “seeing” these opportunities, probably this process should be run even before getting the team to brainstorm any ideas.
A bottom line
Does SWOT method helps us to discover something new that cannot be discovered with a general sense? I doubt it. The obvious benefit is that SWOT gives another perspectives to see the business and its environment. This perspective works great for academic exercises in MBA classrooms, but cannot help much with finding a better strategy in complex and uncertain real-life situations that business faces every day.
SWOT analysis depends a lot on the experience of the team that is using it. The framework provides a different perspective, but at the same time it shifts the focus from a customer. The list of generated findings could have been much more useful if these insights could be linked to each other by cause-and-effect connections.
Let’s be realistic, SWOT is a main academic tool used in the quest for a good strategy. Executives will continue to use the method even if empirical evidence shows that it is not working. Hopefully, in good hands this business framework will generate some valuable insights.
What is your experience with SWOT? How did it help you with strategy planning?
- ^ “SWOT Analysis: It’s Time for a Product Recall” Roy Westbrook, Terry Hill (1997) Long Range Planning, 30 (1).
- ^ “Stop SWOT’ing The Small Stuff” Dave Lavinsky, 2013, http://www.forbes.com/sites/davelavinsky/2013/03/20/stop-swoting-the-small-stuff/
- ^ “Marketing Myopia” Theodore Levitt, 1960, Harvard Business Review.