Dr. Heinz Weihrich introduced the world to SWOT in his 1982 paper titled: The TOWS Matrix, A Tool for Situational Analysis.
The simplicity and power of the tool, when coupled with the slight change in the original acronym from "TOWS" to "SWOT" to make the technique sound more appealing than "toes", has guaranteed the popularity and enduring use of the concept.
That said, the tool is not being used correctly, in our experience. We want to discuss SWOT and how to do it right.
The Concept that Powers SWOT
To use Dr. Weihrich's tool properly requires an understanding of the fundamental concept embedded in it. The concept is that strategy development (i.e. choosing a course of action) is dependent on understanding the external factors impacting current strategy (i.e. course of action). In other words, SWOT doesn't work without a good common understanding of existing strategy, something that is overlooked by too many planning teams. Too often, it is assumed that current strategy is well understood. In our experience, it seldom is.
Weihrich's matrix provides us with a powerful visual of the relationship among strengths and weaknesses, (being factors under our control), with those of opportunities and threats, (being external factors over which we have no control).
This is the essence of strategy development; choosing a course of action (a strategy) to address an external factor.
The matrix has 4 quadrants. Each quadrant contains a big question mark. The power of SWOT is that it produces a visual which allows us to see the choices of action which can arise given 4 very different scenarios.
But remember this. There is always a 5th scenario. We can decide to do nothing and press on with the way we are currently doing the activity we have subjected to SWOT analysis.
SWOT is about understanding whether changing current strategy is necessary. Therefore, it is critical to make certain that current strategy is understood.
To demonstrate how the quadrants work, let's look at the upper left-hand quadrant. In this quadrant, we are looking at an activity that is considered a strength (e.g. customers love our product) and its relationship with an opportunity (e.g. there is a lot more demand for the product than we originally thought). The juxtaposition of the strength with the opportunity makes us think: "What action should we take?"
Or, looking to the bottom right-hand quadrant, which positions a perceived weakness (i.e. our costs are too high) against a threat (i.e. a competitor can provide the same services as us but at a much lower cost), the same question arises. "What action should we take?"
That's how Dr. Weihrich intended SWOT to be used; to gain insight on strategy choices.
Stop Using SWOT to Create Lists
We see SWOT being used to create these mind numbing laundry lists of observations, such as those shown in the example provided.
These laundry lists do nothing to provoke insight on choices of action because everything from the unimportant to the critical seems to be listed.
If you look closely at each quadrant, you can see each covers a broad range of issues. For example, in the Strengths quadrant, we can identify subjects ranging from finances, research, production, and marketing to technology and management.
If we look at the issues listed in the Opportunities quadrant, we can see topics ranging from customers, markets, and competitors, to industry dynamics and participants.
No wonder folks don't know what to do with these lists! They cover too much territory!
Our advice: stop using SWOT to create lists! Start using SWOT to understand very specific issues.
Stop Using SWOT as the First Step in Strategic Planning
Stop using SWOT as the first step in strategic planning. We know it is a popular practice today but it can lead to deeply flawed conclusions. Here's why.
Planning teams jump into SWOT on the assumption that there is a shared understanding of existing strategy; being the way choices of action are being implemented. This is seldom the case. How can strengths and weaknesses be assessed if there is no shared, deep understanding of the strategies being assessed?
We recommend that the first step in any planning process should be a detailed analysis and presentation of the existing strategies to ensure all decision-makers share a common understanding of the way things are currently done.
Strategic planning practices have focused too much on the development new strategy rather than on understanding existing strategy and the external factors impacting it. See Strategic Planning: Where's the Beef?
Doing SWOT Right
If you want to do SWOT right, focus the technique on something very specific and break SWOT into distinct steps.
To achieve a specific focus, don't apply SWOT to "the business" or "the department". Break down the business or department or function into the specific activities being managed and then identify the strengths and weaknesses for each of the activities. Make sure everyone involved in the planning process is on the same page with how those activities are being implemented.
Once you have identified specific strengths and weaknesses for specific activities, then you can ask yourself: "What external factors outside our control are the likely cause of our opinions on the strength and weaknesses of the activity?"
In other words, you can use an assessment of existing strategy (i.e. choices of action and activities) to identify external factors.
This is because the assessment of a "strength" or a "weakness" is always made by a reference, usually intuitive, to an outside factor; e.g. "Acme's sales team is so much better than ours". The challenge is that it is not always easy to immediately identify the rationale for labelling something as a strength or weakness.
The strengths/weakness review, done properly, now enables you identify and prioritize in order of importance the specific external factors you decide are the ones that need to be studied further.
Once you truly understand the relevant external factors, that understanding will invariably drive an informed conclusion on whether the specific activity or strategy being impacted by it needs doing differently.
Follow this approach and SWOT can become a very powerful tool that enables informed decision-making on strategy. That's how Dr. Weihrich would want it to be used.
For more on strategy, see The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization