S’wot with SWOT Analysis?
SWOT analysis is the most commonly used tool of strategic analysis, but unfortunately also one of the most misunderstood and misapplied. In this article we will look at the use and value of SWOT analysis, consider some of the ways it is often misused by organisations, and suggest some best practice tips that will immediately improve the quality of your SWOT analysis.
SWOT analysis was originally developed by Albert S. Humphrey in the 1960s, and is a technique for considering both internal factors – Strengths and Weaknesses of the organisation – and external – Opportunities and Threats. When undertaking SWOT analysis, a team (or sometimes individual) will brainstorm the answers to the following questions, among others:
- What advantages does your company have?
- What do you do better than anyone else?
- What unique or low-cost resources can you draw upon that others can’t?
- What do other people in your market (stakeholders) see as your strengths?
- Why do customers choose your products or services?
- What could/should you improve?
- Where are you weaker than your competitors?
- What are other people in your market (stakeholders) likely to see as weaknesses?
- What causes you to lose sales?
- What opportunities exist for you to capitalise upon?
- What trends are happening in your industry/sector?
- What weaknesses do your competitors have? Do these provide an opportunity?
- What threats to your core business exist?
- What are your competitors doing, and how does this affect you?
- Are technological changes threatening your business?
- Could any of your weaknesses be an opportunity for any of your competitors?
Common Problems with SWOT Analysis
Because of its simplicity, SWOT analysis is the most commonly-used tool of strategic analysis. Unfortunately, however, the majority of organisations don’t fully understand its benefits and limitations, and this significantly reduces its value and, in many cases, poses a real and tangible risk to the business. In our experience, it is the third most common reason for the failure of a strategy to achieve its objectives (behind the failure to accurately identify the organisation’s key beneficiary, and a failure to implement the strategic plan effectively).
By far the most common issue with SWOT analysis is that teams brainstorm all of their perceived strengths, weaknesses, opportunities and threats, but make little effort to critically assess and confirm these. When reviewing a client’s strategy, we have often been presented with a SWOT analysis that is many pages long, and that includes all of the factors the organisation believes impact upon its strategic success – unfortunately this simply serves to confuse rather than to enlighten and empower.
We recommend that an organisation start their SWOT analysis by brainstorming all of their strengths, weaknesses, opportunities and threats. But, we recommend that they then must follow a process of critically assessing these with the objective of whittling them down to the top (up to) 6 most powerful or important factors under each category. This provides a focus on only the most critical internal and external factors that must be addressed.
This approach does however lead directly to the second-most common issue with SWOT analysis however. An inability on the part of the organisation to accurately identify its true and most significant strengths, weaknesses, opportunities and threats.
As an example, I have never failed to see ‘People’, ‘Our Staff’, or ‘Our Team’ immediately identified as one of top 6 most powerful strengths identified by an organisation during its SWOT analysis. But due to this very fact, it is generally an incorrect identification.
If every organisation has good people (they generally do by the way), how can this be a top strength of your organisation, and one that will provide you with a means by which to compete more effectively? Of course it is right to recognise the contribution of your staff to the success of your strategy, but unless they provide you with a real, tangible advantage that is not available to your competitors, this should not be one of your top 6 strengths. Sometimes, of course, it is right that ‘People’ appear as a Top 6 strength – if they have unique skills that enhance your organisation’s capability for example – but unless they give you a real, tangible advantage over your competitors, they should not be considered a key strength.
Regardless of these issues however, the biggest problem with a SWOT analysis is that it is generally believed ‘sufficient’ by most organisations. It is staggering how many organisations bring a team together for, perhaps, half a day (with little to no preparation) to brainstorm their strengths, weaknesses, opportunities and threats, and then proceed to develop a strategy and commit resources based upon the ‘insights’ that their ‘strategic analysis’ has given them.
A SWOT analysis is either a good starting point – a way to kick off discussions and debate – or a good way of representing the factors at play. But to be effective, and indeed accurate and defensible, it must be backed up with, or prepared for by, much more rigorous environmental and company analysis including Porter’s 5 Forces, PESTEL etc (which will be explored in a later article). And, it must be approached honestly. There is no value, and significant risk, in identifying incorrect strengths, weaknesses, opportunities and threats. Senior management teams should tread with extreme caution, and make sure they see the more detailed environmental and company analysis before committing resources, or to a strategy, based on a simple SWOT analysis.
How can a SWOT analysis be improved?
There are a number of ways in which a SWOT analysis can be improved.
Firstly, a SWOT analysis should follow extensive environmental and company analysis using such tools as Porter’s 5 Forces and PESTEL analysis, among many others. These techniques will be explored in more detail in a later article and through our free Strategy Masterclass Series.
Secondly, the strengths, weaknesses, opportunities and threats identified during initial brainstorming should be refined and challenged until only the (up to) 6 most powerful and important of them remain. This ensures a focus only on those things of significance and importance.
Thirdly, the SWOT analysis should be honest. There is little value in identifying factors because they are ‘popular’ or ‘uncontroversial’ .