The SWOT—a listing of Strengths, Weaknesses, Opportunities, and Threats—may be the most common of all strategy tools. Developed by Albert Humphrey in the 1960’s, the SWOT has become ubiquitous in both for-profit and non-profit planning.
The SWOT as it’s used now is different than the SWOT Humphrey developed. The way it’s used now is to develop four lists:
- things we’re good at
- things we’re not good at
- things in our environment (particularly market opportunities) we could take advantage of
- things in our environment that could harm us
The first two are internal and controllable by the firm. The second two are external and can’t be controlled by the firm (although the firm can respond to them).
The first—Strengths—is focused on the present and is often considered in contrast to our competitors. So if, for example, we have a particularly attractive brand name, or an exclusive patent that produces something the market values, those would be considered Strengths. If our staff is strongly motivated, or senior management is particularly good at adapting to new circumstances, those would be Strengths.
The second—Weaknesses—is also primarily focused on the present but, when a SWOT analysis is well done, predictable future conditions of the firm are considered as well. So, for example, having an effective CEO nearing retirement age could well be a Weakness (even through that CEO is currently a Strength). Weaknesses include elements of the firm the public and customers might know about (like a product that has fallen out of fashion) as well as things they may not know about (like a high debt-to-equity ratio in a privately-held firm).
The third—Opportunities—includes market opportunities that the firm is currently exploiting but could exploit more, as well as opportunities that they are not exploiting. Developing this list is, typically, a wide-ranging discussion of possibilities. The point is not to list opportunities that the firm is poised to take advantage of. (That comes later.) Instead, the goal is to list all the opportunities currently existing—or likely to exist in the future—in the industry the firm currently operates in, and in “nearby” industries.
Depending on the world views of those doing the SWOT, the fourth—Threats—can end up being a very long list. Recessions and natural disasters threaten every firm. An industry can enter into a long and apparently irreversible decline. Listing possible future macro-disasters that effect the entire economy or an entire industry is rarely a useful process in this part of the SWOT analysis. It’s usually much more useful to try to develop a list of specific threats that will likely harm the firm and its mission in the foreseeable future.
Problems with SWOT
There are two main problems with SWOT analyses as they are currently done. The first concerns the personal dynamics between the people doing the SWOT, and the second concerns the challenge of using the SWOT analysis once it’s completed.
First, the personal dynamics. Typically, a SWOT is conducted by a group of senior people from an organization, often as part of a strategic planning retreat. The problem arises because this is not a risk-free experience. What person is going to say that one of main weaknesses of the organization is one of the people sitting in the room? If the CEO thinks the Head of Sales is underperforming, they are not going to say so in front of the group. If the Head of Sales thinks the CEO is holding the company back, they are not going to say that either.
Second, most SWOT analyses end once the group has reached a consensus of the content of the four lists. This is particularly likely to happen if the development of the lists has been difficult or contentious. But what good is a list? A strategic exercise is only useful if practical plans emerge from it. A list—no matter how accurate—is not a plan. Fortunately, there is a follow-on step from the SWOT that is designed to do exactly that—use the SWOT lists to develop useable plans. This second step is called the TOWS Matrix.