Once a prospect called me – a company needed assistance in devising a new strategy. A woman's voice on the phone asked me whether I use SWOT analysis for my work. And when I answered "no", she said: "Then you've got a chance to have a deal". So, what's wrong with SWOT analysis?
A living fossil of strategic management, the SWOT analysis matrix is credited to Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s. So simple (as all 2*2 matrices) and clear, it became popular among strategists and top managers. I have seen teams using SWOT analysis for various purposes, not just strategic decision-making. But this simplicity has a flip side – the one making this tool valueless.
If you have been living on Mars for last 40 years and never heard about SWOT analysis, it is a matrix in which we consider the strengths (S) and weaknesses (W) of an organization, as well as (O) opportunities and (T) threats that we see in the environment. And if a team can go relatively successfully through S, and T, O, and W always bring some troubles.
First, team members try to turn Ws into Os. For instance, if a company is not as good at fast delivery as key competitors, it may make the company's leaders believe that fixing the delivery problem is an opportunity. But it is not – doing so, we only bring the situation back to normal. Opportunities are the factors that can potentially get a company a competitive advantage.
When a team evaluates Ss and Ws, it ordinary does it looking from today's perspective, and it can bias our perception of reality. For instance, a typewriters' producer at the beginning of the 80s could mention in its SWOT analysis matrix that the firm is good at lean production (strengths) and bad in IT (weaknesses). So, following the SWOT analysis logic, a company should reinforce its strength by investing in production facilities and try to fix the flaws in the IT domain. And this strategy could work – until the second half of the 80s when typewriters were swept away by PCs.
But the most difficult part is the O-quadrant. What does it mean – opportunities? This is the thing different people understand differently. One strategic team mentioned "a mobile application" as an "opportunity". But a mobile application is nothing more than a tool to fulfill some customers' expectations by creating additional value for them.
Strategic workshop facilitators love to think about opportunities in a brainstorming mode. Top executives gather somewhere far from their offices and try to invent a new, successful future for their enterprise. But new ideas and new opportunities rarely come to mind on command, especially if the participants' brains are overwhelmed by operational tasks. So instead of brainstorming, I send top executives to the customers. Immersion in customers' experiences is always interesting and fruitful for them, and sometimes awakening.
And the last flaw of the SWOT matrix is that it is believed that the development strategy lies at the intersection between O and S. If a company has strengths that can help it use the opportunities, that is what should be done. On the one hand, it is logical and sensible. But, on the other hand, such an approach highly unlikely may help a business devise a disruptive strategy because it limits itself in the Procrustean bed of its current strengths.
I prefer to start with customers' needs and values a company may create for them. It is not an easy way, but, from my experience, it works much better than any 2*2 matrix.
You can watch the video versions of my articles on my YouTube channel here
Don't forget to subscribe at the links below: