Is There any Benefit of SWOT Outside MBA Classrooms?

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 is really popular, but is there actually 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.

SWOT chart includes 4 standard perspectives

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.”

SWOT chart external and internal perspectives

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.

TOWS chart SWOT alternative

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” [1] 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 [1] 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 [2].

If you still not convinced about the danger of such a formal approach in the long term, then check out the “Marketing Myopia” [3] 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.

SWOT inputs

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.

SWOT process

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!

SWOT outputs

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.

Here is how SWOT and TOWS templates look like in BSC Designer software

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?

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Balanced Scorecard : Put it all togetherIn this article you have learned about the benefits and problems of the SWOT analysis method. The toolkit of an executive never consists of just one tool.

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References

  1. ^ “SWOT Analysis: It’s Time for a Product Recall” Roy Westbrook, Terry Hill (1997) Long Range Planning, 30 (1).
  2. ^ “Stop SWOT’ing The Small Stuff” Dave Lavinsky, 2013, http://www.forbes.com/sites/davelavinsky/2013/03/20/stop-swoting-the-small-stuff/
  3. ^ “Marketing Myopia” Theodore Levitt, 1960, Harvard Business Review.

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Strategy and KPIs Scorecard Expert | Speaker | CEO. Aleksey Savkin (LinkedIn, @bscdesigner) is helping companies to better formulate their strategies and make the process of strategy execution more tangible with KPIs. His areas of expertise are Balanced Scorecard, Key Performance Indicators, business performance management. Aleksey is a frequent speaker at conferences; the author of a number of articles and books on Balanced Scorecard. New book by Aleksey: 10 Step KPI System

Posted in Executive’s
  • Gennady Shenker

    Aleksey, no offense but calling non-random 20 interviews “a research” is quite an exaggeration. BTW, SWOT is neither a scientific method nor instrument. Similarly to others, e.g. 3 or 4 or 5 Cs, 4Ps, 5-Forces, etc., it’s just a useful framework for PRELIMINARY SYSTEMATIC gathering of information. That’s it. No more. If done well, it provides a good initial data for further analysis. If done badly: GIGO.

  • Gennady, agree on your points. Still there is a big doubt about the benefit of SWOT for those who are inside the business. SWOT might be good for external (from the view point of researchers/students/novices) analysis of the company, but what about experienced professionals inside the business? Can an executive with 10+ years experience in the company be surprised with the results? I was following the comments on LinkedIn. Some people agree and suggest another acronym for SWOT (SWOT – Simple Waste of Time), others claim it to be the most useful business tool. For my opinion, too much benefits that are ascribed to SWOT are actually originated from the experience of the company, not from the framework itself.

  • Paul M

    Aleksey, SWOT is but one analysis tool. Most MBA programs introduce students to many tools and techniques to help size up different cases. I would expect any consultant, or MBA student to have the sense to apply the appropriate tool to the job while understanding that any tool has limitations, particularly when it is misapplied. I agree with Gennady that SWOT is a useful framework for gathering information, it is not a strategy generator, nor do I believe was it intended to be. One of the limitations that you point out is that it does not track the strategic map, to show where the strategy came from. That in my opinion would require a different tool. However, the information perspectives generated from SWOT can provide input for use with other processes.nnAn assumption which you make is that SWOT analysis is tied to brainstorming. Many of the criticisms you raise are related to the weaknesses of brainstorming rather than the analysis framework that SWOT provides. SWOT can be done without brainstorming, in a manner that includes customer input, in a manner which tests assumptions, and in a manner that uses SWOT after an environmental scan has been done, not as an environmental scan itself.nnOne of the advantages of the framework relates to your comments about executives with experience not learning from the use of SWOT. Perhaps. However, executive experience is unique to the individual, and perhaps tempered by group think. A SWOT analysis, or the use of another framework, should raise differences of perspective, should surface different views on what are strengths, weaknesses, opportunities and threats – it is these differences that can provide insight. Because the differences are based on different assumptions drawn from experience , a thorough SWOT process would also surface the assumptions being used. These assumptions, in a thorough process would be challenged as the analysis proceeds and as strategy is developed.nnWhen I have used SWOT, it has always been seen as a small part of a larger process in strategy development, not as the be all and end all of developing a strategy. One of the criticisms of SWOT that you did not raise, comes from the Appreciative Inquiry community. The concern is that concentration on weaknesses and threats leads to a “fix it” approach rather than one that discovers what is already working and strengthening the conditions that leverage successful achievement. nAnother concern with SWOT on its own, is that opportunities and threats are often outside of the perspective and experience of the executives. The classic example of this was that the Swiss watchmaking industry did not see a threat from a small electronic calculator company called Texas Instruments because their perspective was instead focused on their strengths in traditional watch making and marketing.

  • Hazelhill, thank you for such a detailed comment! nnnYou mentioned that in your case SWOT was just a small part of a larger process in the strategy development. Could you please share what other parts did you use?

  • I’ve used SWOT in every Strategic Plan for the last 25 years to varying degrees of success – I like to mix it with a PEST. It is a very simple tool that has the benefit of being visual and easy to communicate with stakeholders. As a starting point I really don’t understand what could wrong with identifying your strengths and weaknesses. If there is one flaw to it is that it is rarely a surprise. Everyone is well aware of these things for the most part. nnGood headline though made me stop and read. Decent article but I think you’re over analyzing this simple and effective tool.nnhttp://www.edgeonstrategy.com

  • Manuel Ramos

    Hello Aleksey,nIt all depends on the process. nIn my case I define external and internal variables to analyze. Usually, 5 of each such as “Economics, Politics and Legal”, “Competition”, “Customer/Market” etc (external) and “HHRR”, “IT”, “Product Portfolio”, “Marketing”, etc. Then we analyze each variable… deep not only at the workshop but also during the previos weeks (pre-work). During the workshop we finish the data and fact analysis to draw conclusion for each variable. We prioritize the conclusions and take the external variable ones to the SWOT as Threats or Opportunities. The most important internal variable conclusions we take them to the SWAT as strengths or weaknesses. nThis is far from a brainstorming process because the data and fact analysis for each variable are just that “data and facts”. Then we draw conclusions and prioritize. Also, we take advantage of executives experience since they are the ones who actually fill in each variable with facts and data first and them draw the conclusions. Finally, the process it self, as part of an strategic planning process is very valuable and there is team work, decision making, agreements and prioritization. So, if used well, is not a “simple waste of time”.nBut the SWAT analysis is only part of a further process. Further prioritization is needed before defining strategy. After all defining strategy is about what to do as much as what not to do to be different and SWOT plays it role in the process.nEven though I don’t agree with your comments I understand where it comes from and I find it fascinating. I also appreciate the discussion :). Take care and thank you,nManuel

  • Hi Manuel! Thank you a lot for the valuable comment.

  • Sam, thank you for your comment!

  • Ahmed Seleem

    Aleksey, I think all critiques are useful to consider when applying SWOT effectively and improving its process but not stopping use it.

  • Thank you, Ahmed!nn”to consider when applying SWOT effectively ” nnThat was the purpose of the article. Anyway, it doesn’t matter what acronym we use, the goal is to achieve desired results.

  • Karren Barlow

    I believe that SWOTs are very beneficial. I have recently found a website that has a great Personal SWOT Analysis Example and it is very easy to use! I would definitely recommend checking it out!

  • Gennady, I agree on your points. Still, there is a big doubt about the benefit of SWOT for those who are inside the business. SWOT might be good for external (from the view point of researchers/students/novices) analysis of the company, but what about experienced professionals inside the business? Can an executive with 10+ years experience in the company be surprised with the results? I was following the comments on LinkedIn. Some people agree and suggest another acronym for SWOT (SWOT – Simple Waste of Time), others claim it to be the most useful business tool. For my opinion, too much benefits that are ascribed to SWOT are actually originated from the experience of the company, not from the framework itself.

  • Have a look at these SWOT diagram templates . These are very useful to understand what a good SWOT analysis would look like. There are swot analysis examples of Apple, Nike, Google and even McDonalds.

  • Hi Shalin, these are nice templates, good for the presentation purpose. A good starting point, but the expertise of the team is much more important.

  • I agree :)

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