The SWOT Analysis (strengths, weaknesses, opportunities, and threats) is a strategic and business planning tool that resides in just about every PowerPoint deck created for such purposes. But have you ever been left with that feeling that something is missing? Has the SWOT Analysis uncovered a strategic insight or helped your executive team formulate strategy? Far too often, the SWOT is just another one of those brainstorming tools used to bring issues to the surface.
Let's talk about 3 ways to get more out of your SWOT analysis:
1.SWOT should be pluralized
SWOT Analysis is often developed for a company or organization to assess the current situation from both an internal and external perspective. But what far fewer executives teams do is pluralize their SWOT analyzes and look at the components their business from these perspectives. Almost every business of composed of different lines of business - different segments of customers, different locations of operations, different product categories…
When you prepare separate SWOT analyzes for each line of business, you will begin realizing that certain areas of your business are healthier and growing at different rates than others. This will help make business strategy more obvious than mixing together all lines of business into one single SWOT Analysis.
2. Conceptualize the boxes
Often I see one of two things in the SWOT analyzes I review. On the one hand, I have clients who have gone to pain staking lengths to make sure they have a balanced list of factors in each of the four boxes. On the other hand, I have another group of clients who struggle with filling in factors for one or more of the boxes.
Once all the factors have been identified and discussed, narrow the list in each box to only those that represent strategic drivers of the business. Sometimes 3-5 are enough and the list is rarely longer than 10 items.
Then ask two questions of your executive team:
First, do my Strengths outweigh my Weaknesses for this particular line of business or is it the other way around?
Secondly, do my Opportunities outweigh my Threats or vice versa?
Imagine the size of the boxes changing in a visual sense. There are four possible outcomes by answering these two questions.
3. Your SWOT guides strategy formulation
Each of those four conceptual SWOT Analysis profiles leads to four different strategic directions.
When a line of business represents a net Strength and net Opportunity – the strategy is Attack. In other words you will look to develop different growth strategy alternatives. Such strategies might include organic growth, mergers and acquisitions, licensing, franchising, new products, new channels etc.
When a line of business represents a net Weakness and a net Threat – the strategy is Retreat. There are fewer alternatives available in this situation. The tendency is to default to a turnaround strategy that often includes a growth plan, which is not impossible, but often unrealistic in these situations. More realistic strategies might be to divest of the line of business, if you can, or close and liquidate the business, if you have to.
When a line of business represents a net Strength and a net Threat – the strategy is Defend. Many mature businesses fall into this category where they are making money but it’s a slow growth market. The strategic alternatives focus on profit maximization, defending market share, and often doing nothing.
The last profile, a line of business that is represented by a net Weakness and a net Opportunity is perhaps the most uncertain. Many startups land in this quadrant. They are full of promise, but as to which direction the businesses go moving forward is highly uncertain. Let’s call this quadrant the Reinforce strategy. Reinforcing strategies could be any of the strategies we discussed in the other three categories, the point being, that a new strategy is likely required.
If you found these ideas interesting and what to learn more, check out our course on Strategic Management.
Wow! Very well done! Superb both the material and Mr. Cook! Excellently crafted and presented. -Richard Dandan (Senior Accounting Specialist at National Food Authority)
A very good and thorough introduction to the concepts to be understood in the setting of strategy. The worksheet provided is a particularly helpful take-away for implementing the concepts presented in the course. - Richard Schultz (CFO at SoMedia Networks )