Strategy and SWOT

Part of the difficulty many people experience when trying to develop a strategy is the sheer challenge of getting your mind around the complexity of the general environment, the industry environment and the specific circumstances of a business.  So often we turn to models to conduct an analysis.  They help us create structure where there appears to be no structure.

One of the most commonly taught models of environmental analysis is the Strengths/Weaknesses/Opportunities/Threats (SWOT) analysis.  It’s simple, easy to remember and easy to communicate.  It’s a great way to start.  However, it’s also the one analysis that is most often mis-understood and incorrectly applied.  Often the strengths and weaknesses sound identical to the opportunities and threats.   After reading several hundred SWOT analyses in student reports, mid-term and final exams, I can tell you that this concept is more often mis-applied than not.

So what is a SWOT?  It is a matrix model that looks at an organization’s Strengths and Weaknesses and its’ Opportunities and Threats.  So far so good.  But most people don’t grasp the idea that opportunities and threats are external to the organization. In other words, they are the result of what’s happening in the environment, due to general changes in social, political or economic landscape, or more specific changes in the industry.  Strengths and Weaknesses are internally driven. They are based on the resources available to the organization — its finances, knowledge, skills, assets and people.    Often SWOT analyses don’t tell us much because they aren’t effectively done.

The second reason SWOTs aren’t often that useful is that they are completed at a surface level.  To really understand the internal and external environment of a business, you need to dig pretty deeply into the data. A cursory look at information will provide a cursory SWOT analysis.  It’s almost like the SWOT is something people feel like they need to check off in the planning process.  That’s done.  But it doesn’t often lead to implications or actions later in a strategic plan.  The problem with the SWOT is that it appears to be pretty simple.  Yet to do one well takes a lot of research and a deep understanding of many factors.  Part of me wonders if we should be teaching this model at all.  It seems to encourage people to avoid the hard thinking that is required to really understand a business environment.

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