SWOT analysis
may be the most frequently used analytical tool in business; the preserve of
management courses the world over, rolling off the corporate tongue with ease.
But it is also the most frequently under-utilised analytical tool, all-too-often
met with a collective rolling of the eyes, with an output that all-too-often ends
up as an appendix in the strategic document to which it is contributing.
I have
seen SWOT analysis taught and used in academia, business, and the military, and
have been consistently underwhelmed with what invariably becomes a glorified
bullet-point list. This article recognises that ‘analysis’ is the operative
word, and takes it to the other end of that spectrum, where a comprehensive
analytical approach pulls SWOT from an appendix to front-and-centre in the
planning process. The approach – which contains few revelations – is built-up throughout
the article, through three stages: What? So What? Now what? It takes the
recognisable four-box matrix to something that resembles the model below, with
SWOT at its heart working through stages of analysis to produce a comprehensive
plan:
The
first stage in undertaking this more comprehensive SWOT analysis is essentially
the exercise in its entirety in most instances: identify your strengths and
weaknesses (internal), opportunities and threats (external). To develop this
from an arbitrary bullet-point exercise to an analytical one, there are a
couple of principles from which to work. Firstly, incorporate a number of other
tools to provide frameworks for identifying S,W,O and T, immediately providing
structure to your brainstorming effort. The originator of SWOT, Albert
Humphrey, structured the analysis around six programme-planning categories of:
product, process, customer, distribution, finance and administration. We
have far more tools in our arsenal, and the below all complement SWOT:
·
Value
Chain Analysis: for identifying internal S&W, e.g. firm infrastructure, HR,
technology, procurement, logistics, operations, marketing & sales, service.
·
Porter’s
5 Forces: for exploring S,W,O&T in your specific industry based on
competition, the threat of substitutes, the threat of new entrants, and the
power of buyers and suppliers.
·
PESTLE
(or STEEPLED or PRESTCOM): to identify O&T based on political,
economic, social, technological, legal, environmental, ethical, demographic and
geographical dimensions.
The second principle with
which to work adds real analytical value by considering further dimensions to
each factor identified in these frameworks, namely: the extent, relevance/impact,
probability and timeliness of each. This is fundamental to a worthwhile SWOT
analysis. To what extent is a strength a strength, and how relevant is it? What
is the likelihood of a threat being realised, what impact will it have and when
will it happen? It’s also worth remembering that strengths should focus on your
real core competencies and areas of competitive advantage – put the definitions
(here and here) on the wall, and if a
competitor does something better than you, think twice about the extent to
which it is a strength.
Visually,
in order for this to be most impactful and to aid analysis, it is necessary to present
as many of these dimensions as you deem relevant. The simplest way is to just rank
the list, with the strongest strengths at the top; but, here are some other
ideas:
1.
Tabulate: with each factor (e.g.
strength 1, strength 2) on a row, use columns to record the extent, relevance/impact, likelihood and timeliness (e.g. on a scale of 1-5). This has the
advantage of being straightforward, and the table can also quickly be sorted by
any of the variables.
2. Spectrum/timeline: use a spectrum, from
strongest to weakest, or a timeline, and plot factors along the line using
height above, and depth below the line to indicate probability, impact, or
whatever you deem relevant.
3. Bubble
chart: with the
size of the bubble representing the extent of the S/W, the X-axis representing impact,
and the Y-axis representing relevance/probability. This is a great way to
visualise a number of dimensions all at once.
4. Probability-impact
matrix:
similarly, the familiar probability-impact matrix can be used particularly
effectively for O&T. On this matrix, impact is on the X-axis and probability on the Y-axis, with each O&T plotted accordingly. The most important will cluster in the same area (shaded red).
In reality, the method that you use will be determined by the variables that you deem to be most relevant, but the importance of visualisation should not be underestimated both in terms of its utility in the analysis process, and also for presenting your findings: compare the bubble chart to the bullet-point list – which is more impactful?
So this
first step has already taken us beyond where most SWOT analyses end: we have
added analytical value by using frameworks to brainstorm S,W,O & T, and
have arranged those in such a manner that we can easily identify which are the
most significant, impactful and timely.
Stage 2: So what?
This next crucial question can be answered by exploring how all of these factors are related – for example the strategic fit between a company’s strengths and the opportunities in its external environment – and this is where SWOT as an analytical tool starts to come to life. This stage essentially breaks down to four or five questions intended to identify particular approaches to opportunities and threats:
This can be done in painstaking detail: taking each question in turn and considering each factor against each other. Another set of matrices can be used, one for each question, laying out, for example, all of the strengths and all of the opportunities, ranked by their extent (as identified previously) on a scale of 0-5. A similar score (0-5) can be given for the extent to which each strength can contribute to each opportunity, with the numbers multiplied together to give an overall score. More simply, + signs and 0s could be used to identify where there is a link. Both approaches are shown below:
In
the first example, S1 is the greatest strength and O1 is the biggest opportunity;
but S1 can make no contribution to O1 and hence is of limited relevance. Here,
S1-O2 and S3-O1 are identified as the single areas that can most readily be
capitalised upon; and it is also important to identify combinations of
strengths that contribute to an opportunity (e.g. S1/2/3-O2). Adding up the
totals in the O rows will help to re-assess what the best opportunities are,
namely the ones to which most strengths can apply, and also to re-assess what
the most useful strengths are, namely those that contribute to the most
opportunities; with the above now showing that perhaps O2 is the one that can most
readily be capitalised upon.
As
well as a score, each combination of factors should also result in a statement,
outlining how they are related and what that means, or the ‘so what?’ For
example: “Our company has a strong track
record of delivering power generation projects in a number of African countries
(S2), where there is a growing market for power generation equipment across the
continent (O2) – we will capitalise on that growth by leveraging our
reputation, existing relationships and distribution channels to expand across
the continent.”
Now the company may have planned to capitalise on that opportunity anyway, but what this process has done is help to clarify where the priorities lie: which opportunities is the company best-placed to exploit? Which weaknesses need addressing most urgently? The end point of this stage combines the generic approaches within each segment of the matrix, shown below, with the statements, ordered by priority as established throughout this stage. Again, this can be presented as simply as a list of actions, or it can be shown on a timeline – this is particularly useful, as shown below, for planning.
So
we have now explored the relationships between all of the SWOT factors, prioritised these, and
developed a series of intent statements that demonstrate how we can leverage
our strengths and invest in our weaknesses to capitalise on opportunities. Now what?
Stage 3: Now what?
It
is at this stage that the notion of strategic fit is taken a little further:
exploring the extent to which the company can match its resources and
capabilities to the external opportunities available to it, or to mitigate the
threats facing it. The previous stage prioritised a series of intent
statements that outline how, where and when the company can best deploy its
strengths, or where it must be most wary of its weaknesses – now it’s necessary
to look at how to enact these statements, and how much should be invested in
each relative to the other opportunities and threats identified.
One
method that is useful when considering business development plans, specifically
talking about capitalising on opportunities, is to consider the ARCs that are
required: Assets, Relationships and Capabilities. Capitalising on each
opportunity and mitigating each threat will require various combinations of
ARCs; things such as:
Assets, e.g. finance, physical space, machinery, intellectual property.
Relationships, e.g. partner organisations, customers, suppliers, industry bodies, government bodies.
Capabilities, e.g. skills and human resources, organisational capabilities.
Approaches within each segment:
S-O
ARCs
|
Focus
on maximising what is already in place; investing to consolidate
strengths.
|
S-T
ARCs
|
Focus
on reinforcing existing resources where necessary to defend against threats.
|
W-O
ARCs
|
Invest
in internal barriers to growth, things that are holding you back.
|
W-T
ARCs
|
Address
critical issues in your business – some will be urgent. Divest others.
|
So for
each of the statements made in the previous stage, it is necessary to identify
what is needed in order to make that statement a reality. This now forms the
basis of a detailed action plan, grounded in our recognition of the most
significant strengths, weaknesses, opportunities and threats, the relationships
between those, and what we need to do in order to address them.
To
continue the example of a power generation company seeking expansion in Africa,
then they might consider ARCs in one country as follows:
·
Assets
o
Expand
warehousing and engineering facilities in Uganda.
o
Invest
£X in facilities, £X in human resources, £X in marketing, etc.
·
Relationships
o
Strengthen
relationship with UKTI representative for Uganda.
o
Strengthen
relationship with Regional and District administrations in Uganda.
o
Strengthen
relationship with industry bodies, e.g. Ugandan National Chamber of Commerce
and Industry.
o
Maintain
relationship with Ugandan distributor.
·
Capabilities
o
Recruit
salespeople with experience of the industry in Uganda.
o
Recruit
or up-skill Ugandan engineers.
And
by the time this point is reached, the company has a clearer idea about
strategic fit with its assets, relationships and capabilities, and where these
can be brought to bear in its external environment based on all of the analysis
that has gone before.
Conclusion
This
approach to SWOT analysis demonstrates that it can be more than the mandatory bullet-pointed
exercise in the appendices of a strategic or planning document; and that it
can, in fact, be front-and-centre in the planning process.
Interestingly, the
model as originally laid out by Albert Humphrey emphasised using SWOT as a
first step, and developing the factors identified into actions and
accountabilities for organisational change. I fear that it has got lost
somewhere along the way, perhaps through overuse and over-familiarisation.
This
article outlines the approach to its fullest extent, and it is recognised that
to carry it out in this manner would involve a large number of people, probably
for a whole day, and require massive amounts of paper and post-it notes. The
first criticism levied at such an approach is probably along the lines of
‘analysis paralysis’ – why take a simple tool (and indeed its simplicity is
oft-cited as one of SWOT’s main strengths) and over-complicate it? I would flip
that argument on its head: why take a complex environment – with interplay
between strengths, weaknesses, opportunities and threats – and simplify it to
the point that it is of little value beyond the appendices?
Regardless,
this approach is not prescriptive. It is intended to demonstrate how comprehensive
SWOT analysis can be, to reinforce its utility, reinvigorate its use and
progress thinking in this direction the next time a SWOT analysis is
undertaken.
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