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Is the SWOT analysis responsible for the poor performance of so many companies?

7

30 Nov 2012  Posted by:

"Image courtesy of zirconicusso / FreeDigitalPhotos.net".

“Image courtesy of zirconicusso / FreeDigitalPhotos.net”.

How should businesses assess their current strategic position and develop a strategy for future success?

1.        62% of companies still use old-fashioned SWOT analysis

A study undertaken by AIM (Advanced Institute of Management) determined that 62% of the companies they surveyed were still using the old fashioned SWOT analysis, a tool from the 1960s, to determine their strategic position.  The key findings of this strategy workshop analysis are below in Table 1.

I wonder whether the use of this simplistic tool is a reason for the comparatively poor performance of companies?

Too often companies end up with a checklist of items they categorise as strengths, weaknesses, opportunities and strengths without really developing a deeper understanding of what these are, how they have been developed, and how sustainable they can be, given the threats of imitation and substitution by the competition.  Furthermore managers often misuse the SWOT analysis – strengths and weaknesses are internal to the firm, whereas opportunities and threats are external, environmental and competitive factors.

2.            Dig deep into a firm’s competences

To do  a real analysis of a firm’s strategic position we need to do more than have a list of things like: leading edge technology (for how long?),  superior resources (in what respect?), good location (for what?), strong customer relationships (where, and based on what?).

These are areas that we have been analysing in my research on organisational transformation and transformational leadership.

By digging deeper into a firm’s competences, it is possible to assess what are the core competences of the organisation – generally defined as a bundle of skills and  accumulated knowledge that is difficult to imitate.  All firms need threshold competences to survive in their day to day business operations, but it is the core competences, that are unique, that provide a source of competitive advantage.

3.            Strategic analysis should assess opportunities and threats in the environment

Equally strategic analysis should be assessing the opportunities and threats in the environment. A so-called PEST analysis is conducted to assess political, economic, social and technological factors that may influence a firm’s success.  These are the so-called macro-environmental factors.

Various other tools may be used to assess competitive threats.  Then by comparing a firm’s threshold competences and core competences with these environmental factors it is possible to assess:

  • Where are the competence gaps and how to address them?
  • Have the core competences of the organisation remained relevant  in a changing environment?
  • If not, what strategy is required to develop other sources of competitive advantage?
  • Are other competences still at the threshold required for operations in the relevant business segment?

In these challenging economic times, is the SWOT analysis holding businesses back – or is it still a practical tool that adds value?

TABLE 1 STRATEGY WORKSHOP PRACTICE IN THE UK ASPECT

Findings
Purpose • Regular events (at least annually held in half the cases) linked to formal strategic planning systems. Deliberations feed directly into the strategy development process.• Major purposes are to challenge and question existing strategy or come up with new ideas.

• The greatest impact of strategy workshops is on the content of organisational strategy.

Participation • Often, involves very senior managers. Senior managers and directors are significantly more likely to report higher levels of involvement in comparison to junior counterparts.• Substantial majority of workshops (61%) are led by senior directors.

• Most frequently, strategy workshops involve 10 participants or less.

Procedure • In terms of duration, the overwhelming majority of workshops (90%) are of short duration, ie two days or less.• In terms of location, the majority of workshops (73%) are held off-site (ie not at the respondent’s regular place of work).

• In terms of strategy tools, the ones most typically employed are fairly basic, with SWOT analysis (62%), stakeholder analysis (30%) and scenario planning (28%) being the most commonly used.

Comments

7 Responses to “Is the SWOT analysis responsible for the poor performance of so many companies?”
  1. Adrian Nixon says:

    A thought provoking article Sarah.

    I’m currently working with a global engineering company in several locations around the world.
    We are running workshops for senior management teams with highly experienced people across the business.

    We are using a suite of approaches designed to promote collective alignment around the corporate strategy.

    A consistent theme that emerges from the feedback is how powerful people find SWOT. It may be an old tool but it is straightforward and people connect with it.

    I still use the learning from my time at Bradford to help groups of senior managers revisit and deploy SWOT effectively.

    We encourage people to look at the gaps between the internal and external factors, then think about the options they have for mitigation. This deceptively simple approach helps tease out the critical success factors and core competencies that you mention.

    The key final step is to develop the action plans to put this is to practise. This step is where most organisations fall down. We have been encouraging not only the development of action plans but the peer networks to check and challenge these 2- 6 months hence to make sure things are actually being implemented. We have found using an action learning approach also helps identify and unblock barriers to the actions.

    In summary SWOT may be an old tool. It is nonetheless an effective one and not dead yet. The follow up and management of the action plans is the critical part that can be overlooked and may be the real cause of the results being realised, or not, by a business.

    Adrian Nixon

  2. Paul Slater says:

    Sarah,

    Thank-you for such a thought provoking article. I don’t think SWOT has gone past its sell by date at all but I do think that its simplicity from a conceptual perspective (same with PEST) means that it is easy to get across to people in simplistic terms but their implementation of it needs to be far from simplistic. Like any tool, it needs to be used by the educated and experienced and that often means assistance is required to guide teams in the use and interpretation of the tool and its outputs.

    A great article which I am sure will get people thinking – thank-you.

    Paul

  3. Perhaps we shouldn’t throw out the baby with the bathwater.

    I’ve had to coordinate annual strategy submissions to a plc board for a number of strategically distinct divisions. Something like SWOT was a useful presentational tool because it was digestible for the non-execs and provided some consistency across the piece.

    I say ‘something like SWOT’. One problem with what we used to call the ‘SWOT Matrix’ is that it isn’t a matrix, it’s a list. The so-called ‘TOWS’ formulation is far more useful – I call it the ‘SoWOT?’ matrix (you heard it here first folks) – because it forces people to cross-refer strengths to opportunities, weaknesses to opportunities, strengths to threats and weaknesses to threats, and to figure out the implications.

    But, and this is the big but, when we got this to work the ‘strengths’ were a summary of a much more in-depth analysis of competences, activity structures and strategic resources by reference to competitive positioning and sector analysis; ‘weaknesses’ weren’t necessarily something to correct, but trade-offs and compromises to be aware of; ‘opportunities’ were the outcome of value mapping and environmental scanning processes; ditto ‘threats’. The devil was always in the detail.

    While we’re on the subject of four-letter acronyms though, I’ve probably found the ‘PEST’ (or ‘STEP’ or ‘PESTEL’) formulation to be at least as weak as SWOT, for much the same reasons. If the first layer of strategy is the firm and it’s supply chain, the second it’s sector (microenvironment/task environment) and the third literally everything else (macroenvironment), then four simple categories can be a bit distracting. Very often the important trends defy categorisation, and very often they are convergences or feedback loops between categories. Is social media technological, social or economic, and who cares? What about when we add mobile into the mix? And augmented reality? And P2P? and copylefting? And…

    What we need, of course is a model, or models, of our strategic positioning sufficiently detailed to capture the relevant competitive structure, sufficiently high-level to be digestible and at the same time sufficiently cross-referable to exogenous trends to allow meaningful decisions to be made. Can SWOT do this? I don’t know. I think the answer will differ by business.

  4. Julian Rawel says:

    Far be it for me to disagree with my Dean but Sarah has not argued a case against SWOT – rather implied that SWOT is all some managers use.
    I’ve used SWOT with corporate clients twice in the last week and it works providing it is used properly:
    RULE 1 – it should be a summary of external influences and internal capabilities analysis.
    RULE 2 – each element should be evidence based and implication understood – I always break down the SWOT points into Issue/Proof/Implication.
    RULE 3 – where there is disagreement amongst contributors then an alternative opinion should be sought – customers??
    RULE 4 – strategic options generated from a SWOT should always include a match between two categories, for example weakness/threat or strength/opportunity.
    RULE 5 – don’t be too ambitious – SWOT can be used for a specific product or segment.
    These are the basics.
    I think the tone of the other comments shows that there’s lots of life left in the model.

  5. Jonathan Howell-Jones says:

    I’m going to set the cat amongst the pigeons and state that it’s wrong to blame SWOT as an analytical tool. Yes, it’s long in the tooth but the fundamental problem is that many businesses and business leaders just don’t know how to use tools, like SWOT, properly.
    Since the development of SWOT, we have seen the TOWS matrix, PEST, PESTLE, STEEPLE and other matrices formed as management gurus work to show the next best, big thing in making strategy work for organizations. However, if an organisation does not have the staff who can properly execute these tools, then you are left with a wasted exercise.
    Even PEST, PESTLE, STEEPLE (these are all tantamount to the same thing) are just breaking down external factors that are uncontrollable. The results of PESTLE should then be fed into the SWOT to determine whether they have positive or negative consequences for an organisation.
    Strengths and Weaknesses are controllable factors that organisations must consider when planning their strategy. These are the core competencies that Sarah refers to, but are also important when grading whether or not a company is actually able to apply itself properly. If you feel the need to categorise them as with PESTLE, then try these:
    • Financials – Cash assets, cash flows, liquid assets, debts and short- and long-term financial assets (basically, your quarterly and yearly reports)
    • Tangible Assets (Property, plant, machinery and other owned products and stocks). You may have a great building but in a poor location. Consider all the facts about your organisation).
    • Intangible Assets (Intellectual Property, patents and your brand)
    • Processes (How well you doing things at work, how well the organisation does – or doesn’t – deliver)
    • People (their productivity, morale, influences, passions – are they aligned with work or are they at odds with the organisation?)
    • Culture (how things are done, habits, preconceptions, prejudices and so forth)
    • Communications (how well are things actually communicated within the organisation as well as to external stakeholders?)
    • Knowledge – this is more that patents, this is the expertise within the organisation, both documented and held by the staff themselves.
    • Geography – where are you based? Where are your staff located? Are you best located to deliver on your promises?
    You can then work out what are strengths and weaknesses. The trick only then is to then create strategies that link to these – which is why the TOWS Matrix can be a big help. You can build on strengths and opportunities and work to minimise weaknesses and threats.Here’s an example of how it should work:
    TOWS Strengths Weaknesses
    Opportunities S+/O+ W-/O+
    Threats S+/T- W-/T-
    Also, it’s unfair to generalise and say that just because 62% of businesses use SWOT, they’re failing because of it. For starters, planning strategy is, quite frankly, the easy bit. Strategy implementation, change management, internal communications – whatever you call it, if the plan isn’t properly and effectively implemented then it’s down to the management team. This is especially important if the team doesn’t know its organisation inside out to begin with and doesn’t communicate its strategy while leading by example. Planning and implementation must be seamless and not just a matter of saying, “we should do this.” There need to be other questions asked like, “how can we do this? “By when can we doing this?” and let’s not forget “Can we afford to do this?”
    Before we raise our eyes heavenward, we must ensure we know we are not going to step on the banana skin on the ground in front of us…

  6. Michael Whittaker says:

    The use of tools in business performance puts me in mind of the award winning film ‘Being There’ starring Peter Sellers. There, Chance the gardener, likens the garden and its nurturing to the nation and the state of the economy.

    As set out by Sarah Dixon, and remarked in comments, there are any number of tools which can be used in determining business performance. Having limited personal experience in this field I cannot comment on the relative efficacy of the tools.

    However, I would seem to me (and others) that the performance of the business will ultimately be more dependant upon the way in which tools are used, the assessment of the results and the action taken in the light of those results than in which tool was used.

    Having only recently visited a very attractive domestic garden and compared it with my own, I can state categorically that the quality of the end product has nothing to do with the range of tools in the shed, or even the frequency with which they are used!

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