Is the SWOT analysis responsible for the poor performance of so many companies?
30 Nov 2012 Posted by: Dr Sarah Dixon
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?).
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
|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.
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