S W O T Analysis

Swatting SWOT

SWOT analysis is one of the best-known of all theoretical frameworks in management. Adrian Haberberg suggests that it has outlived its usefulness.

Perhaps more than any other piece of management theory, the analysis of organisations' Strengths, Weaknesses, and of the Opportunities and Threats confronting them, has struck a chord with practising managers. Simple to understand, and blessed with a catchy acronym, SWOT analysis is widely used as a tool for the evaluation of a firm's position. Managers not only believe that it is useful - research in both the UK and the USA has found that they also think of it as having a strong foundation in theory and empirical research.

In this, however, they are mistaken. Nobody really knows who invented SWOT analysis, though it was certainly being used by Harvard Business School academics during the 1960s. There is no piece of underlying theory that shows how, by examining strengths, weaknesses, opportunities and threats, and only those four factors, we can arrive at a complete appraisal of an organisation's position. In fact, SWOT bears all the hallmarks of a gadget that a professor sketched out on the back of an envelope one day, and that just caught on!

However, there are good reasons for believing that SWOT analysis may have had its day. Some of the objections to it are practical: the technique's seductive simplicity seems to lead people to use it sloppily, so that the results really are not that helpful. There are also theoretical objections - in the light of what we have learnt about the nature of competitive advantage over the last thirty years, the four SWOT factors are no longer enough for an assessment of an organisation's position.

The Curse of the Three-Word Bullet Point

Terry Hill and Roy Westbrook looked at 20 SWOTs that had been prepared by consultants for firms participating in the Department of Trade and Industry's Manufacturing Planning and Implementation initiative. Most suffered from the "curse of the three-word bullet point":

They consisted of long lists of short items like "poor product quality" with no depth or precision - people did not say precisely which products, or which aspects of quality were the problem.

There was no evidence presented as to, say, why people believed that it was product quality rather than service quality was the problem, or how they knew that their quality was any worse than their competitors'.

Sometimes the same point would feature both as a strength and as a weakness - the "value of contract with company X" as a strength, and "reliance on company X" as a weakness. There would be no further evaluation of whether the positives outweighed the negatives, or of how the firm might resolve the dilemma without upsetting their key customer.

The problem with this kind of scattergun analysis is that it gives very little help to managers when they try to decide what to do next. And yet this is surely what SWOT should be for - to help decide which issues need to be given priority, and what are the really solid resources on which they can base their future strategy.

Trade-offs and Nuances

Apart from its built-in imprecision, SWOT analysis has other drawbacks, based on the way that our understanding of the world of competition has changed since it was developed. We now appreciate that strategy is a matter of trade-offs - firms choosing deliberately to disappoint some potential customers so that they are better able to satisfy others. SWOT analysis, with its black-and-white distinction between strengths and weaknesses, does not handle this kind of situation at all well.

For example, Amazon.com, the on-line bookseller, has targeted affluent, computer-literate bookworms. Its range and their pricing structure are geared to people who like books, are prepared to buy them in quantity, like to interact with other book-lovers and don't mind waiting a couple of days for delivery. Someone who wants a best-seller at a low price is better served by Waterstones or Tesco. It would be ridiculous to say that Amazon has a weakness in the best-seller segment - it has chosen not to compete there.

On the other hand, it is difficult to say whether Amazon has any enduring strengths - it has gained a foothold in the market, but has yet to show a cent of profit. In cases like this, SWOT analysis is not a great deal of use - and yet Amazon.com still needs a strategy. What that company has done, of course, is to assess, as best it can, which of its (still unproven) strategic resources have some enduring value, and base its strategy upon them. It is using its reputation and its capabilities in on-line commerce and distribution to push into neighbouring markets such as music.

Most modern strategic management theorists agree that it is these kinds of intangible resources - capabilities, competences and reputation - that make the difference between a firm's being a success and an also-ran. The importance to an organisation of "core competences" - skills that are rare, difficult to copy and make a real difference to customers - is now quite well known. But lesser competences are also important; firms often gather a range of skills in fields, like instrumentation or materials technology,