SWOT analysis

This article will discuss two different applications of SWOT analysis - the "conventional" and a variant called the TOWS Matrix, which utilises the inventory of SWOTs in a more systematic way than the conventional.

Introduction

The SWOT analysis is a tool that provides a basic framework for situation analysis. It generates lists or inventories of strengths, weaknesses, opportunities and threats which can be used when generating strategies. The SWOT-factors are universal which makes the analysis applicable in organisational contexts. There is no single guide or manual on how to perform a SWOT analysis - on the contrary many papers, books and articles have been issued describing, criticising and elaborating on the applications of the SWOT analysis . The criticism is often based upon the fact that it has a simple structure and does therefore, in itself, not provide a rigorous framework that ensures reliable inputs to strategic planing. An analysis can thus, if not carefully conducted, consist of poorly structured inventories containing very general or vaguely formulated factors that are inconsistent and hard to verify .

Internal Factors

The strengths and weaknesses are internal factors representing the present environment of a system. This means that they are all factors the system is in control of. Often the internal factors can be found within these general areas:

• Human resources - e.g. staff, volunteers and leaders

• Physical resources - e.g. production facilities and equipment

• Activities and processes - e.g. programs and systems you employ

• Past experiences

External Factors

The opportunities and threats are factors from the external environment which have the potential to influence a system in the future. The external factors can be found within the areas which are considered in the below mentioned analysis tools.

Porter's Five Forces

• Rivalry among existing competitors
• Threat of new entrants
• Bargaining power of buyers
• Threat of substitute products or services
• Bargaining power of suppliers

PESTEL analysis

• Political
• Economical
• Social
• Technological
• Environmental
• Legal

The history of SWOT

Although there is no single inventor/author of the SWOT analysis, early versions are developed in Harvard Business School by George Albert Smith Jr. and C Roland Christiensen in the 1950s and 1960s . The four factors that later became the Strengths, Weaknesses, Opportunities and Threats (SWOTs) were then called "opportunities" "risks" "environment" "problems of other industries". Another version was developed at Stanford University by Albert Humphrey which was based upon factors we know as SWOT today. The factors, represented by the acronym SOFT, were then: “What is good in the present is SATISFACTORY, good in the future is an OPPORTUNITY; bad in the present is a FAULT and bad in the future is a THREAT.”

Different applications of SWOT analysis

Conventional SWOT analysis

The conventional SWOT analysis is usually presented in a 2X2 matrix which generates four boxes of inventories - one for strengths, one for weaknesses, one for opportunities and one for threats, see figure 1

Figure 1

The analysis can be carried out in three steps :

Step 1 Gather information about the present. These are the helpful strengths and the harmful weaknesses.

Step 2 Think of what might be in the future. These are the helpful opportunities and the harmfulthreats.

Step 3 Review the SWOT matrix with the aim of creating an action plan that involves the four areas like this:

Strengths - need to be maintained, built upon or leveraged

Weaknesses - need to be remedied, changed or stopped

Opportunities - need to be prioritized, captured, built on and optimized

Threats - need to be countered or minimized and managed

The TOWS Matrix

The tows matrix is a framework that facilitates a systematic analysis by matching the external opportunities and threats with the internal strengths and weaknesses of an organisation .

The matrix in figure 4 (drawn with inspiration from ) contains, like the SWOT analysis, four boxes where the SWOTs are listed. There are however furthermore four boxes which are used for developing concrete strategies derived from matching the external factors with the internal factors. The four examples given here come from a TOWS Matrix applied to Volkswagen (VW) in the 1970's.

• ST - Strategies that use strengths to minimize threats. Due to a devaluation of the Dollar in relation to the Deutsche Mark, the exchange rate rose thus increasing the prices for VW's American buyers. This gave other car manufacturers an competitive advantage. VW were strong in R&D and engineering as well having strong automation capabilities and therefore an efficient production. This meant that VW could cope with the unfavourable exchange rate and the their competitors by building an assembly plant in U.S.

• WO - Strategies that Minimize weaknesses by taking advantage of opportunities or vice versa. VW also faced the threat of rising salary costs in Germany. Attractive offers were given to build an assembly plant in U.S. which presented an opportunity VW could take advantage of. A weakness VW overcame was their reliance on the Beetle model. People were getting wealthier and demanded a greater variety of cars in with more options. The solution was the deployment of the building block principle which allowed VW to use the same parts in different cars on different price levels.

• SO - Strategies that use strengths to maximize opportunities. VW were still strong in R&D and engineering as well having an efficient production. This combined with attractive offers to build an assembly plant in U.S. also pointed towards doing so.

• WT - Strategies that minimize weaknesses and avoid threats. In the case of VW, the threats from loosing market share due to the unfavourable exchange rate into Dollars and the growing demand from the U.S. customers a WT strategy could have been to engage in a joint operation with Chrysler or American Motors. This did not happen because VW were able to overcome their weaknesses making them into strengths and exploiting the opportunities.

Figure 4

Paramount points to consider

• poorly structured inventories
• very general or vaguely formulated factors
• inconsistency
• hard to verify

Obtaining adequate and truthful information

Stake holders on all levels of the project coalition.

Setting the objective

The SWOTs are relative to the objective. For example having an expert in tropic building technology on the project team is an irrelevant strength if the building is to build in the Arctic.