Weihrich (1982) stated that SWOT combined with a TOWS matrix (a linkage mechanism for the four categories) helped in the identification of strength / weaknesses relationships and could be used as the basis for strategy formulation. Indeed Ruocco and Proctor (1994) suggest that using the Weihrich technique will result in successful strategy formulation. Furthermore they state that a SWOT analysis arms the strategist with all of the information needed to go on to formulate the strategy itself.
SWOT Analysis – The Practical Problems
In the example conducted by Ruocco and Proctor the strengths, weaknesses, opportunities and threats were generated through brainstorming (a typical approach), as was their categorisation. It is this information that forms the basis for the entire analysis that at best could be considered subjective, at worst worthless. This is because the generation and validity of factors is questionable; various methods can be used from individuals listing factors in isolation to group brainstorming. Such approaches surely rely on the expertise of the individual (or group) and their experience. Even if expertise and experience are present during formulation usually no attempt through analysis is made to confirm the list of factors generated are those that need to be considered.
For example in the Ruocco and Proctor case study one of the strengths of the company was considered to be ‘sound cost base’ and an opportunity was considered to be ‘development of an innovative new product’. Such statements are problematic, what determines the sound cost base? And what does ‘sound’ mean. As the factor was generated through brainstorming it could be assumed it was based on a gut feel. As this is considered an internal quality no comparison was truly sound and because this did not occur how can it be considered as a strength?. Again having an understanding of competitor activity now and in the future is surely required to fully explain the innovation required.
This generalisation appears to occur in most SWOT analysis; Houben et al. (1999) suggest that with strengths and weaknesses many companies only have vague ideas of their core competencies and the extent to which they posses them. furthermore they state that studying the competition is essential in the indication of these factors. SWOT also makes no attempt in prioritising the importance of factors nor does it assess the fit between factors and alternative courses of action. Kotler (1988) suggests a method for the classification of factors according to the probability of their attractiveness and success (opportunities) and of their seriousness and occurrence (threats).
Another issue is categorisation, is ‘Europe’ (to use Ruocco and Proctor to demonstrate) an opportunity or threat? Being part of the EU (assuming that is what is meant by Europe) with the size of its market could be considered an opportunity on the other hand being constrained by it legislation, rules etc. could be considered a threat. In this case without any analysis ‘Europe’ was considered an opportunity. Therefore the approach in generating the SWOT list, whether individual or through some group activity brings into question whether the method is indeed an analysis or just a dubious categorisation of a subjective list of items. Indeed a study of 20 companies by Hill and Westbrook (1997) suggests that factors are usually very general points and are generally not backed up with numerical data. A further finding was that of 20 companies who conducted a SWOT analysis only 3 used it as input for further strategic work. It could therefore be assumed that 85% of the companies studied considered the results of the analysis to be of little value and it is probably because it is not in really true reality true analysis. Indeed the resulting output consists of generalised and invalidated statements and Hill and Westbrook suggest that the real intent of a SWOT analysis is merely to raise a general debate.
SWOT Analysis – Can it be Improved?
For a SWOT analysis to be valid and of real use would require correct categorisation as an incorrect label could seriously undermine the strategy formulated as a result of the SWOT and verification of factors through analysis. This however is problematic because to truly determine the company’s strengths, weaknesses, opportunities and threats would generally require information on the competitive environment and future events. As an example using the factor of ‘sound cost base’ mentioned earlier. It is perfectly feasible that competitors A, B and C conduct a SWOT analysis simultaneously and that each determined a ‘sound cost base’ to be a strength. Is ‘sound cost base’ therefore still a strength if all three state it as so? It probably is for one of the companies but to ascertain this would require each company to share with the others their financial details (highly unlikely!) or a degree of industrial espionage to take place (highly illegal!).
The factor could be therefore considered worthless because none of the companies can really claim ‘sound cost base’ although ironically it could be a strength of one of the companies; they just don’t know it. Furthermore ‘sound’ is too vague, to have any meaning the factor should be described in measurable terms for example ‘cost bade 10% lower than the best of the competition’ to have any real meaning. So to verify the strengths and weaknesses requires in the main an understanding of the environment as it exits today both internally and as a means of benchmarking externally. To fully understand threats and opportunities also requires and element of understanding of what will occur in the future, a difficult challenge because with few exceptions the future can only be forecasted and not determined. As an example using the factor of ‘development of an innovative new product’ mentioned earlier. What does innovative mean? The statement requires clarification a technical specification if you will and for that document to drive innovation an understanding of what the competition are working on or planning to work on is surely needed.
It can be seen that factors therefore require verification but this would usually require a great deal of effort and in many instances the information required may be either not accessible (e.g. competitors new products) or not available (e.g. future legislation). These difficulties probably explain in part at least why when conducting a SWOT analysis companies will typically take a simplistic approach and make no real attempt at verification and as result the resulting findings are generally superficial. Hill and Westbrook (1997) suggest that SWOT is merely a way of structuring a list for a discussion on a company’s strategic position and is not suitable for a strategic assessment.
Conclusions
A traditional SWOT analysis is of little or no benefit in strategy formulation, Hill and Westbrook (1997) suggest that it is no longer an effective tool because of its generic solution approach. The method attempts to address a complex issue by assuming that factors can be simplistically generated and conveniently compartmentalised through a straightforward reductive approach.
Bonn and Christodoulou (1996) state that formalised planning has been questioned over the last 10 years because in many cases after strategic planning exercises strategy implementation was not occurring. They suggest that formalised planning procedures are merely bureaucratised and rigid activities used more for financial control rather than direction and innovation. This of course brings into question the validity of the corporate model. If ‘where we are now’ cannot be determined then determining ‘where we want to be’ and ‘how do we get there’ presents some challenges.
To summarise the formality of the process, its simplistic approach and the need to be predictive are major problem areas. The idea that thorough list making (because that is what surely SWOT is) the strengths and weaknesses of a company can be matched to future opportunities and threats is simplistic in the extreme. The need to predict what will occur can be forecasted but with what degree of accuracy? Indeed Ormerod (1994) suggests that in attempting to forecast the future the most successful strategy would be to assume that what happened this year would happen next year! It is clear that basing a company’s strategic direction on a traditionally conducted SWOT, which typically takes no more than a day to compile, brings with it a high degree of risk because the data on which the decision would be based is fundamentally flawed.
Word Count: 1,848 (ex referencing)
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