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Hidden StrengthsThe proper use and great strengths of the

analysis

By Dr Brian D Smith

For most firms, creating a strong strategy begins with making sense of complexity: c u s t o m e r s , c o m p e t i t o r s , suppliers, channels-to-market make for an often confusing “task environment”. Add to this is the “remote environment” of social, legal, economic, political and technological factors and both combine to make understanding the market difficult. And without market understanding, success is a matter of luck. To help them do this, marketers and strategists have an armoury of tools and techniques, from segmentation to life-cycle, from scenario planning to value chain. But perhaps the best known of these, at least to the layman, is SWOT analysis, which most people know involves the consideration of strengths,

weaknesses, opportunities and threats.

But despite or perhaps because of its fame, SWOT is one ofthe least understood andmost abused techniques inthe strategists’ toolkit. In their research, Hill and Westbrook found that most SWOTs are long lists of meaningless, unverified factors that were of little use in practice. This is disappointing in two respects. Firstly, it means many firms are wasting their time doing useless SWOTS. Secondly, they are failing to realise the benefits of what is, when used well, a powerful aid to strategy making. How might this sad situation be resolved? Study of what effective firms do reveals three rules for the proper use of SWOT.

Figure 1:Where SWOT fits

The right tool in the right place

The most common misuse of SWOT is using it as a stand-alone technique, separate from other tools. The correct use of SWOT is as receptacle for the outputs of other techniques, as shown in Figure 1.

It is best to use a range of

tools to provide the inputs

for SWOT. Market

segmentation, Porter’s 5-

forces and SLEPT (or

PEST) analyses are among

the most useful for

identifying factors external

to the firm. Value-chain

comparison, benchmarking,

and market-mapping are

useful for understanding

what is important within the

firm’s own value chain.

When used like this, SWOT

takes positive or negative

findings from any internal

analysis (i.e. strengthsor weaknesses respectively),positive or negative findingsfrom the external analysis(i.e. opportunities or threatsrespectively) and, as we shall discuss later, matches them to each other. Before that, however we need to consider the second common mistake in the use of SWOT.

Using the right ingredients

Most SWOTs are far too long and

subjective. Often, the same factor

is put in more than one box, leading to confusion and what is put in is not really important. This is the inevitable result when all of the outputs of the previous analyses are “dumped” into a SWOT without any selection. It is like cooking by throwing the entire contents of your fridge into a pot. More effective firms filter the outputs of other analyses to remove irrelevant or false factors and leave only useful information for use in the SWOT.

For internal factors, these filters are shown in Table 1. The

as a “real” strength or weakness. In practice, this reduces the number of “real” strengths and weaknesses to a small number of very important factors.

For external factors, the appropriate filters are shown in Table 2. Again, the important point here is that a factor must pass all four tests to get through. As with strengths and weaknesses, this filtering in practice reduces the number of “real” opportunities and threats to a small number of important factors.

number of each type of factor left, but each of those factors is very important to understanding the market. The strategist is now in a position to execute the most important part of SWOT process, aligning the factors.

Alignment is everything

The origins of SWOT alignment go back to the 1960s, when academics stressed that strategy was a process of aligning the company to the outside world. To this day, alignment remains the critical stage

Table 1: Filtering tests for Strengths and Weaknesses

A strength is only a strength if it is A weakness is only a weakness if it isVRIO MUDU

Valuable: it can create value for the Meaningful: it makes a significantfirm or the customer difference to the customer or the firm

Rare: it is not shared with rivals Uncommon: it is not shared with rivals

Inimitable: it is difficult or costly to Difficult: it is not easy or cheap to fixcopy

Organisationally aligned: the firm is Uncompensated: it is notable to use the strength counterbalanced by some other factor

important point here is that a If SWOT is used in the right placefactor must pass all four tests and only filtered factors areto get through and qualify used, the result is usually a small

Table 2: Filtering tests for Opportunities and Threats

An opportunity is only an A threat is only a threat if it isopportunity if it is CLAL USUL

Complementary: it does not prevent Unmitigated: it is not removed ortaking advantage of another, better, significantly reduced by some otheropportunity external factor

Large: it is big enough to justify the Significant: it is a large enough threatcosts of winning it to make a significant impact on the firm

Accessible: it can be taken advantage Undefended: it is not removed orof by the firm significantly reduced by some action

the firm is already undertaking

Lasting: it lasts long enough to be Lasting: it lasts long enough to have ataken advantage of significant impact on the company

in making SWOT work and the one most often neglected in practice.

Alignment involves two important thought processes:

1. Looking for the relationships between, on the one hand, strengths and opportunities and, on the other, weaknesses and threats.

2. Drawing out the implications for strategy of those relationships.

If the inputs into the SWOT are of good quality, then the first thought process is much easier. Good, VRIO tested strengths usually leap out as connecting to good, CLAL tested opportunities and the same applies to the connection of MUDU weaknesses and USUL threats. Executing the SWOT therefore involves writing connected factors in the same line of the SWOT, as shown in the right and left columns of the simplified example in Table 3.

The second thought proc-ess then involves filling in the

middle column. These key is-sues take the general form of “a strong strategy would use strength A to attack opportu-nity B” and, correspondingly, “astrong strategy would guardweakness C against threatD”, as shown in our simpli-fied example. Like many other tasks, this final thought proc-ess is straightforward if the preparation has been done well but almost impossible if it has not. And there is a word of cau-tion here. Often, the right and left-hand sides of a SWOT do not

seem to balance, with two many or two few internal fac-tors to match the oppor-tunities and threats. If this happens, it suggests that there is a weakness in the ear-lier steps and either not all important factors have been spotted or some less important factors have escaped the filtering process.

So the output of a good SWOT is

a list of key issues, usually only a

small number, that suggest what

a strong strategy needs

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to do in order to leverage the firm’s strengths against market opportunities and guard its weaknesses against threats.

A General’s View

The outputs of a good SWOT do not dictate strategy, but they should influence it strongly. In effect, the key issues are a General’s view of the battlefield, showing where the attack should be focussed and the ditches should be dug. This makes SWOT, arguably, the single most useful weapon in a strategist’s

Table 3: Simplified example of a completed SWOT analysis

Strength Key issue Opportunity

We have superior technical A strong strategy should There is a segment ofcapabilities compared to consider using our the market that placesour competitors technical capabilities high value on technical

against the technically capabilitiesoriented segment.

We have superior A strong strategy should The pharmaceutical sectordistribution strength in the consider focusing on contains a large proportionpharmaceutical sector the technically oriented of technically oriented

segment within the customerspharmaceutical sector

Our British heritage, A strong strategy should SLEPT factors arelanguage skills and consider leveraging our increasing the marketpositioning is a more British heritage in Asian opportunity in Asianimportant factor in Asia markets marketsthan in Europe

Weakness Key issue Threat

We have a high cost base A strong strategy should There is an increasinglyrelative to our competitors consider avoiding price large price-sensitive

sensitive segments segment

We have little brand A strong strategy should Increasingly crowdedsalience outside of the EU consider developing our markets mean that the

brand salience in non-EU brand is more importantmarkets to customer choice than

before

We have no significant A strong strategy should Asian customers place acustomer base outside of consider forming high value on supplierthe EU and US alliances or distribution relationships

arrangements in Asia.

armoury. In reality, however, very few firms use SWOT effectively. Most make the three mistakes of using it separately, dumping information into it unfiltered and not aligning internal and external factors. Those simple but common mistakes are what makes most company’s SWOTs their weakness, but can provide your firm with a hidden strength.

Dr Brian Smith isa Research Fellowat Cranfield andBirmingham businessschools. His researchinto marketing exc-ellence can be found

at www.pragmedic.com . He welcomes comments on this article at brian.smith@ pragmedic.com