Rest In Peace, SWOT Analysis
Don’t let it seduce you with its simplicity
“Less is more.”
“Simplicity is the ultimate sophistication.”
LinkedIn feed oozes such platitudes.
Overcomplication is rarely a good strategy. But strategic thinking is the exception.
A few weeks ago, I conducted a strategic retreat. We were devising a new strategy for a bank.
As always, I divided the team into several groups of 4-5 people. All of them performed the same tasks. Most groups needed much time to think through strategic issues such as competitive advantage or market goals.
But one of them always finished early. “It’s a no-brainer,” the group leader told me, “There is not much to think about.”
But if you see an obvious answer to a complex strategic question, you’re scratching the surface.
SO WHAT analysis
When Albert S. Humphrey at the Stanford Research Institute devised SWOT analysis in the 1960s, he had no idea he created a religion. Since then, thousands of 2*2 matrices have adorned corporate strategy presentations.
The high priests of the SWOT analysis church – strategy consultants – have wielded the matrix in every project. Its use has become as obligatory as brushing your teeth. “Do you need a fresh strategy, Bob? Start with SWOT analysis!”
It looks deceptively simple. Fill out the quadrants, analyze their intersections and correlations, and bingo – the strategy is in your pocket.
Its simplicity is what made SWOT that famous. But this is not the type of clarity you need to develop a decent strategy. The matrix has a few flaws that can spoil your strategic discussions. They can bias your thinking and lead you astray.
Flaw #1. Opportunities
Teams who try to employ SWOT make two common mistakes with the O quadrant – Opportunities.
They jot down everything that seems appealing to them into the quadrant.
For instance, few matrixes today go without the ‘use of Gen AI’ point.
Gen AI is a toy every executive wants to play with nowadays.
But the ‘use of Gen AI’ is not a business opportunity. Gen AI is just a tool to help you satisfy your customers’ unmet needs.
Expanding your business into new regions, market niches, or product segments is also not an opportunity in itself. It can become one only if you find customers with unmet needs in those areas for whom you can create a distinctive value.
2. They come up with the opportunities out of thin air instead of looking for them on the market.
No brainstorming session can bring you fresh ideas about strategic opportunities. To find them, you need to go out of the office and talk to your possible consumers.
As Peter Drucker said, the ultimate goal of any business is to create a customer. You can’t create customers by exploring market niches or analyzing competitors.
Business opportunities always start with those strange folks out there who might want to take a look at your product and, maybe, buy it – customers.
Pro Tips
Build some hypotheses about your possible customers
Conduct interviews with them – many interviews
Find out if they have some unmet needs or needs you can satisfy better than your rivals do by delivering distinctive value to them
Evaluate your ability to capitalize on this distinctive value
Flaw #2. Strengths
The question ‘What strengths do we have?’ is a champion at leading teams astray from the essential.
Imagine a large typewriter manufacturer in the 1970s. Its leadership team could answer this question by noting that it has a top-notch plant, brand, and customer base.
But these ‘strengths’ would evaporate within a decade when PCs swept typewriters off office desks.
When a team admires its company’s ‘strengths,’ it brings self-reassurance, allowing daring startups to disrupt entire industries and kill legacy businesses. Thirty years ago, Sony had many strengths. Where is it today?
A ‘strength’ becomes one only if it helps a company deliver distinctive values to its future customers. But when a team fills out the SWOT matrix, they jot down their opinions about their enterprise’s advantages.
You may believe you have many ‘strengths.’ But your customers may think otherwise. Reflect on this when you see the backs of your clients turning away.
Moreover, did Sergey Brin and Larry Page have the ‘strengths’ to build Google in 1998? Did Steve Jobs and Steve Wozniak have the ‘strengths’ to create Apple in 1976?
We narrow down our thinking if we rely only on our ‘strengths’ while devising a strategy.
The only strength that deserves mentioning in the S quadrant is the organization’s ability to reinvent itself and learn.
Pro Tips
When you are finished with the opportunities you see around you, ask yourself, ‘What strengths should we create to seize them?’
Don’t waste your time on self-admiration. If you see that you already have some strengths that you need to seize the opportunities, it will just make your strategic path a bit easier.
Flaw #3. Weaknesses
The third quadrant also often confuses teams. We have a list of our weaknesses – so what?
SWOT theory teaches us to view weaknesses either as obstacles that can hinder us from implementing our strategic intentions or as things we should improve.
But by thinking this way, we fall into the same trap as with ‘strengths.’
First, this quadrant ordinary reflects what we believe our weaknesses are, not what they really are. We can be biased. We may not mention some points because it would make us look bad.
Second, by doing this exercise by the book, we still start with what we have.
For example, the typewriter manufacturer executives might note that they had problems with production efficiency or supply chain issues.
Fixing these issues wouldn’t save them.
When Airbnb’s founders came up with the idea, they were inexperienced and without money or a brand. Their W quadrant in the SWOT matrix would have looked like a very long list, but that didn’t stop them.
Pro Tips
Ask yourself: what assets and processes should we create or develop to grasp the opportunities we see around us?
Compare this list of assets and processes with what you have today. Don’t rely only on your opinion. Conduct an impartial analysis with facts and numbers.
The gap between what you have and what you need will give you the basis for your strategy as a set of development projects.
Conclusion
SWOT analysis is nothing more than a 2*2 matrix. It can do no harm or good; everything depends on the data you put into it.
But the design of the matrix and it’s illusory simplicity may bias your strategic thinking.
Strategic thinking is complicated, no matter what gurus from LinkedIn claim.
In the near future, I will finish working on a mini-book about strategic thinking, and all subscribers will receive it for free. Stay tuned!
Read also: Blue Ocean Fallacy.
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Excellent (and important!) points: SWOT is too often approached almost as a brainstorming list in a strategy workshop, rather than as a summary of the organisation's assessment of its situation after deep strategic questioning.