SWOT Analysis

The Basic Idea

The slogan is regurgitated in business schools across the world: Strengths, Weaknesses, Opportunities, and Threats. This acronymic strategy technique is somewhat of a cliché for a reason – it is widely used in a host of decision-making domains from corporate to political spheres.

The tool is typically used to help brainstorming and ideation around management and planning, as well as identifying competitive advantages. It is meant to provide a somewhat holistic assessment of one’s strategic position, with strengths and weaknesses often categorized as internal factors within SWOT, while opportunities and threats typically relate to external or environmental factors.

I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are.

– Ray Dalio, founder of Bridgewater Associates

History

SWOT analysis is often traced back to the 1960s and the work of Albert Humphrey, a management consultant who was part of the Stanford Research Institute (SRI). Humphrey’s original acronym was “SOFT” which after being presented in Zurich, was promoted in Britain where it evolved into SWOT.1 Though the historical narrative of SWOT typically starts with Humphrey, this account is sometimes debated,2 as the exact origins of the technique are unclear.

An alternative account goes back earlier than the ‘60s, suggesting SWOT analysis originated from case study analyses at the Harvard Business School in the early ‘50s, where Professors George Albert Smith Jr and C. Roland Christensen were exploring organizational strategies in relation to their environment.3 By the early 1960s, business school classrooms were focusing on strengths and weaknesses in relation to the opportunities and threats within a business’ environment, and in 1963, during a business policy conference held at Harvard, SWOT analysis was widely discussed where it was seen as a major advancement in strategic thinking.3

Widespread popularization of the SWOT analysis emerged in the 1980s after the technique garnered considerable attention from Harvard’s Michael Porter and McGill University’s Henry Mintzberg in their business texts. Although Porter was more of a proponent of the SWOT than Mintzberg, both bear some responsibility in the broad recognition of the SWOT within the world of strategic planning.4

People

  

Albert Humphrey

The American business and management consultant is often credited for the development of the SWOT analysis. During the ‘60s and ‘70s, Humphrey and his colleagues at the SRI created a “SOFT” analysis, where S stood for what’s satisfactory, O for opportunities, F for faults at present, and T for threats. The satisfactory and fault components eventually turned into strengths and weaknesses to create SWOT.1

Michael Porter

An American business school professor at Harvard University, Porter’s Competitive Strategy: Techniques for Analyzing Industries and Competitors was voted the ninth most influential management book of the 20th century,5 the highest ranking among books published after 1970. Porter’s seminal text alongside his endorsement of the SWOT analysis contributed to the popularization of the technique.

Consequences

Now described as the “tried-and-true tool of strategic analysis,”6 the SWOT has become somewhat of a staple in professional planning contexts. Although it was first applied to business strategy, the tool is now used in a number of settings such as within nonprofits and individual level decision-making. Although the SWOT is unlikely to provide some silver bullet in an organization’s current state of affairs, it can act as a scaffolding to lay out the facts in a way that covers both the helpful and harmful; the internal and the external.

This method can be particularly useful in decision-making domains such as financial markets, where investors can be prone to confirmation bias,7 by only seeking information that confirms an existing belief. The SWOT provides a quick, fairly holistic perspective on a company, such as this analysis by Value Line for Coca-Cola, that can account for conflicting views. These analyses can be sought after in the market research industry, with services such as Research and Markets and DataMonitor selling reports containing SWOT analyses for various corporations.4

In terms of strategy development within an organization, SWOT factors are typically done by stakeholders and led by managers and consultants.4 This approach has been used by a number of organizations around the world, many who the tool regularly, such as Eric Prough, Chief Product Officer of PactSafe, a SaaS company in the e-signature space. Prough claims his team conducts some form of SWOT analysis on a quarterly basis as a way to develop the product’s roadmap and position itself against competitors.8

Controversies

In 1997, Terry Hill and Roy Westbrook of the London Business School published SWOT analysis: It’s time for a product recall.9 The paper has been cited by over a thousand other works, offering a vocal critique of the SWOT analysis, describing the technique as a “significant waste of time.” Hill and Westbrook reviewed British 50 companies, over 20 of which used a SWOT, finding that these organization’s application of the tool exhibited similar characteristics, such as overly long lists, generalized and meaningless descriptions, failures in prioritization, and no attempt to verify any points. The most troubling common thread the researchers found, however, was that nobody used the outputs of the SWOT analysis in subsequent strategic processes.

Hill and Westbrook aren’t the only ones to challenge the SWOT analysis from an academic perspective. As Kwamena Nyarku and Gloria Agyapong write in their review of SWOT analysis: “Some existing literature on SWOT makes the technique look too simple by just identifying favorable and unfavorable internal and external variables. It fails to share light on how the variables are to be identified or classified correctly.” The question marks around how to identify SWOT factors is powerful criticism. From the perspective of behavioral science, the ubiquity of the optimism bias in human predictions of the future10 challenges the idea that we can adequately identify our weaknesses and threats in the same light as our strengths and opportunities.

A 2019 article from Harvard Business School professor, Adam Brandenburger,11 asks readers to rethink the SWOT analysis. Brandenburger claims that an organization’s strengths can sometimes pose a threat, while weaknesses can translate to opportunities. He cites the taxi business as one whose strength rested in their market monopoly in most cities, which led the industry to neglect customer service, giving rise to ride-hailing services such as Uber. On the other side, SpaceX’s initial lack of financial resources resulted in a competitive advantage down the road through innovative production. “The downside of traditional SWOT is that it doesn’t account for the more dynamic forces at work in business,” Brandenburger writes, also mentioning how threats and opportunities can come from within, rather than just relating to external factors, as a typical SWOT analysis often does.

Related resources

Beating Bias: Debiasing Strategies for Everyday Decisions

Just as the SWOT analysis can be used to combat biases such as the confirmation bias, there are other ways to leverage behavioral science and tackle the mental errors that arise in strategic decision-making. This piece outlines some of those additional biases and how to address them.

Why You Might Not be Sticking to Your Plans

While a perfect SWOT analysis may set you up for a lovely strategic plan, you still have to follow through with the plan, which creates a host of additional challenges, such as the planning fallacy. This piece explains the behavioral science behind the concept.

Sources

  1. Nyarku, K., & Agyapong, G. (2011). Rediscovering SWOT analysis: The extended version. Academic Leadership: The Online Journal, 9(2), 28.
  2. Teoli, D., & An, J. (2019). SWOT analysis. StatPearls.
  3. Panagiotou, G. (2003). Bringing SWOT into focus. Business Strategy Review, 14, 8-10.
  4. Leigh, D. (2009). SWOT analysis. Handbook of Improving Performance in the Workplace: Volumes 13, 115-140.
  5. Bedeian, A.G., & Wren, D. A. (2001). Most influential management books of the 20th century. Organizational Dynamics, 29(3), 221-221.
  6. Dess, G. (2018). Strategic Management. United States: McGraw-Hill. p. 73.
  7. Park, J., Konana, P., Gu, B., Kumar, A., & Raghunathan, R. (2010). Confirmation bias, overconfidence, and investment performance: Evidence from stock message boards. McCombs Research Paper Series No. IROM-07-10.
  8. Lisak Golding, J. (2018, September). These tech companies used swot analysis to come out on top of competitors. Sapphire Strategy. Retrieved from https://sapphirestrategy.com/these-tech-companies-used-swot-analysis-to-come-out-on-top-of-competitors/
  9. Hill, T., & Westbrook, R. (1997). SWOT analysis: it’s time for a product recall. Long range planning, 30(1), 46-52.
  10. Sharot, T. (2011). The optimism bias. Current biology, 21(23), R941-R945.
  11. Brandenburger, A. (2019, August). Are Your Company’s Strengths Really Weaknesses? Harvard Business Review. Retrieved from https://hbr.org/2019/08/are-your-companys-strengths-really-weaknesses

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