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.
References
Boon, I. and Christodoulou, C. (1996), From strategic Planning Management, Long Range Planning, Vol. 29, No. 4, pp. 543-551 Flett, F. (1989), Innovation in Mature Companies – Rejuvenation or Stagnation?, Management Decision, Vol. 27, No. 6, pp 51-58 Hill, T. and Westbrook, R. (1997), SWOT Analysis: It’s Time for a Product Recall, Long Range Planning, Vol. 30. No. 1, pp. 46 – 52 Houben, G., Lenie, K. ; Vanhoof, K. (1999), A knowledge based SWOT – analysis system as an instrument for strategic planning in small and medium enterprise, Decision Support Systems, Vol. 26, pp 125-135
