March 8, 2021

You've probably used this common tool for strategic analysis. (But it's got big problems.)

Daily Briefing
    Editor's note: This popular story from the Daily Briefing's archives was republished on Sept. 13, 2021.

    One of the most ubiquitous tools in business is the SWOT analysis, in which you list the strengths, weaknesses, opportunities, and threats facing your group. The problem is that, as traditionally used, a SWOT analysis "does not offer a clear path to action," Laurence Minsky, an associate professor at Columbia College Chicago, and David Aron, a professor of marketing and director of graduate programs at Dominican University, write for the Harvard Business Review.

    Here's what they recommend instead.

    Series: Lessons from the C-suite

    Why SWOT analyses aren't as helpful as you might think

    According to Minsky and Aron, as it's typically conducted, the SWOT analysis "is simply [a] list and categorization of the internal and external situational factors related to the subject that you're evaluating," making the exercise little more than "an elegant organization tool."

    A few additional factors make most SWOT analyses unhelpful, Minsky and Aron write. First, because people often try to capture their entire SWOT analysis on a single PowerPoint slide or sheet of paper, their assessments often consist of "exceedingly short, often one- or two-word descriptions," which can then lead to "shortcuts in thinking," they write. For instance, "an important attribute like 'price' might be listed as a strength, weakness, opportunity, and threat without further explanation," they write.

    Further, a SWOT analysis can be hard to interpret "because of the lack of hierarchy," Minsky and Aron write. Each of the four quadrants in the analysis are equally emphasized, making it "merely a snapshot of the current situation—or, worse, a snapshot of what's currently on the minds of brainstorming session attendees."

    It's also easy for people to misunderstand the "opportunities" section of the analysis, Minsky and Aron write, "presuming that they are recommendations of 'what could be done.'"

    Even so, a SWOT analysis can be useful—so long as the process is tweaked, Minsky and Aron write.

    How to fix the SWOT analysis? Do it backwards—and end with clear recommendations.

    One key change that Minsky and Aron recommend is that, rather than starting with strengths and weaknesses, you start with external factors—the opportunities and threats.

    There are a variety of reasons for this approach. First, the external factors "exist not only for your firm but for all competitors," they write. "In effect, the external factors create the arena in which the competition takes place"—and help determine what internal attributes are relevant.

    Further, focusing on external factors—both positive and negative—at the start will "get you thinking more broadly about the internal factors, reducing the risk of myopia," which in turn helps you "uncover internal factors that you might not have otherwise considered," Minsky and Aron write.

    After you look at the external factors, Minsky and Aron write that you should explore your internal strengths and weaknesses. And at this stage, don't "settle for one- or two-word descriptors like 'price' or 'technology,'" they write, urging people instead to "explicitly spell out the situation with a detailed phrase or sentence."

    Then, you should go one step beyond the traditional SWOT analysis and generate clear strategic recommendations, Minsky and Aron write. They advise using a simple construct, such as an adaptable phrase like, "Given the condition of (external factor), our ability to (internal factor) leads to our recommendation that we (recommendation)."

    As an example, Minsky and Aron consider an external factor of the recession and an internal factor of price. In that case, an analysis might generate recommendations such as, "Given the condition of our current recession, our ability to realize cost savings over our competitors leads to our recommendation that we reduce our price," or, "Given the condition of our current recession, our low brand recognition leads to our recommendation that we target this brand for reduced marketing support, in favor of our stronger brands."

    According to Minsky and Aron, this approach "is straightforward and demands attention to a range of internal and external factors, and the results are recommendations that are more thoroughly developed and grounded" than those of a traditional SWOT analysis (Minsky/Aron, Harvard Business Review, 2/23).

     

    Advisory Board's take

    3 things to consider in your OTSW analysis

    Craig Pirner By Craig Pirner, Managing Director

    There are plenty of good things to be said about SWOT analyses. They're an accessible way for department or unit teams to think strategically about how they can contribute to cascaded institutional goals, offering an organized way for leaders to help their team develop and expand their perspective. Rooting discussions of strategic contributions in such an environmental scan typically helps improve, in both number and quality, your team's ideas.

    Thus, for years, Advisory Board has encouraged managers in our leader development programs to use SWOT analysis in their goal-setting efforts. But I agree with the advice Laurence Minsky and David Aron provide on the problems with SWOT, particularly as it pertains to the order in which the SWOT factors are considered.

    Our advice to managers: "Do an OTSW analysis." That is, consider opportunities and threats before strengths and weaknesses.

    The rationale for OTSW is twofold:

    • Capacity is not destiny. When groups start by considering the (internal) factors of strengths and weaknesses, current resourcing often constrains their thinking about opportunities and threats. First analyzing the (external) opportunities and threats is much more likely to spur questions about where capacity can be reallocated, built, or bought in order to seize opportunities and defend against threats.
    • Starting with opportunities and threats encourages a broader perspective. When strengths and weaknesses are considered first, groups are prone to navel-gaze—that is, to focus on strengths and weaknesses as they are perceived within the department. First analyzing the (external) opportunities and threats orients a team to how they are perceived by others, which catalyzes a wider perspective on strengths and weaknesses.

    That said, just switching SWOT's order to OTSW doesn't solve every problem; having led these sessions with many groups, I found Minsky and Aron's caution about rigor resonant. To help facilitate a rigorous OTSW analysis, consider three things:

    • Remember: The quality of thinking is more important than the visual representation of that thinking. Don't worry so much about whether your analysis fits on a single page or whether every idea falls neatly into one of SWOT's four quadrants. Instead, ask yourself: "Would someone who did not participate in the discussion understand my documentation of the discussion?" This will push you to more fully understand, and then describe, what people mean, even if it means the analysis doesn't fit on a single page.
    • Break it down before you write it down. Try to dismantle the elements down to their most basic, measurable components. For example, if a person suggests that a department's "strong reputation" is a strength, before you write that down, break that down: Do they mean best-in-class patient satisfaction? Consistent clinical outcomes? State-of-the-art facilities? Often, it's the broken-down components that are worthy of documentation.
    • Separate brainstorming from analysis. As Minsky and Aron suggest, the two are often conflated. Explain and then enforce that OTSW is first about understanding the environment and that, based on that understanding, the group will then brainstorm potential contributions to a cascaded strategic goal. (Here, it can be helpful to have a "parking lot" of brainstormed ideas that may arise as you are completing the OTSW. That way, the idea is not lost or disregarded, but you can maintain separation of analysis and ideation.)

    Finally, when it's time to turn to that brainstorming, ask questions about how combinations of the OTSW elements should affect your strategy. That is, instead of just using each element to ask idea-generating questions (for example, "how can we leverage our strengths?"), also use combinations of the elements to pose additional idea-generating questions, such as:

    • "Given our strengths, how can we take advantage of opportunities?";
    • "What can we do to ensure that our weaknesses do not prevent us from pursuing opportunities?"; and
    • "Where can our strengths help us counter threats?"
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