Pros and Cons of SWOT Analysis

in Business Management
SWOT analysis

One of the more basic strategy development tools, SWOT analysis, is also one of the most misunderstood.

Business is tough. Anybody whose started a company or held a position for an organization rife with pressure will attest to that. But there’s a long list of existing processes and steps proven to be of good use already available to those charged with shaping strategic objectives and direction.

One of the most straight forward and overused, yet misused, too, is the strategy inducing tool with a recognizable four character acronym. That is, of course, the SWOT analysis.

More specifically:

  • Strengths
  • Weaknesses
  • Opportunities
  • Threats

Used by departmental managers in Fortune 500 companies through three-person non-profits, SWOT is a base method which, if used properly, may reveal important characteristics about, or missing, of an organization’s infrastructure.

SWOT of SWOT

Once the four aspects are determined, intuition leads those involved with the analysis to attempt to:

  1. Maximize Strengths
  2. Eliminate or Minimize weaknesses
  3. Capitalize on Opportunities
  4. Overcome or deal with threats

To a certain extent, strengths and weaknesses are categorized as internal factors or somewhat controllable. Opportunities and threats are normally uncontrollable and are classified as External Factors.

Many will simply follow these steps, present it at an internal meeting, high-five each other and bury the results in a file never-to-be seen again until their next annual SWOT exercise.

Before anybody takes the initiative to conduct their own SWOT of their company or department, this article identifies a few warnings to heed to. These pitfalls are what single-handedly nullify 10 out of 12 SWOTs making them an exercise in futility and wastefulness.

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SWOT shortcomings, some avoidable

What’s interesting about this strategy development tool is its tendency to fall into one of two extremes.

SWOT analysis is too often a busy-work task, not given much thought, often held when a company needs a reason to have employees participate in an old-fashioned brainstorming session.

Or, some companies view it as a be-all end-all means of returning to profitability in one year. I like to think it falls somewhere in between but there are some nuances of SWOT to be taken into consideration beforehand:

  • Can produce vast nuggets of information of which many are irrelevant
  • Can be somewhat arbitrary
  • Tendency for situations to be over deciphered distinguishing external factors into categories they may not otherwise fit
  • High levels of subjectivity (especially when it comes to stating strengths)

So long as these obstacles are conspicuously apparent and accounted for, a company or department is ready to begin their SWOT analysis.

Strengths

I can’t overemphasize enough the need to be as objective as possible when identifying the competitive advantages of a company or unit. Ideally, an observant and honest competitor would make for a terrific SWOT coordinator to diagnose what their competitors’ strengths are.

Since that’s not an option, perhaps an employee with enough insight into varying departments within a company, maybe a General Manager or somebody else with enough intimacy whose worked there long enough to know the operational intricacies of how it runs.

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After listing up these strengths, each should be submitted to a three-part question filtering process:

Is it positively “valuable”?

Is it justifiable to charge more because high-tech equipment can produce a product in half the time it takes the competition?

If it’s a service-based product, then the question would be similar but, perhaps the amount of resources consumed to produce a given service is less than the competition.

Is it substitutable?

This deals with the likelihood that a cheaper alternative exists.

Is it inimitable”?

This is where a subjective environment can cloud an analysis. A sense of complacency may have set in causing a company to believe they’re the only company to enjoy what the company in question believe is a core strategic competitive advantage.

Weaknesses

These are not necessarily the opposite of strengths. However, in terms of importance in conducting a SWOT, they should receive almost as much consideration as Strengths since both criteria are internal factors.

They have the greatest potential for controllable impact from within a company or department.

If your SWOT experiment is conducted in a somewhat informal, open-meeting style format I recommend placing a sign over the entrance to the conference room along the lines of: Check Pride at the Door

Opposite of strengths likely to be fluffed up, the exploration of weaknesses is not meant to be discerning in exploitation. Others may recommend you “eliminate” weaknesses—easier said than done.

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Further, the ends may not justify the means if a company overextends itself disposing resources to eradicate a weakness that only needed to be controlled.

That’s why a better strategy is likely to build strategies around weakness to shield it from the outside. In fact, if a weakness cannot reasonably be corrected, they should be shielded and objectively considered before developing any strategy from a SWOT analysis.

The final two steps in a SWOT experiment are the two external or relatively uncontrollable, factors; Opportunities and Threats.

Opportunities & Threats

In the simplest of terms, expose opportunities and mitigate threats.

While still important I focused mainly on the two criteria, Strengths and Weaknesses, since they will form the core of what will hopefully be a meaningful byproduct of a well-thought out SWOT—the beginnings of a strategic direction destined for success.


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