No. 2 in the Seven Mistakes Series
Often it seems like SWOT is the only non-financial analysis method people remember after B-School, and it shows up everywhere. This may be because it’s simple, straightforward and easy to remember. Sadly it’s also easy to get wrong.
It’s so easy to get wrong, in fact, that one of my mentors in Competitive Intelligence, Dr. Ben Gilad, refers to it as Silly Way Of Thinking.
It is the simplicity and accessibility of SWOT that makes it vulnerable and, unless you’re careful, the results become meaningless at best and damaging at worst.
What’s the problem? Internal vs External perspective.
The SWOT framework offers obvious guidance of where we should look for the information needed to complete it. Opportunities and Threats are clearly external, and almost everyone gets this right. SWOTters search the web and engage third-parties for market research and statistics to size potential markets and gauge opportunities. They query the sales force for insight into deals both won and lost, and for clues as to where new business may lie.
But when it comes to gauging Strengths and Weaknesses the obvious, and easiest, data sources are wrong. Over the years I’ve seen hundreds of SWOT analyses – on everything from new business opportunities to new product launches to new marketing campaigns. In nearly every instance the Strengths and Weaknesses data should be labeled Beliefs and Assumptions.
Not long ago I worked a project for a company that was in distress. The stock price had been sliding steadily for several years – from a high of about $20 to a low of about $5. The company was losing customers, revenues were declining, the entire industry was shrinking and consolidating, and circumstances were grim.
We were contacted by a VP looking for market information (Opportunities and Threats.) The VP had been tasked with identifying (in a very short period of time) new business opportunities and presenting them to executive management. Several other VPs had been given the same task. After answering his market questions the VP volunteered to send us his presentation.
Not surprisingly, it contained a SWOT analysis. Looking it over I was struck by the list of Strengths and Weaknesses. Several strengths stood out as questionable, among them customer intimacy.
Now you might reasonably ask how someone in a business with steadily declining revenues, declining share price and declining customer base might conclude that customer intimacy was a strength?
The answer is that this was a deeply-held belief in the company. It was a legacy from the days when the company was successful, a comforting laurel on which management could rest. It was also wrong – as were most of the strengths on his list. Almost every strength was a holdover from the days when the company was profitable, which was no longer the case, yet management assumed they were still true.
Worse, the list of weaknesses was a collection of milquetoast admissions of minor import. There was a nod or two to real issues but nothing that could stir conflict. It was clear no one wanted to take an aggressive stance with executive management about what was really wrong.
The result was that the proposed business case had no basis in reality. It’s safe to assume the other VPs presented similar business cases, as they all used the same template and worked to the same set of expectations and rules as our client. In the end, after a lot of scrambling and digging and collecting data for proposals, executive management was left with a collection of poor alternatives from which to choose.
Two years later the company’s stock was trading below $1. Eventually the company did what many companies do to raise share price, they bought more customers and sales through acquisition.
The point of this is that to be effective the information for Strengths and Weaknesses cannot be drawn from internal beliefs. They cannot be based on historical assumptions. They must be based on current, realistic assessments of what customers, prospects and competitors see as your strengths and weaknesses.
SWOT is a valuable tool when used correctly, but you must put in the time and effort to realistically assess how the market and competitors view your strengths and weaknesses.
If you do nothing more than list off a series of beliefs and assumptions you’ll only get the results of a Silly Way Of Thinking.