“Thus it is that in war the victorious strategist only seeks battle
after the victory has been won, whereas he who is destined to defeat
first fights and afterwards looks for victory.”
-Sun Tzu, The Art of War[i]
A Brief History of SWOT
The origin of SWOT is unclear. It appears that it began at DuPont in 1949 with academic roots in the 1950s. Some attribute it to development at Harvard[ii], borrowing concepts from Philip Selznick at the University of California and Alfred Chandler[iii] and Kurt Lewin at MIT.[iv] Peter Drucker may have been influential in this process too. According to Robert Swaim, in The Strategic Drucker, in 1964,
Drucker devoted several chapters in Managing for Results to the need to build on one’s strengths, minimize weaknesses, and pursue opportunities while assessing risk. Although not presented in the same way, this may have laid the foundation for the more popular SWOT analysis.[v]
From these first academic concepts, Harvard professors refined the ideas and developed a useful strategic instrument. SWOT is clearly described in Professor Edmund Learned’s Business Policy: Text and Cases in 1969.[vi]
At about the same time, researchers at the Stanford Research Institute, including Albert S. Humphry, claim credit for developing the tool.[vii] All agree that the roots of SWOT developed during the 1950s and that the tool was developed in the1960s. They also agree on the basic structure and the use of SWOT analysis. Humphrey explained that it developed from an earlier, clumsier formula name SOFT Analysis. He wrote:
We started as the first step by asking, ”What’s good and bad about the operation?” Then we asked, “What is good and bad about the present and the future?” What is good in the present is Satisfactory, good in the future is an Opportunity; bad in the present is a Fault, and bad in the future is a Threat. Hence S-O-F-T. This was later changed to SWOT—don’t ask. (I’m told that Harvard and MIT have claimed credit for SWOT…not so!)[viii]
It would not be surprising if both schools can lay claim to developing SWOT. At a minimum, scholars on the cutting edge of organizational research would’ve been aware of each other’s work. Early research on organizations focused on efficiency, but after World War II, and particularly by the 1950s, scholars were looking beyond the organization to the organizational environment.
SOFT and SWOT were not the only frameworks. By the early 1970s, Volkswagen was using the TOWS framework. The order of TOWS was intentional as it emphasized the external environment first.[ix]
What is SWOT Analysis?
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The first two are internal and they reflect the organization’s core competencies. The next two are external to the organization. They help the user to scan the environment for opportunities and threats. Internal and external analysis must go together to provide a complete picture.
In Business Startup 101, Chris Gattis explained, “What is important to understand is that the SWOT analysis of your firm will identify your resources and capabilities and how they match up against the other players in your market.”[x] As you now know, the other players include suppliers and customers.
While number variations on SWOT Analysis[xi], it is often conducted in a two-by-two matrix like the one below. Strengths and weaknesses focus on that which happens inside the organization. These issues are largely controllable. Opportunities and threats focus on the external environment in these elements are beyond direct control. Strengths and opportunities are positive. Weaknesses and threats are negative.
When used properly, SWOT analysis can help find the best match between environmental trends (opportunities and threats) and internal capabilities. An effective strategy is one that takes advantage of the organization’s opportunities by employing its strengths and wards off threats by avoiding them or by correcting or compensating for weaknesses.[xii]
SWOT analysis is a versatile tool that can be used by an individual or a large organization. In the organizational context, it would be ideal for many members of the organization to individually perform SWOT analyses over a period of time before the results are compiled.
- Core competencies
- Patents, trademarks, and other proprietary systems
- Technological advantages
- Production advantages
- Geographical location
- Brand awareness
- Credentials or certifications[xiii]
- Working outside areas of core competence
- Lack of patent protection
- Lack of differentiation
- Poor reputation or lack of brand awareness
- Inefficient production system
- Geographical location
- Bad management or poor morale[xiv]
- Fewer competitors in the market
- New regulations provide opportunities
- New technologies provide opportunities
- Seasonal opportunities
- New products demanded
- New processes developed in the industry
- Demographic shifts[xv]
- New competition in numerous forms
- New regulations or political changes
- Technological improvements
- Competitors’ products
- Demographic shifts
- Changes in customer preferences[xvi]
You will notice that strengths and weaknesses are often mirror images of each other. So too are opportunities and threats. When looking at opportunities and threats, it may be helpful to conduct a PEST analysis. PEST stands for Political, Economic, Social, and Technological factors in the external environment. Another variation of this analysis is called STEEP for Social, Technological, Economic, Ecological, and Political/legal analysis.[xvii] Whatever you call it, you must be sure that you are clearly seeing how changes in your environment affect your business. Think in terms of Porter’s Five forces.
The Use and Misuse of SWOT Analysis
SWOT analysis is most useful when it is used correctly. It has limited value as an intellectual exercise. It has some value when applied to a singular area, but it has great value when used to triangulate on the issues from many angles. A SWOT analysis is just the beginning of a larger process. “A SWOT analysis is often created during a retreat or planning session that allows several hours for brainstorming and analysis. The best results come when the process is collaborative and inclusive.”[xviii] Humphrey explained that all members were urged to offer their analysis. They were instructed, “to identify trivial issues, for that’s where the gold lies–not in the ‘Big Ideas.’” He continued:
Following the analysis step, we sorted the issues into six programme-planning categories of:
Product– process– customer– distribution– finance– administration.
By sorting the SWOT issues into the 6 planning categories one can delineate short- and long-term priorities. This approach captures the collective agreement and commitment of those who will ultimately have to do the work of meeting the objectives.
The action plan then becomes “what shall the team do about the issues in each of these categories?” The planning process was developed into a 17-step process beginning with SWOT. This sorting step can be easily done since each issue is recorded separately on a single page called a planning issue. As Robert Stewart said at the time we developed it – “SWOT identifies all of the claims on management’s attention.”[xix]
While many businessmen swear by SWOT analysis, critics are less impressed. SWOT is a limited tool. For example, in The Handbook of Improving Performance in the Workplace, Watkins and Leigh pointed out that it does not help with either prioritization of activities or costs and benefit analysis.[xx] Joan Margretta called it a weak tool that “is biased (in my experience, heavily so) toward confirming managers’ long-standing beliefs, whether those are based on sound economics or on an executive’s personal agenda.”[xxi]
Like many tools of analysis, it is open to abuse, but that abuse is not a function of the tool but of the human heart. Eyeglasses are designed to help us see more clearly, but they can be misused by an arsonist to start a fire under the right conditions. In such a case, we would not blame the eyeglasses. While it is true that “SWOT is often used poorly,”[xxii] when it is used correctly, it can help us understand whether our strategy is sound. What we do with that information is up to us.
Perform a SWOT analysis. If you are part of a larger organization, many members of the organization should independently perform this analysis and then compile your findings.
What will you do with the information you have gained? Relate your findings to “Product– process– customer– distribution — finance—administration.”
[i] Tzu. S. (2011). The art of war. New Delhi: General Press
[ii] Watkins, R., & In Leigh, D. (2010). Handbook of improving performance in the workplace. Vol. 2: Selecting and implementing performance interventions. Chichester: John Wiley. p. 117.
[iii] Chermack, T. J. & Kasshanna, B. K. (2007). The use and misuse of SWOT analysis and implications for HRD professionals. Human Resource Development International 10(4), 383-399.
[iv] International Society for Performance Improvement. (2010). Handbook of improving performance in the workplace. San Francisco, CA: Jossey-Bass. (p. 116.)
[v] Swaim, R. W. (2010). The strategic Drucker: Growth strategies and marketing insights from the works of Peter Drucker. San Francisco: Jossey-Bass. p. 48
[vi] Learned, E. P. (1969). Business policy: Text and cases. Homewood, Il: R. D. Irwin. p. 17.
[vii] Krogerus, M., Tschäppeler, R., & Piening, J. (2012). The decision book: Fifty models for strategic thinking. New York: W.W. Norton & Co.
[viii] December 2005 Newsletter (2005). SRI International. Retrieved from https://www.sri.com/sites/default/files/brochures/dec-05.pdf p. 7
[ix] Chermack, T. J. & Kasshanna, B. K. (2007). The use and misuse of SWOT analysis and implications for HRD professionals. Human Resource Development International 10(4), 383-399.
[x] Gattis, C. (2010). Business start-up 101: From great idea to profit…quick. Huntsville, AL: Blue Point Publishers. p. 99.
[xi] Chermack, T. J. & Kasshanna, B. K. (2007). The use and misuse of SWOT analysis and implications for HRD professionals. Human Resource Development International 10(4), 383-399.
[xii] Chermack, T. J. & Kasshanna, B. K. (2007). The use and misuse of SWOT analysis and implications for HRD professionals. Human Resource Development International 10(4), p. 388
[xiii] Gattis, C. (2010). Business start-up 101: From great idea to profit…quick. Huntsville, AL: Blue Point Publishers. p. 100.
[xiv] Gattis, C. (2010). Business start-up 101: From great idea to profit…quick. Huntsville, AL: Blue Point Publishers. p. 101.
[xv] Gattis, C. (2010). Business start-up 101: From great idea to profit…quick. Huntsville, AL: Blue Point Publishers. p. 101.
[xvi] Gattis, C. (2010). Business start-up 101: From great idea to profit…quick. Huntsville, AL: Blue Point Publishers. p. 102.
[xvii] Bensoussan, B. E., & Fleisher, C. S. (2014). Analysis without paralysis: 12 tools to make better strategic decisions. Upper Saddle River, NJ: Pearson. p. 169.
[xviii] Section 14. SWOT Analysis: Strengths, weaknesses, opportunities, and threats. University of Kansas Community Tool Box. Retrieved from http://ctb.ku.edu/en/table-of-contents/assessment/assessing-community-needs-and-resources/swot-analysis/main
[xix] December 2005 Newsletter (2005). SRI International. Retrieved from https://www.sri.com/sites/default/files/brochures/dec-05.pdf p. 7-8.
[xx] Watkins, R., & In Leigh, D. (2010). Handbook of improving performance in the workplace. Vol. 2: Selecting and implementing performance interventions. Chichester: John Wiley. (p. 122).
[xxi] Magretta, J. (2012). Understanding Michael Porter: The essential guide to competition and strategy. Boston, Mass: Harvard Business Review Press. p. 39.
[xxii] Chermack, T. J. & Kasshanna, B. K. (2007). The use and misuse of SWOT analysis and implications for HRD professionals. Human Resource Development International 10(4), p. 392.