The correct way to perform a SWOT analysis
One of the most used strategy frameworks in consulting projects is the SWOT analysis. This framework is perfect for summarising your findings from other pieces of analysis, such as VRIO, Porter’s Five Forces and PESTEL. However, because it is a simple analysis it’s rarely taught in strategy classes. Thus, students often make easy mistakes when performing the analysis.
In this blog post, I’ll give some simple guidelines on how to perform a SWOT and how to generate ideas from it. I believe the post is particularly useful for students in business schools and management consultants.
Three key points you should know after this post are:
1. Strengths and Weaknesses are factors WITHIN the firm and Opportunities and Threats are factors OUTSIDE the firm
2. The SWOT is primarily a summary of other frameworks
3. You can generate strategic recommendations by targeting opportunities with strengths or mitigating weaknesses that exacerbate threats
What is the SWOT?
SWOT stands for strength, weakness, opportunity and threats. It’s a framework primarily used to summarise the findings from other pieces of analysis. For example, as part of a consulting project you tend to create a PESTEL, Porter’s Five Forces and VRIO. Each of these analyses can generate important insights, but the insights tend to be disconnected from each other. Therefore, to make it easier for the client to understand how everything fits together, you need to summarise the findings. SWOT can be a great tool for this.
How to fill the boxes?
Now that we know the SWOT’s primary purpose is to summarize our findings, we need to know what goes where. The most common mistake is to include internal factors in opportunities and threats. For example, I often see students write firm X has the opportunity to improve their recommendation algorithm. In the context of a SWOT analysis this, however, isn’t an opportunity but an implicit recommendation. That is, the recommendation algorithm is something internal to the firm not part of the external market.
In the SWOT, strengths and weaknesses are internal factors and opportunities and threats are external factors. This distinction is important, as it affects your ability to create recommendations based on our analysis. Keeping internal and external factors separate allows us to judge if a recommendation is attainable and has a positive effect on the firm.
Consider, for example, the recommendation that firm X should improve its recommendation algorithm. We cannot judge if this is a good idea because it’s not clear that the recommendation addresses anything in the external environment. If we had data that indicates that consumers are sensitive towards searching costs, then improving the recommendation would make sense. Whereas, if the firm’s recommendation algorithm is of similar quality as its competitors’ recommendation algorithm and the consumers are not very sensitive to the quality of the recommendations, making this improvement would be a waste of money.
How to use the SWOT to generate recommendations?
A key strength of the SWOT is its ability to help with generating recommendations. We already touched on this in the previous section, but it’s worth being more explicit about how it can be used to generate recommendations. The easiest way is to use your strengths to pursue opportunities or mitigate threats. Alternatively, you can recommend strengthening your weaknesses to pursue opportunities or mitigate threats.
For example, Samsung has strong capabilities in creating computer screens. The market for portable screens is growing. Therefore, we could recommend Samsung to enter the market for portable screens.
A second example could be the tensions between China and Taiwan that may threaten Samsung’s supply of semiconductors. They can address this issue by building this capability in-house or by diversifying their supplier network. Our analysis may tell us that Samsung has successfully created new R&D capabilities but is bad at sourcing suppliers. Therefore, the recommendation should be that they start to create their own semiconductors to reduce the threat of future supply chain issues.
Conclusion
The SWOT is a great framework for summarising your other analyses. But when you apply it, you do need to place the information in the right boxes. In this post, I’ve explained how to apply the framework and how to use it to generate recommendations. I haven’t explained how to perform the analyses that are used to fill the boxes in the SWOT. But for those that are interested in learning how to apply different strategy frameworks, I would recommend you look at my other posts.
If you have any questions, please let me know in the comments.