I recently watched a livestream with some strategy consultants who trotted out a SWOT analysis that was fairly close to useless. If you're unfamiliar, a SWOT analysis is a 2x2 grid of strengths, weaknesses, opportunities, and threats. It's a strategic analysis tool designed to help companies assess a competitive landscape and set strategy.
A basic SWOT analysis is something you can do on a sheet of paper or even a napkin:
The problem is, nearly everyone who uses SWOT analysis tends to do a few things wrong:
- People tend to confuse the four categories; strengths and weaknesses are internal, while opportunities and threats are external.
- People tend to add things that are overly broad or unfocused, making them difficult to take action on.
- People tend to use the SWOT analysis for non-competitive assessments.
Here's an example. Let's pretend we're a local coffee shop. The average SWOT analysis, done improperly, looks something like this:
Strengths and weaknesses, as the local coffee shop, make sense. A local coffee shop has the quality (presumably) and atmosphere, but can't beat the pricing and speed of service that the bigger competitors in the field have.
Where this falls apart is in opportunities and threats. Delivery? Is that an opportunity? Delivery is a process, which means that it's something to measure against a competitor. And the threats section is a hot mess. Yes, the pandemic is a threat in general, but in the context of competitive analysis, how is it a threat? And listing competition in a competitive analysis is just... redundant.
Why does this happen? I suspect it's because people try to make the SWOT analysis do too many things, be all things to all executives. It's better as a specific, focused tool to do a competitive analysis against a specific, single, named competitor. Let's take our coffee shop analysis and look at it against just one major coffee company, like Starbucks:
Instead of a generic mess, we rename opportunities and threats as our single competitor's strengths and weaknesses. Compared to our coffee shop, Starbucks has substantial strengths: bigger ad budgets, a powerful brand, a nice atmosphere, good wi-fi speed in their shops. They also have a big pile of weaknesses: their shops can be loud, busy, crowded, they screw up orders frequently, they can be pricey, and their quality is inconsistent depending on the individual franchise.
Most people stop at this point in their SWOT analysis and start attempting to set strategy. Don't! We're only halfway done. Our next step is to look carefully at our lists of our strengths and weaknesses versus Starbucks strengths and weaknesses. If you've done a SWOT analysis on paper or in an easily editable digital form, get out your scissors.
We carve up our SWOT analysis into pieces, and then compare the pieces.
Strengths versus Strengths
Let's start with our strengths versus Starbucks strengths. What we're looking for here are strengths that both share - if they both share them, then our advantage might be nullified:
Yep. Starbucks shops tend to have a reasonably pleasant atmosphere, at least in terms of decor. So our advantage there may not be as strong.
Strengths versus Weaknesses
Next, let's compare our strengths against Starbucks weaknesses:
So while atmosphere might not be one of our strengths, we definitely have advantages in terms of quality - they get orders wrong more, and their quality is inconsistent. Put a star or something next to quality, because it's a strength we could double down on, maybe even make part of our marketing campaigns.
When we look at their weaknesses, we see that there are two that don't match up - loud and expensive. Are we cost comparable? Is our shop quieter? We might find those are hidden strengths - opportunities that we could leverage.
Weaknesses versus Strengths
Now, let's tackle our weaknesses versus Starbucks strengths:
We can't do much about ad budget and brand. Those are clearly threats, but they're threats that would be difficult to mitigate. We've already established that atmosphere is something that could be mitigated - we might not be able to afford the same kind of decor, but if our shop is less noisy, that might be a threat we could mitigate. And wi-fi speed is something we could definitely mitigate if it was a problem; we'd want to do customer surveys to ask whether or not it's a big problem.
Weaknesses versus Weaknesses
Finally, we look at weaknesses versus Starbucks weaknesses:
We see that we've nullified our perceived pricing weakness - if our espresso costs $2 and Starbucks costs $2.50 then we're not in an especially bad spot. As a brand, Starbucks isn't necessarily known for lowest pricing anyway. So at least in the context of us versus Starbucks, our weaknesses cancel each other out. Our other weakness - speed of service - is something we could mitigate by focusing on the fact that while Starbucks is technically faster, their quality is an issue. Faster doesn't mean better as long as we're certain of our quality.
When we take a SWOT analysis and break it up, step by step, piece by piece, we ground ourselves in reality and start focusing on real things we could do to double down on our strengths or find more strengths, and mitigate our weaknesses. At the end of the day, we have no control over what our competitors or the environment around us is. We only control what we do, so changing our SWOT analysis focus to what we do and how we address our own positives and negatives is the way to turn SWOT analysis into meaningful action.
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