SWOT Analysis: Strategic Planning or Strategic Folly
This paper discusses the role of a SWOT analysis in the formulation of a company strategy and highlights the benefits (or otherwise), which can result from such an approach. Introduction Although there is no single definition of strategy accepted universally Quinn (1980) suggests that it is the plan that integrates an organisations major goals, policies and actions into a cohesive whole. In terms of application Johnson & Scholes (1997) consider the steps in the formulation of a corporate strategy to be analysis. Choice and implementation; in other words understanding the present, the aspirations of the future and the path to get there. In strategic planning this is known as the corporate model and this paper in the main considers and approach to and the merits of the ‘understanding the present’ element.
SWOT Analysis – The Theory Arguably strategic planning has it the work origins in the work of academics at Harvard in the 1960’s and Kenneth Andrews popularised the idea that a good strategy required a fit between the external environment a company faces and its own internal qualities. Every company is faced with a mixture of these internal and external forces that can impact on the performance or the future aspirations of the organisation,
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SWOT requires a formulation and categorisation of factors through considering the internal qualities i.e. the company’s strengths (S) and weaknesses (W) and attempts to understand how those elements could ‘fit’ with external opportunities (O) and threats (T) hence the acronym. Theoretically a SWOT analysis would seem a reasonable approach to understand the path to future aspirations by matching strengths to opportunities, attempting to reduce / eliminate weaknesses and reducing / eliminate the treats. These are major issues with the method in practice however had problems occur with the quality, the categorisation of the data used and its level of analysis, in other worlds the devil is in the detail.
That said some academics consider a SWOT approach has merit in understanding the ‘present’, although many suggest that the method may require modification to do this effectively. Proctor (1992) uses a computer package to generate words for the use in identifying the strengths, weaknesses, opportunities and threats and the generation of strategic alternatives, Flett (1989) combined SWOT with the 5 W’s (what, when, where, who why?) and the 4p’s (product, price, place, promotion) plus a further P for people which he claimed gave a broader planning framework.
Weihrich (1982) stated that SWOT combined with a TOWS matrix (a linkage mechanism for the four categories) helped in the identification of strength / weaknesses relationships and could be used as the basis for strategy formulation. Indeed Ruocco and Proctor (1994) suggest that using the Weihrich technique will result in successful strategy formulation. Furthermore they state that a SWOT analysis arms the strategist with all of the information needed to go on to formulate the strategy itself.
SWOT Analysis – The Practical Problems In the example conducted by Ruocco and Proctor the strengths, weaknesses, opportunities and threats were generated through brainstorming (a typical approach), as was their categorisation. It is this information that forms the basis for the entire analysis that at best could be considered subjective, at worst worthless. This is because the generation and validity of factors is questionable; various methods can be used from individuals listing factors in isolation to group brainstorming. Such approaches surely rely on the expertise of the individual (or group) and their experience. Even if expertise and experience are present during formulation usually no attempt through analysis is made to confirm the list of factors generated are those that need to be considered.
For example in the Ruocco and Proctor case study one of the strengths of the company was considered to be ‘sound cost base’ and an opportunity was considered to be ‘development of an innovative new product’. Such statements are problematic, what determines the sound cost base? And what does ‘sound’ mean. As the factor was generated through brainstorming it could be assumed it was based on a gut feel. As this is considered an internal quality no comparison was truly sound and because this did not occur how can it be considered as a strength?. Again having an understanding of competitor activity now and in the future is surely required to fully explain the innovation required.
This generalisation appears to occur in most SWOT analysis; Houben et al. (1999) suggest that with strengths and weaknesses many companies only have vague ideas of their core competencies and the extent to which they posses them. furthermore they state that studying the competition is essential in the indication of these factors. SWOT also makes no attempt in prioritising the importance of factors nor does it assess the fit between factors and alternative courses of action. Kotler (1988) suggests a method for the classification of factors according to the probability of their attractiveness and success (opportunities) and of their seriousness and occurrence (threats).
Another issue is categorisation, is ‘Europe’ (to use Ruocco and Proctor to demonstrate) an opportunity or threat? Being part of the EU (assuming that is what is meant by Europe) with the size of its market could be considered an opportunity on the other hand being constrained by it legislation, rules etc. could be considered a threat. In this case without any analysis ‘Europe’ was considered an opportunity. Therefore the approach in generating the SWOT list, whether individual or through some group activity brings into question whether the method is indeed an analysis or just a dubious categorisation of a subjective list of items.
Indeed a study of 20 companies by Hill and Westbrook (1997) suggests that factors are usually very general points and are generally not backed up with numerical data. A further finding was that of 20 companies who conducted a SWOT analysis only 3 used it as input for further strategic work. It could therefore be assumed that 85% of the companies studied considered the results of the analysis to be of little value and it is probably because it is not in really true reality true analysis. Indeed the resulting output consists of generalised and invalidated statements and Hill and Westbrook suggest that the real intent of a SWOT analysis is merely to raise a general debate