SWOT Analysis
is central to strategic planning

The SWOT analysis involves the study of organizational Strengths, Weaknesses, Opportunities and Threats.

SWOT analysi

This strategic analysis is the key stage for flushing out the major strategic issues to be addressed in the strategic plan.

These corporate strategic issues are few in number, and huge in the importance to the performance of the organisation. With these elephant like issues clearly identified from the SWOT, a planning team can devise strategies to achieve the organisation's overall purpose, within a specific bracket of targets.

At the purpose and target setting stage preceding the SWOT analysis, targets and forecasts of current strategic performance gives a picture of the gap to be closed by new strategies.

The gap analysis gives you the overall size of the strategic task over time.

Then the SWOT analysis gives you the raw materials you need to make strategies of the right shape and pattern to close the gap.

A kind of strategic quilt!

However, the work is not patchwork! It involves a rigorous, comprehensive, and very thorough review of the enterprise capabilities, and environmental challenges.

The results of the SWOT analysis can be summarise in a SWOT analysis template, or cruciform chart like this.

Notice that we have limited the number of items in each cell of the SWOT analysis table to six. Our experience strongly suggests that more than this and we are not listing really big strategic factors. We are probably getting into operational problems which may or may not be symptoms of really big strategic issues.

SWOT Analysis 1 - Strengths and Weaknesses

The first half of the SWOT analysis is the Strengths and Weaknesses analysis. This is a look inside at the current activities, capabilities, and shortcomings of the organization.

It is one of the most important parts of the strategic planning process. Why? The Strengths and Weaknesses analysis is where we usually find the greatest number of major strategic issues.

However, there is a proviso.

For the real issues in terms of the internal resources and capabilities of the organisation to be addressed, the search must be opened up beyond the corporate management level strategic planning team. At a minimum where the organisation is large enough, the top three levels of management at least should be involved in a very open, honest and participative process to identify the real strengths and weaknesses of the organisation.

If this is not possible, then this fact itself may be pointing to weaknesses in culture, or management character and capability.

Such a participative, and it must be acknowledged, challenging procedure is almost always the best way to go. There are a very few exceptions however.

  • Where the chief executive is an autocrat and participation is only superficial for fear of offending the big man. Yes it is usually a man!
  • Where there is a problem of such sensitivity that more harm than good might result from trying to deal with it in an open forum, and as implied above
  • Where the organisation is too small to invite sufficient numbers of employees and outsiders to form discussion groups.

With a properly run workshop to identify the key strengths and weaknesses will emerge with a strong consensus on what really matters within the organisation.

This will be one of the strongest planks in the platform required to underpin the selection of strategies later on.

There are more technical and disciplined methods of identifying strengths and weaknesses, which may be too time-consuming for the planning team to employ. The planning assistant or a special task team might well find them useful in areas of particular concern.

A few aids to clarifying the strengths and weaknesses at this stage include the following.

  • Some organisations have found it useful to employ 'Critical Success Factors' (CSFs). The planning team generates a list of perhaps the top five things which the organisation needs to do well in order to succeed in its particular field.
  • Another way of looking at the organisation to understand its strengths and weaknesses is value chain analysis. This is a framework made popular by Professor Michael Porter of Harvard University. The value chain is a means of describing a business as a linked set, or chain, of activities that take inputs through a process to transform them into outputs that will be valued by customers.
  • In recent years with rapid globalisation of business, partly through the application of information and communications technologies (ICT), frameworks have been further developed to understand the way businesses do business or their business model.
  • A business model describes the overall organisation of processes by which an organization creates, delivers, and captures value. Various schemes have been devised to undertake analysis of the business model, and understand its strengths and weaknesses.
  • The Boston Consulting Group (BCG) has devised a way of looking at the lines of business, or separate business units in a firm. Often referred to as the BCG Matrix, it enables classification of business activities into one of four types, organized according to market share prospects, as well as cash flows, and capital requirements. The very act of classifying and discussing the implications can bring a new and clearer perspective of the best and worst performing parts of the organisation.

SWOT Analysis 2 - Opportunities and Threats

This part of the SWOT analysis is carried out by viewing things from the other side of the window. In the first half, planning team were trying to identify the really big strategic issues inside the enterprise. Now they must turn their focus outside, to the trends and events external to the organisation, which are mostly beyond their control.

Having engaged the executives from at least the top three management levels to describe the strengths and weaknesses of the organization, the same group should then also be asked to carry out the External Appraisal of Opportunities and Threats.

Although it is important to have the same people involved, the character of the exercise is different. With the Strengths and Weaknesses half of the SWOT analysis, the executives involved are very familiar with the territory. They will not be as on top of things with the Opportunities and Threats back half of the SWOT analysis to the extent they were with the Internal Appraisal. The areas to be addressed are too many and extensive.

Whereas the Strengths and Weaknesses part of the analysis can usually be covered using simple checklists, and shared understanding of the organisation as embodied in businesses model representations, the External Analysis will probably require a greater range of aids, including occasionally, some external advice on particular areas.

Quite a few methods for analysing and forecasting one's industry are available.

  • The threats and opportunities analysis should include a survey of the few main areas in any of which any organization may find issues of strategic importance. Once identified, listed and described they should be ranked by probability and by impact.
  • This survey usually needs to cover at least changes or trends in the Political, Economic, Social, and Technological areas. This is often called PEST analysis.
  • Sometimes it may be useful to add a fifth area of changes specific to the industry sector the organisation operates in, thus PESTI analysis.
  • This Industry Analysis may address the stage of the Industry Life Cycle, and use techniques such as Michael Porter's Five Forces to understand the dynamics of the industry economics that are changing, and which may impact the performance of the enterprise.
  • This external analysis can also be used to give a picture of the competitive landscape within which the organisation operates, with study of other key players in the industry through competitive intelligence, competitor analysis, and an understanding of the basis of competitive advantage in the industry concerned.

Generating Strategic Options

Catch me at Trafeze

Having completed the data-collection stage in the corporate strategic planning process, the planning team should gather all its conclusions together in some methodical manner such as a Cruciform Chart or a table showing the 'strategic totality', or big picture. This will assist them to reach a very succinct description of their organization's key strategic issues.

There is sometimes only one of these, often two, occasionally as many as five or six, but never more.

With the end of the External Appraisal the data collection stage of the corporate strategic planning process is complete.

The team will now know how urgent the strategies are, they will know how large the gaps are, they will know their outstanding abilities and disabilities, and they will know something of the trends in the world around them.

They are still not ready to make the final strategic selections; however, before they do that there are two more steps to take.

  • The first is to stand back and review what they have now learned about their organization. What does it all mean? How does it all fit together? Does it tell a lucid and consistent story? Does it lead to any obvious conclusions?
  • The second is to list all the various alternative strategies- the more innovative and imaginative the better - that might possibly help them in their situation. Details of how to go about this and information on possible strategies to be pursued will be found under business strategy, and in particular at strategic decision making.

Work on SWOT is not always helpful in planning. This is because something that is simple becomes complicated by confusing ti with other things. See 'What is SWOT Analysis?' for more on this.

If you wonder about how SWOT Analysis came into use try this article.

Return from SWOT analysis to Simply Strategic Planning Homepage.

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