Feature

Hidden Strengths
The proper use and great strengths of the
By Dr Brian D Smith

analysi s

For most firms, creating a strong strategy begins with making sense of complexity: c u s t o m e r s , c o m p e t i t o r s , suppliers, channels-to-market make for an often confusing task environment. Add to this is the remote environment of social, legal, economic, political and technological factors and both combine to make understanding the market difficult. And without market understanding, success is a matter of luck. To help them do this, marketers and strategists have an armoury of tools and techniques, from segmentation to life-cycle, from scenario planning to value chain. But perhaps the best known of these, at least to the layman, is SWOT analysis, which most people know involves the consideration of strengths,

weaknesses, opportunities and threats.

But despite or perhaps because of its fame, SWOT is one of

the least understood and most abused techniques in

the strategists toolkit. In their research, Hill and Westbrook found that most SWOTs are long lists of meaningless, unverified factors that were of little use in practice. This is disappointing in two respects. Firstly, it means many firms are wasting their time doing useless SWOTS. Secondly, they are failing to realise the benefits of what is, when used well, a powerful aid to strategy making. How might this sad situation be resolved? Study of what effective firms do reveals three rules for the proper use of SWOT.
Figure 1:
Where SWOT fits

The right tool in the right place

The most common misuse of SWOT is using it as a standalone technique, separate from other tools. The correct use of SWOT is as receptacle for the outputs of other techniques, as shown in Figure 1.
It is best to use a range of tools to provide the inputs for SWOT. Market segmentation, Porters 5forces and SLEPT (or PEST) analyses are among the most useful for identifying factors external to the firm. Value-chain comparison, benchmarking, and market-mapping are useful for understanding what is important within the firms own value chain. When used like this, SWOT takes positive or negative findings from any internal analysis (i.e. strengths

or weaknesses respectively), positive or negative findings from the external analysis (i.e. opportunities or threats respectively) and, as we shall discuss later, matches them to each other. Before that, however we need to consider the second common mistake in the use of SWOT. Using the right ingredients

Most SWOTs are far too long and subjective. Often, the same factor

is put in more than one box, leading to confusion and what is put in is not really important. This is the inevitable result when all of the outputs of the previous analyses are dumped into a SWOT without any selection. It is like cooking by throwing the entire contents of your fridge into a pot. More effective firms filter the outputs of other analyses to remove irrelevant or false factors and leave only useful information for use in the SWOT. For internal factors, these filters are shown in Table 1. The

as a real strength or weakness. In practice, this reduces the number of real strengths and weaknesses to a small number of very important factors.
For external factors, the appropriate filters are shown in Table 2. Again, the important point here is that a factor must pass all four tests to get through. As with strengths and weaknesses, this filtering in practice reduces the number of real opportunities and threats to a small number of important factors.

number of each type of factor left, but each of those factors is very important to understanding the market. The strategist is now in a position to execute the most important part of SWOT process, aligning the factors. Alignment is everything
The origins of SWOT alignment go back to the 1960s, when academics stressed that strategy was a process of aligning the company to the outside world. To this day, alignment remains the critical stage

Table 1: Filtering tests for Strengths and Weaknesses

A strength is only a strength if it is VRIO A weakness is only a weakness if it is MUDU

in making SWOT work and the one most often neglected in practice.
Alignment involves two important thought processes:
1. Looking for the relationships between, on the one hand, strengths and opportunities and, on the other, weaknesses and threats.

Valuable: it can create value for the Meaningful: it makes a significant firm or the customer difference to the customer or the firm Rare: it is not shared with rivals Inimitable: it is difficult or costly to copy Uncommon: it is not shared with rivals Difficult: it is not easy or cheap to fix

Organisationally aligned: the firm is Uncompensated: it is not able to use the strength counterbalanced by some other factor

2. important point here is that a factor must pass all four tests to get through and qualify If SWOT is used in the right place and only filtered factors are used, the result is usually a small

Drawing out the implications for strategy of those relationships.

Table 2: Filtering tests for Opportunities and Threats

An opportunity is only an opportunity if it is CLAL A threat is only a threat if it is USUL

Complementary: it does not prevent Unmitigated: it is not removed or taking advantage of another, better, significantly reduced by some other external factor opportunity Large: it is big enough to justify the costs of winning it Significant: it is a large enough threat to make a significant impact on the firm

Accessible: it can be taken advantage Undefended: it is not removed or of by the firm significantly reduced by some action the firm is already undertaking Lasting: it lasts long enough to be taken advantage of Lasting: it lasts long enough to have a significant impact on the company

If the inputs into the SWOT are of good quality, then the first thought process is much easier. Good, VRIO tested strengths usually leap out as connecting to good, CLAL tested opportunities and the same applies to the connection of MUDU weaknesses and USUL threats. Executing the SWOT therefore involves writing connected factors in the same line of the SWOT, as shown in the right and left columns of the simplified example in Table 3.

The second thought process then involves filling in the

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middle column. These key issues take the general form of a strong strategy would use strength A to attack opportu-nity B and, correspondingly, a

strong strategy would guard weakness C against threat D, as shown in our simplified example. Like many other tasks, this final thought proc-ess is straightforward if the preparation has been done well but almost impossible if it has not. And there is a word of cau-tion here. Often, the right and lefthand sides of a SWOT do not

seem to balance, with two many or two few internal factors to match the opportunities and threats. If this happens, it suggests that there is a weakness in the ear-lier steps and either not all important factors have been spotted or some less important factors have escaped the filtering process.
So the output of a good SWOT is a list of key issues, usually only a small number, that suggest what a strong strategy needs

to do in order to leverage the firms strengths against market opportunities and guard its weaknesses against threats.

A Generals View
The outputs of a good SWOT do not dictate strategy, but they should influence it strongly. In effect, the key issues are a Generals view of the battlefield, showing where the attack should be focussed and the ditches should be dug. This makes SWOT, arguably, the single most useful weapon in a strategists

Table 3: Simplified example of a completed SWOT analysis

Strength Key issue Opportunity There is a segment of the market that places high value on technical capabilities

We have superior technical A strong strategy should capabilities compared to consider using our our competitors technical capabilities against the technically oriented segment.

We have superior A strong strategy should distribution strength in the consider focusing on pharmaceutical sector the technically oriented segment within the pharmaceutical sector

The pharmaceutical sector contains a large proportion of technically oriented customers

armoury. In reality, however, very few firms use SWOT effectively. Most make the three mistakes of using it separately, dumping information into it unfiltered and not aligning internal and external factors. Those simple but common mistakes are what makes most companys SWOTs their weakness, but can provide your firm with a hidden strength.

Our British heritage, language skills and positioning is a more important factor in Asia than in Europe

A strong strategy should consider leveraging our British heritage in Asian markets

SLEPT factors are increasing the market opportunity in Asian markets

Weakness

Key issue

Threat

We have a high cost base A strong strategy should There is an increasingly relative to our competitors consider avoiding price large price-sensitive sensitive segments segment

A strong strategy should We have little brand salience outside of the EU consider developing our brand salience in non-EU markets

Increasingly crowded markets mean that the brand is more important to customer choice than before

We have no significant customer base outside of the EU and US

A strong strategy should Asian customers place a consider forming high value on supplier alliances or distribution relationships arrangements in Asia.

Dr Brian Smith is a Research Fellow at Cranfield and Birmingham business schools. His research into marketing excellence can be found at www.pragmedic.com. He welcomes comments on this article at brian.smith@ pragmedic.com