A friend of mine once told me that SWOT stood for ‘Stupid Waste Of Time’. He has a point, and yet “Let’s do a SWOT” is a common response to the suggestion of understanding a company’s strategic position.

Just in case you don’t know (and for everyone else, please feel free to skip this paragraph), SWOT actually stands for Strengths, Weaknesses, Opportunities and Threats. The SWOT framework became popular across companies in the 1960s and 1970s as a way of building an agenda for action. In short, companies should focus on building their strengths, addressing their weaknesses, exploiting their key opportunities and acting to prevent and mitiage potential threats.

There are three key reasons why SWOT analyses are unhelpful:

1. They are long lists, not focused insights. Most SWOT analyses end up as a long, unprioritised list. Even if you were to accept that each item, on its own, was valid, there is no way that any organisation can act on 20 or 30 issues simultaneously. Completing the lists may feel cleansing and cathartic to executive teams, but it does little to set up the team for action.
2. They are based on opinion, not facts. Opinions are important in strategy development. They create breakthroughs and innovations that drive businesses forward. But without a certain level of rigour to back up these opinions they may lead you up a blind alley. As I set out in my previous post, I once worked with a UK grocer that invested signifiant sums on an HR programme that had no supporting evidence for the investment and was simply a waste of money.
3. They can miss key issues. As with the grocer example above, the focus on brainstormed and unchecked lists can meant that the real issues are not identified or addressed. Sometimes these issues are obvious, at least in hindsight. But in other cases, you only identify the issue by undertaking some focused analysis. For example, I helped a $50 million healthcare business identify new opportunities for growth, and, as part of the project, assessed the relative rates of return the business was getting through its various sales channels. It was only when we critically looked at these returns that it became obvious that the pharmacy channel sales’ teams were less profitable than other channels sales’ teams, and that we needed to consider alternative ways of selling to pharmacies that would give the company a better return.

So what do you do instead? The answer is to focus your analysis at the right level in the organisation, ensure it answers specific questions or hypotheses and leads to insights that allow you to take action. I’ll set this out in a bit more detail later this week.

© Stuart Cross 2010. All rights reserved.