The Limitations of SWOT Analysis

“SWOT can be a good tool if used wisely. It offers the standard framework for discussion. But in the wrong hands it can also do damage by reinforcing the status quo mindset.” So says Paul Schoemaker as published on Inc.com in September 2014 (‘five-traps-swot-analysis’ accessed on 22.9.14.) The commonly used tool which looks at internal strengths and weaknesses along with external opportunities and threats has some inherent limitations. The author suggests that there are five common strategic planning pitfalls which could “set your company in the wrong direction.”

Here are the limitations of SWOT analysis along with further considerations (“et alors”):

The Limitations of SWOT Analysis

Schoemaker suggests there are five common pitfalls to avoid when using SWOT analysis to make strategic plans:

1.       Too much navel-gazing

With an internal focus, the ‘strengths’ and ‘weaknesses’ may become a laundry list of all and sundry ranging from micro-issues to macro-ideas.

Labeling an item as a plus or minus involves a “value judgment in which your current strategy becomes the implicit reference point.” To avoid these pitfalls, make sure the focus in outside-in (cf. point #4.)

2.       Imprisoned by the status quo

The concept of ‘opportunities’ and ‘threats’ “forces you to prejudge whether external change is a positive or a negative with the current strategy as the natural reference point.”

It is therefore better to consider “neutral” language such as asking which external forces orissues could impact your business.

3.       Insufficient Systems Thinking

Systems thinking (“grasping how external trends and uncertainties may be changing your playing field”) is very difficult; in addition, trends are useless when viewed in isolation.

The strategist needs to ask when the key trends might stop, “over what time frame the key uncertainties could play out and how the pieces of the puzzle interact.”

4.       Poor Outside-in Analysis

Internal topics tend to get preference in the SWOT analysis. The changing world needs to be considered before looking internally. The analysis needs to be “outside-in.”

Instead of asking “how can we serve our customers better”, ask “why aren’t more customers buying from us” and instead of “how should we improve” ask “how are our competitors superior?”

5.       Little “Future-Back” Thinking

SWOT analysis can reduce value by taking complex strategy questions and reducing them to a list of items that “in isolation are hard to assess.”

Instead, “by reimagining how the entire market can be served better… strategic leaders discern which actions today will create new options for tomorrow.”

Et alors

There are two principle tenets to Schoemaker’s critique of SWOT analysis: firstly that it is too internally focused and therefore ‘anchors’ the strategy analysis to center around the status quo. This is a huge risk for companies as the changing environment is not fully taken into account. An arbitrary judgment of opportunities and threats can overlook how easily both of those can change, whereas what is really needed is “options.” The second main point is the challenge of seeing the dynamic. The SWOT analysis is at a point in time and can be likened to the ‘snapshot’, when what really needs to be reviewed is the changing ‘movie.’ Simply put, a current strength can be your biggest future weakness! The solution to address these two key points is to use scenario planning to focus the strategy review on an outside-in basis, to consider the forces and issues at play and to look for options in every eventuality so that you can be best placed to win tomorrow (and not just today)!

Reducing Complexity

The Boston Consulting Group (BCG) created an “index of complicatedness,” based on surveys of more than 100 U.S. and European listed companies. Measuring this over the past 15 years showed the amount of “procedures, vertical layers, interface structures, coordination bodies, and decision approvals needed in each of those firms has increased by anywhere from 50% to 350%.” This according to Yves Morieux as published in his TED talk and “5 Rules for CEOs to Simplify Their Job,” in CEO Briefing Newsletter on ChiefExecutive.net (17.3.2014).

According to BCG analysis over a longer time horizon, “complicatedness” has increased by an average of 6.7% a year over the past five decades. In such complexity, apparently managers spend 40% of their time writing reports and 30% - 60% of it in meetings. With little time for teamwork, employees are often misdirected and end up being disengaged and dissatisfied. Such low levels of engagement lead to less productivity. Complexity appears to be a problem, so how can leaders help reduce it and/or reduce the effects of complexity?

Here’s how to reduce complexity followed by further considerations (“et alors”)

Reducing Complexity

Referring to “smart simplicity” the author proposes five rules to reduce complexity, increase engagement and hence productivity:

Understand what others do

Understanding what others do can have far-reaching implications for the organization. The author cites the example of engineers building machines that are subsequently hard to maintain; whereas it would be better during the build to understand what the maintenance people might need to do...

Reinforce integrators

“Integrators are existing managers that you as a leader must reinforce so that they have power and motivation to make others cooperate.” It is not more rules and procedures, but delegation that makes an organization more effective. Unless you empower people, they will withdraw.

Create feedback loops

The consequences of peoples’ actions are often invisible in a large organization. To improve, the author cites the example of a car manufacturer which rotates the design engineers to become maintenance engineers 3 years after the launch of the car: they become part of a very effective feedback loop.

Increase reciprocity

Reciprocity leads to cooperation: reward those who do and blame those who don’t. Lego Group CEO says “blame is not for failure, it is for failing to help or ask for help.” This makes it in everyone’s interest to be transparent and ask for help before a potential problem becomes an actual problem.

Human Resources

The author’s fifth point is to actually apply the first four points to HR management! It is not creating more complexity, it applying the simplicity of the above four points to all HR processes. In a sense, it is embedding the principles in everything the organization does.

Et alors

The above can be distilled into one key word: “leadership.” Without it, complexity tends to “take over” in large organizations… Leadership is the counterweight, the balance to level out the complexity. Even senior executives in large companies can sometimes “withdraw” to management: organizing, controlling, checking details, and reviewing (or even blaming). Essentially, “management” from such a senior level can exacerbate the complexity in the organization. What is needed is leadership: setting strategies rather than just organizing; communicating visions and missions rather than just controlling; constantly reviewing the big picture rather than checking details; and rewarding rather than just reviewing.