SWOT is a handy mnemonic to help corporate planners think about strategy. It stands for Strengths, Weaknesses, Opportunities and Threats. What are an organisation’s SWOTs? How can it manage them in a way that will optimise its performance? A second four-letter acronym is sometimes brought into play here: USED. How can the Strengths be Used; the Weaknesses be Stopped, the Opportunities be Exploited; and the Threats be Defended against?
Wikipedia credits the technique to Albert Humphrey, an academic at Stanford University, who based it on an analysis of Fortune 500 companies that he carried out in the 1960s and 1970s.
The process starts by listing a firm’s attributes under the four headings; a particular strength, for example, might be a dedicated workforce or some currently valuable patent. These are then given scores according to what is seen as likely to be the company’s business environment over the next few years. If a recession is beginning and employees have to be laid off, a dedicated workforce might be a weakness. If a boom is about to begin, however, it will be a strength.
The four features can be divided along two main dimensions:
• Internal/external. The internal features are the company’s own strengths and weaknesses. Analysing them is a matter of analysing the state of the company. They are things that already exist. The external features are the organisation’s opportunities and the threats to its future performance. These exist only on the horizon, and they are less easy to assess and measure. They arise from things like changes in technology, demography or government policy.
• Positive/negative. The positive things are the strengths and opportunities; the negative ones are the threats and weaknesses.
A SWOT analysis can be applied to different aspects of a company’s business, such as its it capability or its skills. The simplicity and intuitive wholeness of the framework have helped to make it extremely popular with both corporations and governments. An analysis of the competitive advantages and disadvantages of Germany in 1999 found that the country’s strengths lay in its educated and skilled workforce. Among its weaknesses were its high labour and social costs.
Nevertheless, there has been no shortage of critics. One of the main criticisms is that, in the end, such an analysis invariably relies on subjective judgments. Objective measures of all the ingredients in the balance simply do not exist. Some say that this does not matter, because the process of doing the analysis is more important and revealing than the results of the analysis themselves. The journey is more important than the destination.