SGG

In this article we will look at the SWOT framework and break it down into its individual parts, explaining its makeup, whereupon we will then reconstruct it with, hopefully more awareness and a better understanding of the power of the SWOT framework. In further follow up articles, we will be adding in my interpretation of how to expand the power of the SWOT framework and how this approach helps firms to find their Competitive Advantage.

Jay Barney1 stated in his pinnacle paper on Competitive Advantage (which is the basis of the Resource Based View (RBV) of strategy) that the history of strategic management with the aid of SWOT is an attempt by firms to ‘fill in the blanks’. Likewise Porters2 five forces also plays an important role in SWOT, and as I indicate in my first Article, the RBV and competitive forces will always – in some part and without exception – affect your strategic plans. Additionally if you are interested in learning more on the history of SWOT, Tim Friesner3 (2014) has an online article, which you can review through the link below, in references for more information.

What I would like to demonstrate and explain in my second article on Competitive Advantage is that the SWOT analysis in itself is more than a compilation of four boxes. SWOT, meaning Strengths, Weaknesses, Opportunity and Threats, is a well defined tool that can help firms, departments individuals, and many other institutions define their Competitive Advantage. It is wisely used at some early point of the strategic planning process, and if used correctly can define a firm’s Competitive Advantage. I will use the term ‘firm’, but it can be applied to any individual, groups, department or any institution.

Screen Shot 2014-10-28 at 3.20.23 PM

Figure one is an example of the SWOT framework, as many of us know it. There are many iterations, designs and add on analysis, and surfing the net will reveal a multitude of these designs. But overall the basic principle is the same. But is it enough to draw the SWOT framework as is, or do we need to break it down and define it a little better? I would argue yes, because although you may do a great job of analyzing a completed SWOT to define your strengths, weaknesses, opportunities and threats, will that be enough to define your Competitive Advantage? With the help of Barney (1995) and Porter (2008) and others, a little more help may be appreciated. But first we need to separate out and analyse the SWOT framework so that we can get a good understanding of how it is compiled, read, completed and understood.

Screen Shot 2014-10-28 at 3.22.09 PM

In figure 2 you will see I have separated out the individual boxes and looked at this framework from a vertical perspective. In this example there is a left hand and a right hand side to the SWOT framework. The left hand side should contain input data and information that is ‘helpful’ to a firm, thus I have coloured the Strengths and Opportunity boxes green. Helpful attributes for the firm are those things that contribute to the firm’s development and success. They can be procedures, experience, financial, position, branding, data, human resources, IP, technology, assets and even the organisation.

The right hand set of boxes should contain input data and information that is ‘harmful’ to the firm, and subsequently these boxes Weaknesses and Threats are coloured red. Harmful attributes can, ironically, be some of the same attributes that are listed above. It depends if a firms branding for example, is better than its competition or the competition has a better brand awareness, maybe through history and reliability. In figure two you begin to build a better understanding of the SWOT tool and how to apply the data and information collected to the SWOT framework.

Screen Shot 2014-10-28 at 3.21.41 PM

In figure three the SWOT framework is now broken down horizontally. In this example the SWOT framework has a top and bottom section. This demarcation defines that the top section of a SWOT has data and information that is ‘internal’ to a firm. These are attributes that should be able to be controlled and maneuvered by the firm. While the lower or bottom section has data and information that is external to a firm, or put another way is in the environment and would be competition to a firm.

You may ask why we have three green boxes and one red? My logic dictates that although Weaknesses are ‘harmful’ to a firm as shown in figure 2, actually identifying and knowing a firms Weaknesses, should be an advantage. It could be argued, and I can hear the thoughts already, that knowing the Threats is also and advantage, and to this point I would agree. The difference is that internal Weaknesses by the fact they are internal and firm generated, can be managed and hopefully turned into Strengths or removed as Weaknesses. In other words the strategic team has the power to change the ‘harmful’ aspects of this framework. It may not have that exact same capability to change outside or environmental influences. If a competitor is creating threats to a firms capabilities, to what degree of influence has a firm to change that competitive threat? It may be to some degree that they can mitigate or counter the threat. On the other hand the firm may not be capable of influencing the threat at all. In this case the firm will have to decide what is the best course of action on how best to mitigate or counter a competitive threat. As there probably is less than a 100% chance of removing some threats, I chose to leave this box red.

Screen Shot 2014-10-28 at 3.22.33 PM

Finally in figure four we can reassemble the SWOT and see the overall aspects of how an understanding of the building blocks of a SWOT framework can aid in the data and information gathering. This approach should enable a firm to correctly identify and place the data and information, into the correct boxes.

How a strategic team understands and manages this data and information gathering process will be the subject of my next article, #3. We will start to look at how more detailed and relevant information is needed, that many of the strategic articles we read, do not explain. As is stated in article #1 “Doing your homework to find your Competitive Advantage associated to strategic planning and implementation is paramount to your success, growth and revenues”. While I trust the above gives an easier simplistic view of understanding a SWOT, the next stage looks at what particular data and information a firm must gather in order to have a SWOT analysis that becomes meaningful and effective, that defines your Competitive Advantage.

In the next article (#3) in this series we will at look at the ‘internal’ factors that a firm needs to review. Particularly I will discuss what the resource-based view (RBV) of strategy is, and how to apply that to the SWOT framework.

References

1 Barney, J. (1995) ‘Looking inside for competitive advantage’. Academy of management executive, vol 9 #4

2 Porter, M. (2008)’ Five forces that shape strategy’. Harvard Business Review’ January 2008. pp78-93

3 Friesner, T (2014) ‘History of SWOT analysis’. Available online at: http://tinyurl.com/ogopywx

 

‘Strategic Global Group (SGG) establishes your Competitive Advantage’.

Author: Phil Wilton has worked in MNC’s as well as developing start-ups and business expansion for SME’s. He received his MBA in International Business, Strategy, Marketing and Emerging Markets from the University of Liverpool. He also completed Business Strategy – Achieving Competitive Advantage at Cornel University.

Feel free to contact Phil (SGG) for a free intro consultation on how SGG can help your firm. philwilton@strategicglobalgroup.com 

All content © 2014. Permission to use with reference to author