Autumn is almost here again, and, for many companies, that means it's time for the annual strategic planning session. A common corporate go-to is SWOT analysis, in which you assess your company's internal strengths and weaknesses, as well as external opportunities and threats. But be careful: SWOT analysis has some inherent limitations. Sometimes, it can even do more harm than good. Here are five common pitfalls to avoid:
1. Too much navel-gazing. The first trap of SWOT is that it focuses all the attention on yourself from the get-go. Assessing your own strengths and weaknesses can easily degenerate into a laundry list of items, mixing truly strategic areas (such as your top core competences) with mundane issues (such as payroll processing). Also, labeling an item as a plus or minus entails a value judgment in which your current strategy becomes the implicit reference point. For instance, "excellence in chemical emulsion photography" was once a core strength for Kodak before the digital imaging tsunami hit the industry. In the end, Kodak's chemical prowess proved to be its undoing. As Malcolm Gladwell emphasizes in David and Goliath, your current strength may be your future weakness once reframed (or vice-versa).
2. Imprisoned by the status quo. The status quo trap is even more insidious when you get to the second part of SWOT, in which you assess external opportunities and threats. The very language of O and T inadvertently forces you to prejudge whether some external change is a positive or a negative, with the current strategy as a natural reference point. It is much better to use neutral language, such as asking what external forces or issues could impact your business. Any of these could be good, bad, or neutral, depending on how you respond to them. Remember that strategy is about winning no matter what happens in your business environment. In turbulent times, this requires much more than playing your current hand of cards better. Often, you have to change that hand by trying new things and perhaps changing your business model entirely.
3. Insufficient systems thinking. Mapping out how social, technological, economic, environmental, and political forces may impact your business is hard. The world outside your company walls is more complex and less understood than what's going inside. Grasping how external trends and uncertainties may be changing your playing field requires systems thinking, or understanding how each piece affects the whole. As futurist Alvin Toffler warned, trends are meaningless when examined in isolation; trees do not grow to the skies. Strategic thinkers will ask when key trends might stop and why, over what time frame key uncertainties could play out, and how the major pieces of the puzzle interact. At an even deeper level, they will wonder how stable (or unstable) the system is, where black swans may be lurking, and how unintended consequences could shape the future in surprising ways.
4. Poor outside-in analysis. In most planning sessions, internally focused topics often get too much attention and time may run out to do justice to the outside world. To escape this trap, you need to start your discussions by exploring how the world is changing around you. For example, a leader may first ask, "How can we serve our customers better?" or "How should we improve our products?" Both are relevant questions, but they're not the best ones to start with. Instead, ask, "Why aren't more customers buying from us?" or "In which ways do our competitors offer superior products?" These questions force you to look at your company from the outside.
5. Little "future-back" thinking. One weakness of SWOT analysis is that it reduces complex strategy questions to lists of items that in isolation are hard to assess. Systems thinking helps overcome this reductionism by looking at connections among the many items and thus encouraging more integrative perspectives. But this may still not be enough. Strategic leaders also need to be guided by strong future-oriented visions (as Elon Musk is doing with electric cars and space travel). By reimagining how the entire market can be served better, and developing multiple scenarios about how the future might unfold, strategic leaders discern which actions today will create new options for tomorrow.
SWOT can be a good tool if used wisely. It offers a standard framework for discussion. But in the wrong hands, it can also do damage by reinforcing a status quo mindset. That's why it should be supplemented with newer strategy tools, including scenario planning, options thinking, dynamic capabilities analysis, and exploratory strategic leadership. (You can learn more about these methods in my forthcoming book with Steve Krupp, Winning the Long Game: How Strategic Leaders Shape the Future, December 2014.)