Is the SWOT analysis still relevant, or should you ditch it for hypothesis testing?

Some businesses prosper while others struggle. The difference is often attributed to the easiest possible explanation, such as one enterprise having higher-quality products or a better location than the other. But business researchers agree that a firm’s success or failure usually hinges largely on the skills of its management.

In turn, good strategic planning is an integral part of management’s effectiveness. Companies of all sizes for more than 50 years have heavily relied on the SWOT analysis, whose acronym stands for strengths, weaknesses, opportunities and threats, in making their strategic plans.

Enter SWOT critic Roger Martin

But SWOT has a high-profile detractor in Roger Martin, a writer, strategic adviser and former dean of the Rotman School of Management at the University of Toronto. He argues that SWOT is a pointless exercise that leads to bad strategy and poor decisions.

“SWOT analysis is a dreadful way to begin a strategy process,” said Martin, who was also named the No. 1 management thinker in the world in 2017 by Thinkers50.

An overview of SWOT’s components

Businesses apply the SWOT analysis to assess their strengths, weaknesses, opportunities and threats. Its findings are then used to capitalize on the business’ strong points, minimize its vulnerabilities, identify favorable circumstances and mitigate the effects of competition, and it is typically distilled into a lengthy strategic guidance document that is revisited each year. In detail, a SWOT analysis looks at the business’:

Strengths.

These are the assets that make your organization unique, such as access to certain materials, a uniquely skilled staff or a robust manufacturing process. Being known for a special product or service is an excellent example of a company’s strength.

Weaknesses

. These are disadvantages that prevent your organization from achieving its full potential. Weaknesses might include poor equipment or a small marketing budget.

Opportunities.

As the term implies, these are chances for the business to make something positive happen, but they may entail change and risk. These don’t have to be of the highest caliber to be meaningful for your company. Even small advantages can help your organization’s standing in the marketplace.

Threats.

Anything that can damage your business can be deemed a threat. Examples include supply chain disruptions, fluctuations in the market or a lack of skilled employees. 

What happens after the SWOT analysis?

The first step is to match the company’s strengths with its opportunities to enhance its level of competitiveness. Then you consider the vulnerabilities that need to be improved. Finally, you assess the risks identified in the analysis and take preemptive measures before growth is affected.

The process of the SWOT analysis enhances management’s awareness of trends in technology, changes in competitors and industry-wide shifts. It also provides them with a good idea of where they can tap into new opportunities. Its most important asset is that it forces management to look to the future and to be proactive.

Roger Martin’s critique

Martin asserts that SWOT analyses are a relic of a bygone era of management and that they are completely ineffective in the modern business world. Creating the SWOT analysis entails many hours of work and significant expense, with the end results usually a binder’s worth of findings with vast amounts of data.

Because SWOT analyses are overly complex with pages of unwieldy charts and graphs, they often go on the shelf until the next go-around. By nature, the analyses are impossible to complete within a reasonable amount of time, according to Martin.

Further, Martin argues, you cannot be specific about strengths or weaknesses without understanding a particular context. A SWOT analysis’ identification of strengths/weaknesses is useless until you have first figured out the Where-to-Play/How-to-Win (WTP/HTW) choice first, he adds. But when you are starting the process to plan strategy, you don’t know which WTP/HTW choice you will need to make, so the SWOT doesn’t provide valuable insights.

For example, if your business’ HTW requires you to have the most reliable delivery, then consistent delivery will appear as a strength in your SWOT analysis. But if having a wide range of products is the HTW, then reliable delivery is no longer a strength.

By accidental design, SWOT analyses are “a mile wide and an inch deep,” he writes, generating lots of work and lots of pages but producing little insight.

Science versus data mining

SWOT gathers vast amounts of data but with no stated hypothesis, so it is puzzling to see such an analysis applied without explanation, says Martin. The people performing the SWOT usually do have hypotheses that are kept secret, and they tend to impose their theories on the data collection and analysis itself. Martin dismisses SWOT as a tool used by those who aren’t thinking strategically.

Using a hypothesis-driven approach 

No analysis is scientific unless it has a hypothesis, writes Martin. The hypothesis is what drives an analysis with scientific accuracy and determines what data should be crunched and how, and with which standard of proof.

But SWOT only compiles data into four ambiguous categories while the creators hope for something illuminating to emerge, says Martin. Having no hypothesis when developing and testing ideas prevents you from thinking rigorously.

“[N]ever do an analysis without first generating an hypothesis,” Martin writes. “Otherwise, you will engage in aimless data mining.”

Want more?

Escalon has helped over 5,000 companies across a range of industries and in 22 countries to optimize their back offices, and our experts can help you too!