SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) continues to be popular for some reason, and it’s great, because it gives me a very fast way to figure out that someone doesn’t know what they’re doing. It saves me time, and that’s lovely.
SWOT is conceptually simple to understand, which is also great, because for every problem there exists a solution that is simple, obvious, and wrong. SWOT is the wrong tool for everything you’re trying to use it for, so just stop if you want to be taken seriously by people who actually know what they’re doing.
I’m not the only one, and there’s a good chunk of research done since SWOT was first devised back in the 1960s. Check out Google Scholar for a quick list. Easy, wasn’t it? But people are too busy to read actual research, so here’s a short summary of why SWOT is stupid.
SWOT has two major axes: internal and external, positive and negative. It lets you neatly encapsulate all the attributes of an organisation — or situation, or whatever you’re SWOTting — into a 4 box matrix beloved of management consultants worldwide. The trouble with this is that whether something is a positive or negative is entirely subjective.
Is having a large network of warehouses a strength or a weakness? It depends, because on the one hand, having lots of warehouses close to your customers helps you get product to them faster, like Amazon Prime (strength) but on the other hand, it’s capital intensive to buy and maintain, so it costs you a lot of money (weakness). But that also means it’s expensive for competitors to enter the market, because they would need to spend a bunch of money to get similar distribution capability as you (strength). Unless they can find a way to get the same distribution as you without buying all the warehouses (weakness).
SWOT doesn’t give you any insight about what you should do. Should you buy more warehouses? Or less?
If an analysis tool doesn’t help you make decisions, then it’s useless. All SWOT does is give you another way to make a list of things that give you the illusion of knowing something, when all it does is mislead you, depending on how whoever wrote the list decided to classify things as a strength or a weakness.
What one person sees as a strength could be someone else’s weakness. Ditto with opportunity or threat.
Whether a situation is a threat or opportunity depends entirely on what you, subjectively, think about it. That company over there has 70% market share in a given product category. Is it an opportunity, or a threat? On the one hand, they might be well funded, disciplined, and able to defend their market share very well (threat). On the other, maybe they’re not serving their customers all that well, and a small, more nimble competitor might be able to take a bunch of high-margin customers from them (opportunity).
There are other analysis techniques that are far more useful (value chains, Porter’s five forces, industry structure analysis) but even they have their limits, and it’s important to know what they are rather than just blindly apply them to every situation you come across.
Don’t paint your house with a hammer, and stop using a broken tool altogether.