Whether you love them or hate them, SWOT Analyses have been around for many decades, and they continue to pervade the realm of business development and strategic decision-making, most commonly in competitive assessment. I could talk at length about why these simple quad charts have garnered so much attention (both positive and negative) over the years, but I won’t. I continue to see value in SWOT analyses, but only if they are done properly and completely.
What I want to talk about is what almost everyone does WRONG with SWOT analyses.
In my experience, the two most common mistakes that rob a SWOT analysis of real value are: (1) failure to understand what an “opportunity” is, and (2) failure to take the essential next step after a SWOT analysis has been completed.
- Opportunities misunderstood.
Three out of the four components of a SWOT analysis are relatively intuitive, and easy to understand. Everybody knows what strengths and weaknesses are – but if you need a definition, they are internal (i.e., indigenous) characteristics that either enhance or undercut a company’s competitive position (i.e., increase or decrease their chances of winning). Similarly, everybody knows a “threat” is something from the outside (i.e., external) that can undermine or hurt a company’s chances of winning. Okay, good so far, but what is an opportunity?
Before I define what an opportunity is, let’s be clear on what it is NOT, because this is where 90% of SWOT analysis efforts get completely derailed. For the vast majority of “completed” SWOT analyses that I have examined, the “opportunities” quadrant is populated with items related to the company’s business case. They are factors that would provide a potential long-term benefit to the company IF they should win the competition in question. You could precede each one with the phrase “If I win, I’ll be really happy because … [fill in the blank].” For example, a very common item to appear in the opportunity quadrant is something along the lines of “Potential for new revenue stream with this customer.” These kinds of observations are important and useful, but they speak more to a company’s incentive or motivation to aggressively bid and win the competition, rather than the company’s strategic position.
This misuse of “opportunity” is understandable, because the word “opportunity” in the parlance of the federal contracting community (and particularly business development) is primarily used to refer to contracts or programs that the company would like to win (i.e., potential business). But unfortunately, this definition does not fit well in the context of a SWOT analysis.
In the context of a SWOT analysis, an opportunity is an external factor that enhances a company’s chances of winning. A few examples of opportunities might include (a) increased customer demand for a product or feature the company possesses, (b) competitors’ losing ground or exiting the competition altogether, or (c) change in government regulations in favor of a technology unique to the company.
When properly understood, this kind of “opportunity” fits nicely into the framework of the four-quadrant SWOT chart, because the top row (strengths and weaknesses) are both internal characteristics of the company, and the bottom row (opportunities and threats) are both external factors. The left column is positive, and the right column is negative. Behold the beatific symmetry!
These kinds of “opportunities” – external factors that give a company a competitive advantage – are infinitely more insightful, because they empower analysts (and decision makers) to thoughtfully and rigorously assess another company’s most probable strategic actions. They complete the picture, instead of leaving a gaping hole in the analysis, which could potentially lead to competitive blind spots. Not to mention, external factors are often the very issues that make the most significant difference between a company winning or losing a competition.
This leads us into the second most common mistake of SWOT analyses – failure to respond appropriately – which I will address in the next section.
