A tool of situation analysis, SWOT (strengths, weaknesses, opportunities, and threats) is used in the preliminary stage of strategic decision-making [Johnson et al 1989] where it provides the basic framework for strategic analysis. [1] SWOT generates lists, or inventories, of strengths, weaknesses, opportunities and threats. ( See Figure 1 below.) Organizations use these inventories to generate strategies that fit their particular anticipated situation, their capabilities and objectives (Bourgeois 1996; David 1997; Miller and Dess 1996; Pearce and Robinson 1997; Thompson and Strickland 1998).[2]

For all its simplicity, SWOT is often used poorly, and for purposes different from those it has been designed for. An investigation of the relevant practice by UK companies (Hill and Westbrook 1997) showed that SWOT is very often looked upon as a basic analytical structure only, or used as a way of launching a wide-ranging group discussion about a company’s strategic position. In these cases, SWOT is usually not linked, at least formally, to any subsequent strategic planning application.

Hill and Westbrook based their criticism of SWOT on cases of strategic planning malpractice. This begs the asking two fundamental questions: Is it appropriate for the judgment of the suitability of an analytical tool to be exclusively based on cases of its misapplication and poor usage? And, should any tool be blamed for the misconceptions, negligence and errors of those who use it? It appears that the answers to both of these questions should be in negative. A far more appropriate and reliable basis on which one could form such judgment and propose how SWOT ought to be used in strategic planning would have to contain cases of both exemplary, and flawed, SWOT usage.

There are two main grounds on which SWOT has so far been criticized. Firstly, much of the reported usage of SWOT (Baramuralikrishna and Dugger 1998; David 1997; Hill and Westbrook 1997; Johnson et al 1989; Thompson and Strickland 1998; Wheelan and Hunger 1998) suggests that this usage rarely amounts to much more than a poorly structured, very general, hastily conducted exercise that produces unverified, vague and inconsistent inventories of factors regarded by the proposing individuals as most important components of their organization’s strategic situation.

The way SWOT analysis is often conducted does not allow for proper communication, discussion, and verification of all external and internal factors proposed by all involved. On such occasions, SWOT results prove less reliable an input to the strategy generation process than they are capable of being. Still worse, as documented later, the results of SWOT analysis are sometimes never meant to be used as an input to the strategy generation process. If that is known, or anticipated, by those involved in SWOT analysis, the quality of their inputs will most likely suffer and be lower than otherwise possible, and desirable.

It is clear that imprecise or vague reference in such an analysis to factors external and internal to an organization will always detrimentally affect communication and verification of proposed factors and thus lead to inferior outcomes of strategic analysis. It appears that this common flaw in SWOT analysis is caused mainly by misconceived SWOT deployment, insufficient levels of skills and diligence, and strategic information gaps. [Hill and Westbrook 1997] Relevant examples of such flaws in SWOT analysis are shown later in this article. In general, malpractice of this kind may be quite detrimental to the performance and strategic position of the affected companies. Any SWOT analysis that shows such grave flaws should be considered inadequate.

Other criticism (Mintzberg 1994) suggests that SWOT is the main cause of what is considered there an excessive formalization of the strategy making process. While it is true that many organizations develop excessively formalized approach to strategic management, regarding SWOT as the cause of this over-formalization, or even its symptom, would clearly be a mistake. The blame for an excessive formalization of the strategy making process by some organizations should be laid instead at the door of those who misconceive the role of this tool, misapply it, or substantially misinterpret SWOT results.

This paper proposes a clarification of the SWOT concept and looks into cases of its misuse. It points out the misconceptions about this tool and then suggests how to eliminate its established application weaknesses. This lays the groundwork for the presentation in the second part of this paper of how SWOT ought to be used to produce reliable inputs into strategy generation. [3] In acknowledging its general usefulness, its comprehensive character and its pivotal role in the strategic planning process, it is argued here that SWOT could live up to its potential and influence positively the quality of generated and selected strategies. [4] Further enhancement of the practice of strategic analysis and planning depends, among other things, on an improved understanding of SWOT’s capacity and limitations. A brief study of the various critical evaluations of SWOT (David 1997; Dealtry 1992; Hill and Westbrook 1997; Johnson et al 1989; Wheelen and Hunger 1995; Weihrich 1982) affords the much-needed platform to propose the way to enhance SWOT analysis.

To add to, and further diversify, the factual basis on which to base recommendations, the author has also drawn on some of his postgraduate teaching experience. Most of this experience comes from the postgraduate subject Marketing Management 2 taught at the author’s university. Students in this subject represented various, mostly tertiary, Australian industries. On average they had some twelve years of business experience. Most of them represented middle level of management. Students enrolled in this course in 1997 and 1998 submitted their written SWOT analysis of their organizations. [5] Subsequently, students were encouraged to use their teacher's feedback (See Appendix A.) to then reflect on the flaws, if any, of their SWOT analysis. This teaching experience has produced a major part of the SWOT usage evidence utilized in this paper. [6]

Many complaints about SWOT 's performance seem to be based on misconceptions about its role. Some of these suggest poor analytical skills of some of those involved in strategic planning process, or their poor judgment. Other examples show inadequate amount of information about the company and its external environment. Still other examples document poor quality of information relied upon in some SWOT analyses. It follows then that it is rather the managers' misconceptions, misapplication of SWOT and less than diligent execution of strategic analysis than the inherent characteristics of the tool, that ought to be blamed for the prevalent industry perception that SWOT generated inputs are rarely sufficiently valid and reliable. We first discuss the misconceptions.

SWOT commences from drawing up a list of current company strengths, weaknesses, opportunities and threats. What often gets forgotten, though, is that in order to help generate suitable strategies for a certain period, SWOT needs to revise this original inventory to arrive at one that would reflect accurately enough the anticipated company strengths, weaknesses, opportunities and threats for that period (Dealtry 1992). Neglecting this leads to generating strategies based on the current (or even past), and not the future, as appropriate, situation. If a considerable change in the organization's environment is imminent, strategy selected on the basis of the immediate past situation is very likely to be ill suited to the changed state of environment.

Second, simple frameworks as SWOT cannot, of themselves, ensure the necessary rigour of strategic analysis. To expect otherwise is fallacious. SWOT helps to spell which strengths the organisation should be building its future on, impact of which weaknesses needs to be minimized, what opportunities ought to be seized, and what threats need to counteracted (Baramuralikrishna and Duggar 1998). The available evidence (Hill and Westbrook 1997) suggests that, unless SWOT is used properly, it is likely to produce unreliable inputs into strategy generation. This would explain the claim from some academics (e.g. Hill and Westbrook 1997; Mintzberg 1994) and business people as well that as a tool of strategic analysis SWOT has got serious flaws.

Third, SWOT is in practice rarely deployed at lower than the corporate level. A typical situation is for SWOT to be done for the corporate level only. This often produces a risk-laden fallacy that each strength and weakness, regardless of scenario, is relevant to and equally significant for all Strategic Business Units (SBUs) and products the company makes or sells. Such fallacy obfuscates differences between situations of various products/services and can often lead to wrong strategies being selected for individual SBUs, product lines, or indeed the entire company. By producing a single SWOT for one organization level only, companies will deny themselves opportunity to fine tune strategies to the particular requirements of SBUs, product lines, and geographic markets. Recognition of the importance of conducting SWOT analysis at various levels of an organisation is reflected in one of the rules of the proposed SECURE model presented in the second part of this article.

Fourth, to evaluate the size of its competitive gaps and leads, the company needs to know the relevant performance levels of all its close competitors. Yet, the relevant business practice is often different. Many companies find it too difficult to collect comprehensive, unbiased and up-to-date information on all relevant facets of competitor performance. Sometimes, the difficulties begin at the level of defining who all their close competitors are. Volatility of the competitive environment and differing judgments on factors by various individuals involved in SWOT analysis often aggravate this problem.

Fifth, SWOT inventories are rarely modified for alternative strategy options. All such oversights are quite remarkable in that few would disagree that the meaning and significance of any weakness or strength is strategy-specific. Let us imagine, for instance, a company that has sold organically grown vegetables and fruit of superior appearance and freshness at premium prices accepted by some market niches. If such a company all of a sudden switches to a mass, rather than niche, marketing strategy, its assumed technological strengths are likely to carry, at least for some time, significantly less weight with those of their potential, or actual, consumers who buy largely on price and accept average appearance and freshness.

Sixth, the reference to the current, rather than to the anticipated future, competitors' performance levels is another popular misconception. Some companies are slow to adapt benchtrending, rather than benchmarking, as the more accurate, and more appropriate, strategic planning tool. They develop their strategies on the implicit, or arbitrary, assumption that their current strengths and weaknesses will retain their validity and currency throughout the entire period during which new strategies are to be pursued. Such a practice contradicts the very logic that underlies an effective strategy generation: the choice of strategy needs to be based on the anticipated future situation, not on an analysis of the current one. The (perceived) level of difficulty in obtaining a complete, unbiased and up-to-date prediction of all relevant facets of competitive performance could be, on the strength of author’s experience the main cause of such a neglect.

Further, local benchmarking/benchtrending is only justified where the local character of competitive comparisons matches both the current and the anticipated geographic scope of competition. Yet, contrary to this rule, local rather than global benchmarking/benchtrending is still the preferred way of arriving at the company relative performance rankings. However, as more and more industries in an increasing number of countries realize they face global, rather than local, competition, this inadequacy is likely to become increasingly rare.

Cases of blinkered and short-sighted competitive analysis can often be explained by

• companies' failures to realize that the scope of competition in their industries is international; and/or
• their poor knowledge of the performance levels of overseas competitors;
• their desire to conceal (eg. from the shareholders, or the public in general) some of the more worrying competitive gaps.

The list of common SWOT related misconceptions is presented below in Table 1.

Thorough and discerning examinations of the relevant malpractice (See eg. Hill and Westbrook 1997; Johnson et al 1989, Weihrich 1982.) have shown that the task of defining company strengths, weaknesses and then relevant opportunities and threats is more difficult than most would assume. Enhancement of the relevant practice depends largely on:

• Eradication of all presented misconceptions;
• Improved access to all necessary information; and
• Acquisition of superior analytical, and other appropriate, skills.

An adequate verification of all proposed SWOT items will also require shared reflection of several process participants and stakeholders (Dealtry 1992). The requirements for shared reflection are manifold. For instance, Baramularikrishna and Dugger (1998) mention that many proposed SWOT items strongly reflect a person's existing position and viewpoint that, as they suggest, could be misused to justify a previously decided course of action. They also remind that the same events can be seen as opportunities by some, and threats by other, and that some SWOT contributors will have the tendency to follow the 'fit' rather than the 'stretch' format in their strategic thinking. The latter phenomenon is likely to lead to oversight of new opportunities for the company.

Johnson et al (1989) develop further the original Weihrich's concept and provide users of SWOT with some practical guidelines. They warn that opportunities and threats should not be taken as absolute. For instance, after one has considered the resources of the organization, its culture, expectations of its stakeholders, the strategies available and their feasibility, one may often realize that what at first appeared to be an opportunity is indeed a threat to this organization. Further, they suggest that SWOT be done in a sequence of steps:

1. Identification of current strategies
2. Identification of key changes in the organization's environment
3. Identification of the resource profile of the organization
4. Establishing the relevance and significance of the current strategy (or, strategies), as well as strengths and weaknesses against the context of key environmental changes ascertained
5. The managers should then examine their SWOT statements against one another.

Of particular value is the emphasis Johnson et al put on the importance of context for the evaluation of relevance and significance of strengths, weaknesses, opportunities and threats in developing new strategies.

The task of defining situational factors is a great deal more difficult than most would assume. The common flaws in this area include:

• Wrong classification of factors (7)
• Too broad description of factors (8)
• A vague description of factors (9); and
• Failure to clearly define the relevant strategic planning horizon, i.e. period of time for which to examine the likely influences by any proposed future strength, weakness, opportunity and threat on the perception of company's strategic options, their selection and outcomes of strategies.

The causes of these flaws are manifold. Wrong classification of factors may come about due to inadequate discernment of analysts or their neglect of the task. Too broad description of factors may be the result of emulating similarly broadly formulated quasi-inventories found in some textbooks (10) or inadequate commitment of the part of strategic analysts. A vague description of factors may come about due to the absence of critical review of all proposed items. Finally, the failure to clearly define the relevant strategic planning horizon may be often caused by poorly developed strategic frameworks, information gaps and deficient strategic analysis commitment.

A comprehensive, well defined, properly verified and thus reliable SWOT inventory is a major determinant of the outcome of strategy generation, strategy selection and implementation. How could one ensure that SWOT inventories are brought up to date and remain strategically relevant? Figure 2 below suggests certain logic, or sequence of steps, to be followed to accomplish this task:

Various aspects of company performance may have competitive significance. Examples of these are: market responsiveness, rate of innovation, reliability of products, cost reduction, corporate - and product - image management, efficiency of logistics, customer retention and corporate learning. It is obvious that company performance in those areas, as represented by selected parameters, can change in time. The same applies to the performance of company competitors. If this is so, the relative levels of performance will also vary between periods.

Company A has a considerable advantage over company B in lower production costs, but company B is about to commission its new plant based on the newest, most efficient technology. If this is so, company B may not only be able to eliminate its own respective weakness, but may indeed enter the new period with a brand new strength in cost advantage over Company A. Take a case of a single paper mill company that has just supplanted its antiquated machine with a new one that is much wider, faster, has vastly superior production capacity, reduces the down-time by a considerable margin, and produces superior quality of newspaper grade of paper. The resulting impact on the competitiveness of such a company could be quite dramatic.

Not less importantly, new competitors entering the industry and the associated changes in the competitive patterns in the industry may result in some critical strengths of company A losing their former strategic significance. For instance, companies may retain their original technological superiority over most or all of their competitors, but this superiority may in time diminish, or lose altogether, its significance. Introduction of industrial robots to the car-making industry has had a considerable effect on the relative quality of car finish. Leading the world in deployment of robots in coating, painting and assembly of cars, Japanese carmakers were able to more quickly catch up with and even better the standard of car finish of a vast majority of European and American companies. And yet thirty years ago the latter had a vast experience advantage over their Japanese counterparts in the traditional car finishing and assembly technologies.

The likelihood of a strategist overlooking the impact of these competitive changes on the importance of individual strengths, weaknesses, opportunities and threats for the company is considerable whenever the quality of strategic analysis is wanting. Some new opportunities and threats may put premium on certain skills that were considered of lesser importance, or even ignored, just a few months ago. Take, for instance, the vastly increased importance of WWW site editing capacities in a successful marketing of higher education. Shifts in the importance of opportunities and threats will often produce shifts in the ranking of strengths and weaknesses, compared with the initial situation. These may lead to some strengths and opportunities being dropped by an organization from that inventory, following their loss of significance for strategy generation purposes.

Similarly, the composition of inventory may change following inclusion of new opportunities and dropping of some old ones. Also, ranking of inventory items will often change.

Some other criticisms of SWOT take their roots from fundamental misconceptions about its role in the strategic management process. As mentioned earlier, SWOT is a framework within which companies gather information about their external and internal environments. For this information to be reliable in strategy generation and selection, it needs to conform to certain rules, which are inferred from a proper reflection on its role. Yet, whenever the quality of SWOT analysis is clearly inadequate, relying on its outcomes may bring company more harm than benefit, in terms of generation and selection of strategies.

To Be Continued.......

In Part 2 of this paper, which will appear in January 2001, a SWOT enhancement framework based on the analysis presented in this first part of the article will be provided.

2. One of the cues that could support the claim that strategic planning outcomes in an organization are of high quality could be an evidence of a sustaining good fit between, on one hand, its external and internal factors and, on the other hand, strategic objectives pursued by that organization.

3. This obviously does not mean that SWOT should constitute the only input into strategy generation. Indeed, this author accepts Mintzberg's (1994) argument that an excessive reliance on SWOT in this respect is as a strategic planning malpractice. It is this author's view that that a superior quality of strategic analysis can only be achieved when a sufficient diversity of experiences, perspectives and approaches, as well a abundant internal cognition, bear on the outcomes of strategic analysis and strategy generation.

4. Students came from just over 100, mainly Melbourne-based, organizations: financial services, retail, health, hospitality, manufacturing industries and public authorities have had the largest enrolment shares in the Graduate Diploma in Business Administration course run by the university.

6. Hill and Westbrook (1997) point out, for instance, that the distinction between internal (strengths and weaknesses) and external factors (opportunities and threats) is not always preserved; some factors end up being classified erroneously (eg. a strength defined as an opportunity). Some authors (David 1997; Dealtry 1992) note, however, that some changes to the external environment may be perceived at the same time as threats by some people, and opportunities - by other; also, individual perceptions of factors are subject to change.

8. Hill and Westbrook 1997 mention in their paper commonality of failure of SWOT analysis to refer to concrete products, geographic territories or uses of products etc. This often leads to erroneous assumptions of general, rather than specific, applicability of proposed strengths, weaknesses, opportunities and threats. As a result these are wrongly regarded as corporate, and not SBU, or product situational characteristics.

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The spelling of words in this article are those used in the United States. In some cases this differs from Australian practice.