Monday, April 13, 2015

The Pros and Cons of SWOT Analysis for Digital Organization

SWOT needs to evoke System Thinking which takes account of the interactions between the parts of that system and the impacts they have on each other.

The digital world is complex and uncertain, the world boundaries close in, business weaknesses and strengths are inseparable, opportunities are tightly mingled with threats and vice versa. In such circumstance, is SWOT tool still sufficient for doing the strategy analysis in the complex world we live in? What're the pros and cons of SWOT analysis, and how to leverage it in decision making and strategy planning?

Everything depends on the time horizon used to define threats and opportunities. It can easily happen that too much focus is given to deal with short-term threats without preparing a strategy to leverage medium term opportunities and vice versa. Decision makers need effective tools to help them navigate between the rocks of analysis-paralysis, fear-paralysis, and blind guesswork. SWOT has to be transformed into a multidimensional framework with risk-adjusted measures for opportunities and threats. And even the strengths and weaknesses need an evaluation in order to have a decision-making ground. SWOT Analysis is not for building detailed, in-depth analysis of decision-making. The beauty of SWOT is precisely that it is simple and easily understood by everyone. SWOT Analysis provides big-picture views with limited (3-5) possibilities in each (Strength, Weakness, Opportunity, Threat). As a big-picture tool, a SWOT Analysis provides a starting point. From there, a SWOT analytics may be applied in a manner similar to the “Five Whys” where each possibility in each of the quadrants is looked at for SWOT possibilities or the analysis can move into a more formal process looking for data connections that inform leadership in other ways.

SWOT is just a tool: SWOT, in particular, helps an organization put a category (Strengths, Weaknesses, Opportunities, Threats) to certain characteristics of the organization, giving them relevance in a strategy defining processes. It should never be used alone in the process. Opportunities and threats cannot exist without a context of interactions, which constitutes an implicit system. So any analysis of these is at least to some degree an analysis of their contextual system and, therefore, pertinent to systems thinking. Unless you are seeking to focus purely on an academic discipline, "systems thinking" includes any thinking which takes account of the interactions between the parts of that system and the impacts they have on each other.

There is nothing wrong with SWOT; a lot is wrong with the SWOT users: Who after the analysis do not ask the important "So, What ...?" question, and who fail to progress to explore actions following the SWOT analysis. Moreover, a lot of SWOT analysis suffer from "egocentric bias" resulting in the situation that the list of the S (Strength) tends to be longer than the list of the W (Weakness). In addition, the listed S often are not checked by asking two questions: (1) Is this S important to customers, and (2). If so, do I have it better than the competition? SWOT analysis delivers an egotistical perspective which can only be meaningful if the relationship with context or purpose is fully understood. 

Adding the "Trend" analysis: For a very straightforward problem in a controlled environment, SWOT may work, or as a palliative for users to feel in control, but for strategic planning under digital dynamic, you have to leverage data analytics to predict. Some suggested adding "Trends" for zooming into the future more clearly. SWT - Strengths, Weaknesses, Trends. Opportunities often double up on Strengths and Threats often double up on Weaknesses. By adding the Trends, you're asking the organization to look at what's happening now and what's coming down the pike so they can be proactive in preparing for it. It really forces them to do an environmental scan, pay attention to how things are changing and then think about what they might need to change to respond to the trends.

SWOT is just a business analysis tool, how effective it depends on the SWOT users, do they ask the right questions, and answer them via multidimensional lenses, and understand them in context by zooming into the future more clearly. Because opportunities and threats cannot exist without a context of interactions, especially in today’s digital dynamic.


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