SEVEN DEADLY SINS OF SWOT ANALYSIS
AF Amru — Strategic Management Consultant at LM FEB UI
SWOT analysis is far from easy to do and the company’s executives regularly have to address the elephant in the room. The issues that laid on the table are often ambiguous and frequently enough need to be labeled correctly as to whether they are, in fact, opportunities or threats (McCaskey, 1982; Daft and Weick, 1984; Sayles, 1964; Mintzberg, 1973).
Some businesses see the growing demand for a type of environmental-friendly products as a threat, while others label it as a good opportunity for their businesses (Glass 1991). It is also mentioned that the predispositions to perceive a threat can be distorting the perceptions of evidence that resulting in many possibilities of the future events are feared and labeled as a threat (Pruitt, 1965).
SWOT’s SEVEN DEADLY SINS
- Insincere; 2.Selfish; 3. Overoptimistic; 4. Unjust; 5. Reckless; 6. Unwary; 7. Indolent
THE SWOT ABUSE
SWOT analysis serves its main and ultimate function as the tool to overview and map the company’s strengths, weaknesses, opportunities, and threats with consideration to the internal and external factors that might affect the company’s journey both in its resilience and sustainability aspects.
However, SWOT analysis diverted from its core function as a strategic management tool to a ‘somehow marketing’ tool that used to sell the idea of a secured and well-progressed company by the executives to the shareholders. SWOT analysis listed with qualitative points that intended to convince the shareholders of the company’s promising future and the very intention is hardly separated from the executives’ interest in keeping the position. The executives’ ‘job-securing’ interests are prone to cognitive biases such as overoptimistic SWOT analysis. If SWOT analysis is heavily infested with the executives’ interest rather than the company’s, it will produce strategic blind spots that inherited to the tactical and operational levels.
A SELF-CENTERED STRATEGY
SWOT analyses are often left unchecked for its quality. The company SWOT is often formed by listing executives’ commentaries on a one-sided perspective over the company they’re in and any simulation on the competitors’ SWOT analyses is rarely exercised. The practice of comparing simulated SWOT analyses of the competitors will increase the quality of the company’s SWOT in its qualitative comparability aspect that often failed to be observed with a self-centered SWOT analysis that only concerned about the company’s monotonic view over the competition. Discovering the competitors’ strengths should help the company to revisit the previously enlisted threats.
THE OVERESTIMATED STRENGTHS
Another problem that might arise is the misuse (or abuse) of SWOT analysis to defend the previously decided action (Glass, 1991). Items or lists generated by an individual are often biased towards his or her current perspective (i.e. producing overweight strengths and opportunities with underweight weaknesses and threats). In many cases, the individual that has already chosen a course of action before publicly declaring his or her decision (Brock & Bolloun, 1967) as research has demonstrated that people conscious and unconsciously are gathering information that supports their decision as justification and actively try to avoid that which does not (Lowin 1967, 1969).
Festinger (1957, 1964) defines this phenomenon as bolstering; when the attractiveness of the chosen alternative is magnified in decision making. Bolstering that occurs in groups involves a tendency to rely on rationalizations that bolster the least objectionable alternative.
Additionally, Nemeth and Rogers (1996) found that in decision making, individuals normally favored information that was consistent with the majority position. A SWOT analysis is likely to exacerbate the bolstering phenomenon in an individual or group by giving the opportunity to visually reinforce positive biases using the SWOT analysis grid (e.g. producing a greater number of strengths and opportunities than weaknesses and threats).
Stevenson (1976) reports that individuals’ cognitive perceptions of the strengths and weaknesses of an organization are strongly influenced by factors within the individual and not only by the organizations’ attributes. Stevenson found that position in the organization, perceived role, and type of responsibility influenced the individual’s assessment of strengths and weaknesses so strongly that it tended to submerge the objective reality of the situation. Organizational elements were increasingly perceived as strengths the higher the level of the evaluator. Also, Stevenson found that most attributes of companies were both strengths and weaknesses. In performing a SWOT analysis these different, often biased, perceptions of strengths and weaknesses and the ambiguity of many issues may lead to incorrect classification and categorization.
Strengths listed on the company’s SWOT analysis are in peril of overoptimistic cognitive bias that may initiate a top-down systematic bias by the strategy formed and derived from an analysis in the risk of blind spots. An overestimated course of action is most likely to be the course of action taken rather than the underestimated one. Executives like any other decision-maker are rarely equipped with enough self-assessment skills to monitor the overvalued decisions they have made and some executives are even treating their professional decision as a personal decision. This emotional behavior over a professional responsibility might disrupt a rational thinking process and spark a defensive behavior to ‘protect’ the idea or the novelty of the executives’ idea on the company’s list of strengths. The protective and defensive stance shown by the executives can highly discourage the alternative ideas that might be beneficial for the company.
THE SUPERFICIAL TABOO OF LISTING WEAKNESSES
Weaknesses are the most important aspect of SWOT analysis. The rise and fall of the company can significantly depend on how well the company identifies and recognize the internal and external risks. Lists of weaknesses are often mistaken as the company’s vulnerability which might be indirectly perceived as the executives’ inability to strengthen the company. In reality, the company’s list of weaknesses should be perceived as the level of executive’s awareness of the company’s limitations and internal risks that are attempted to mitigate and the challenges to strengthen the company’s weaknesses.
Old strengths can be new weaknesses.
Large companies with huge fixed assets can be easily disrupted by sudden market changes. Stories like Blockbuster vs Netflix, Hotel Industries vs Air BnB, Walmart vs Amazon, and Blue Bird vs Gojek are the examples of how strengths can be obsolete, and it can be obsolete very quickly. The large number of fixed assets (fixed asset amassing) once thought to be a form of strength until recently the technology-driven start-ups came and present a platform business model to fight the old giants by borrowing the customer’s power in form of collaboration and taking the advantage of sharing economy principles.
It is also possible that SWOT analysis could facilitate ‘Groupthink’. This is defined by Janis (1972) as ‘a mode of thinking that happens in a cohesive group where the member’s strivings for unanimity override their motivation to realistically appraise alternative course of action’. For example, in a similar way to that proposed for Bolstering, the SWOT analysis sheet could become a visual cue and opportunity for the group to generate more items to support the group’s decisional direction. Janis claims that group decision making has many negative effects including over-optimism, lack of vigilance, and ‘sloganistic thinking’ about the weaknesses of outside entities. This could also contribute to a lack of items being placed in the weaknesses and threats categories.
‘ALL THAT GLITTERS IS NOT GOLD’
There are two major problems regarding how the company executives evaluate opportunities. The first one is they’ve recklessly overestimated a short-run benefit over the mid-to-long run impact on the company. The second problem is the company unwary observation that sources mislabelling a threat as an opportunity.
The big companies often fall into the wrong frame of reference that used to work on smaller and much more agile companies where they can ‘get in’ and ‘get out’ much faster than the bigger companies. The bigger companies have taller or more ‘vertical’ organizational structure that inherently has a longer route and slower implementation of the decision-making process. Once the time to create and implement the decision increases as the organizational structure becomes taller, the effectiveness and flexibility of decision from a strategic viewpoint down to operational practicality become eroded.
Some companies’ executives might often enough overestimate the opportunities in the market without a solid follow-up of any exploitation plan. Highlighting the opportunities that are present in the market requires a sharper eye from the analyst and the company’s think-tank. The phrase ‘all that glitters is not gold’ is a reminder that not every gap in the market segment instantly translated into an opportunity, Megafailures such as The New Coke and Google Glass are an exceptionally important example that large companies with powerful brands are not invulnerable to mislabel market opportunity. Opportunity can be classified as four-part, the opportunity that is needed to be met with internal innovation in order to fully-activated, the free-to-grab opportunities that if were missed by the company and capitalized by the competitors should later be labeled as threats, the third type of opportunity is a fool’s gold opportunity that is not worthy to be taken and when overestimated can trap the company into a time-and-money-wasting clueless hot pursuit. The last type of opportunity is the type that is often mislabeled as an opportunity while it actually is a threat. Mistaken a threat as an opportunity could jeopardize the company’s market, customer, identity, and even operational.
THE GRAY SWAN
On the other hand, some of the opportunities that lie around in the market are not taken seriously by the executives and listed on the SWOT as a form of ‘filling the blank space’ can later on recognized as threats and given time it could be listed on the weakness-side of SWOT analysis.
Some notably ‘Black Swan’ problems might actually far more predictable if the company had used several different perspectives and less monotonous approaches when observing the market opportunities and threats. If the company failed to recognize any existence of one ‘Less-White Swan’, the probability of a ‘Gray Swan’ problem might have a chance to be anticipated thus ‘Black Swan’ problems can be less surprising and devastating.
In addition, the opportunities that are exploited properly by the company’s competitors can obliterate a significant portion of the company’s market share. The opportunity such as a technology that can create game-changer products and services is often realized by the company, Kodak (USA) and Blue Bird (Indonesia) were exposed to the idea of digital transformation and optimization before their felt the impact of not taking the opportunity seriously. Moral of the story, they have shown a near-fatal underestimation in a proper interpretation of the existence of the ‘Gray Swan’ (technology-based products & services), when the technology adopted and optimized properly by their competitors, obviously — it quickly becomes a ‘Black Swan’ problem for them.
THE THREAT OF THE UNCHECKED THREATS
How many times are the organization executives consulted the risk managers about the threats listed on their SWOT analysis? The number might be surprisingly low. The updated risk on the tactical and operational levels might be left unchecked by the executives, both in its impact likelihood and severity. The misaligned threats considered and listed on SWOT analysis might mislead the company’s preparation on developing its resilience and further creating blind-spots with a risk of systematic destabilizing effect over the company’s ability to cope with the incoming external shock and crises sparked from within the organization. Static SWOT is never revisited unless there is an emergency called by the higher authority or the shareholders. SWOT analysis mostly lived a very short life and hibernated once it created to lay a foundation in the earliest chapter of a corporate plan document. Items that are listed are rarely understood deeply by the executives of the company. The request to recreate the lists of Strengths, Weaknesses, Opportunities, and Threats might include new items and missed some items that are previously included.