Module 8: Strategy Formulation: Choice and

Analysis

Module 8.3: SWOT Analysis and TOWS Matrix

Objectives
• Importance and strategy formulation steps.

• Importance of subjective factors in strategic choice.

Learning Outcomes
• To understand importance and strategy formulation steps.

• To appreciate the importance of subjective factors in strategic choice.

SWOT
• SWOT is a framework that allows managers to synthesize insights
obtained from an internal analysis of the company’s strengths and
weaknesses with those from an analysis of external opportunities and
threats.

• Swot analysis involves the collection and portrayal of information about

internal and external factors which have, or may have, an impact on
business
TOWS Matrix
• A TOWS Matrix analysis involves the same basic process of listing
strengths, weaknesses, opportunities and threats as a TOWS Matrix
analysis, but with a TOWS Matrix analysis, threats and opportunities are
examined first and weaknesses and strengths are examined last.

• After creating a list of threats, opportunistic, weaknesses and strengths,

managers examine ways the company can take advantage of
opportunities and minimize threats by exploiting strengths and
overcoming weaknesses.
SWOT
• Strengths: factors that give an edge for the company over its
competitors.

• Weaknesses: factors that can be harmful if used against the firm by its
competitors.

• Opportunities: favorable situations which can bring a competitive

advantage

• Threats: unfavorable situations which can negatively affect the

business.
SWOT
• Strengths and weaknesses are internal to the company and can be
directly managed by it, while the opportunities and threats are external
and the company can only anticipate and react to them
Strengths
• A firm's strengths are its resources and capabilities that can be used as a
basis for developing a competitive advantage.

• Examples of such strengths include:

1. Patents
2. Strong brand names
3. Good reputation among customers
4. Cost advantages from proprietary know - how
5. Exclusive access to high grade natural resources
6. Favorable access to distribution networks
Weaknesses
• The absence of certain strengths may be viewed as a weakness.

• For example, each of the following may be considered weaknesses:

1. Lack of patent protection
2. A weak brand name
3. Poor reputation among customers
4. High cost structure
5. Lack of access to the best natural resources
6. Lack of access to key distribution channels
Weaknesses
• In some cases, a weakness may be the flip side of a strength.

• Take the case in which a firm has a large amount of manufacturing

capacity.

• While this capacity may be considered a strength that competitors do

not share, it also may be a considered a weakness if the large investment
in manufacturing capacity prevents the firm from reacting quickly to
changes in the strategic environment.
Opportunities
• The external environmental analysis may reveal certain new
opportunities for profit and growth.

• Some examples of such opportunities include:

1. An unfulfilled customer need

2. Arrival of new technologies
3. Loosening of regulations
4. Removal of international trade barriers
Threats
• Changes in the external environmental also may present threats to the
firm.
• Some examples of such threats include:

1. Shifts In Consumer Tastes Away From The Firm's Products

2. Emergence Of Substitute Products

3. New Regulations

4. Increased Trade Barriers

Swot Tool has 5 Key Benefits:
1. Simple to do and practical to use;

2. Clear to understand;

3. Focuses on the key internal and external factors affecting the company;

4. Helps to identify future goals;

5. Initiates further analysis.

Limitations
• Excessive lists of strengths, weaknesses, opportunities and threats;

• No prioritization of factors;

• Factors are described too broadly;

• Factors are often opinions not facts;

• No recognized method to distinguish between strengths and weaknesses,

opportunities and threats.
The SWOT Matrix
• A firm should not necessarily pursue the more lucrative opportunities.
Rather, it may have a better chance at developing a competitive
advantage by identifying a fit between the firm's strengths and upcoming
opportunities.
The SWOT Matrix
• In some cases, the firm can overcome a weakness in order to prepare
itself to pursue a compelling opportunity.

• To develop strategies that take into account the SWOT profile, a matrix
of these factors can be constructed.
The SWOT/TOWS Matrix
The SWOT/TOWS Matrix
• S - O strategies pursue opportunities that are a good fit to the company's
strengths.

• W - O strategies overcome weaknesses to pursue opportunities.

• S - T strategies identify ways that the firm can use its strengths to reduce
its vulnerability to external threats.

• W - T strategies establish a defensive plan to prevent the firm's

weaknesses from making it highly susceptible to external threats.
The SO Strategy
• This is also known as Maxi - Maxi Strategy where a firm utilizes most of
its internal strengths in order to grab the right external opportunities.

• For instance: A firm whose financial position is quite strong and posses
low market share is able to introduce many innovative products in the
market by making investment in the Research & development
Department of the firm.
The WO Strategy
• The WO STRATEGY is also known as Mini - Maxi Strategy that can be
used to overcome the weaknesses of a company by taking advantage of
the opportunities,

• For instance: A firm who lacks skilled workers can utilize the
opportunity by updating new technology in order to increase production.
The SWOT/TOWS Matrix
• The internal weaknesses of any firm can also be improved by recruiting
and training employees through learning additional technical skills.

• A company who faces a decline in the financial sector can avail the
opportunity of merging with a multinational company.
The ST Strategy
• The ST Strategy/Maxi - Mini Strategy is where a company through its
strengths can avoid any kind of external threats.

• Any organization can refrain from external threats by avoiding any

copied ideas, innovation in products of another organization.

• In a case with an organization that possess good quality of products but

is facing threats against competitors who offers low priced products can
adopt ST strategy by mass production of the products, therefore it will
reduce the unit cost of production.
The WT Strategy
• The WT Strategy Or Mini- Mini Strategy are adopted by firms who needs
to reduce the level of weaknesses and avoids any external threats at the
same time.

• This can be considered as a defensive technique in a situation where a

company whose financial position is at the critical stage and the demand
of its product getting reduced, the only possible chance to sustain itself
in the market is to adopt a retrenchment strategy or decides for merger
with an another company.
The WT Strategy
• However, The WT Strategy is difficult to implement in a situation with a
company whose distribution channel tends to be weak, if it gets
improved by chance, in that case it will be able to remove many external
threats easily.
Guidelines for Successful SWOT
• Factors have to be identified relative to the competitors. It allows
specifying whether the factor is a strength or a weakness.

• List between 3 - 5 items for each category. Prevents creating too short or
endless lists.

• Items must be clearly defined and as specific as possible.

Guidelines for Successful SWOT
• Rely on facts not opinions. Find some external information or involve
someone who could provide an unbiased opinion.

• Factors should be action orientated. For example, “slow introduction of

new products” is action orientated weakness.
SWOT vs. TOWS
• SWOT and TOWS analysis involve the same basic steps and likely
produce similar results.

• The order in which managers think about strengths, weaknesses, threats

and opportunities may, however, have an impact on the direction of the
analysis.
SWOT vs. TOWS
• SWOT and TOWS use the same factors for analysis, and the terms are
sometimes used interchangeably without regard to the order that
strengths, weaknesses, threats and opportunities are examined.
Conclusion
• SWOT Analysis is a simple but useful framework for analyzing your
organization's strengths and weaknesses, and the opportunities and
threats that you face.

• It helps you focus on your strengths, minimize threats, and take the
greatest possible advantage of opportunities available.