Thursday, September 22, 2016

Strategic Planning Analogy #568: SWOT it Away

I was born with a larger than normal nasal cavity, which means that I have a better than average sense of smell. I haven’t decided yet if that is a good thing or a bad thing.

On the good side, most of the flavor of our food comes through the nose, so good food tastes really, really good to me—more so than for the average person. The bad news is that it causes me to overeat and have a weight problem.

On the good side, I can more easily detect problems, such as a gas leak or if food is starting to spoil, or if a baby needs a diaper change. The bad news is that these types of bad smells cause me to react more negatively than others and get more nauseous than others.

So is having a more acute sense of smell a good thing or a bad thing?

One of the tools often used in strategy is the SWOT analysis (Strengths, Weaknesses, Opportunities and Threats). The basic assumption behind the SWOT analysis is this: things can be easily categorized into one of these four categories. Once you put things into their proper category, then a strategy will emerge to emphasize the strengths/opportunities and mitigate the weaknesses/threats.

The problem is that I see the world as being a lot more like my nose than like a list of categories. My acute sense of smell has both strengths and weaknesses. It provides me with both opportunities and threats. So does just about everything in business. Just as my nose won’t easily fit into these categories, neither does most of the business world.

As a result, it can be dangerous if a strategist just dumps a particular attribute into one of these four categories, since this will ignore the weakness inherent in any strength (and vice versa).

The principle here is that the SWOT analysis, as it is typically used, is an improper approach to strategy. The reason is because the fundamental assumption behind SWOT is flawed—things do not have a singular characteristic of being either good or bad. And if you only see a singular attribute, you become blinded to the more complex nature of the situation you are dealing with.

With SWOT, things labeled “bad” will be ignored or gotten rid of and things labeled “good” will get all the attention. As a result, you will miss out on the good things inherent in the “bad” and be overcome by the bad things inherent in the “good.”

Example: Retail
For example, let’s compare ecommerce vs. brick & mortar retail in the US. If you do the SWOT analysis, you might say that ecommerce is an opportunity and that brick and mortar is a weakness. 

After all, by comparison, ecommerce is:
  1.   Less capital intensive;
  2.   More Convenient;
  3.   More Flexible;
  4.   Faster Growing.

Such a simplistic approach might cause a retailer to abandon its stores (weakness) and put everything behind ecommerce (strength). However, this conclusion misses some nuances.

  • Omnichannel (both ecommerce AND brick & mortar) is even more valuable to customers. This is one reason why about 6 of the top ten US commerce sites are owned by companies that also operate brick and mortar stores (it varies depending on who is doing the research). It also helps to explain why many so-called pure ecommerce sites are starting to open up brick and mortar stores.
  • About 88% of commerce in the US still flows through brick and mortar stores.
  • Amazon so dominates the “pure” ecommerce space in the US that success in the pure ecommerce space is not a guaranteed successful strategic option for non-Amazon firms.

Therefore, dumping stores and putting all money behind ecommerce could be a huge mistake.
Just like my acute sense of smell, both forms of retail have strengths and weakness. You can’t just slot them into a single category. SWOT is too simplistic to account for all the nuances.

Alternative to SWOT
An alternative to the SWOT approach is something I call the MacGyver Approach. In the TV show “MacGyver”, Angus MacGyver gets into a lot of problematic situations. To get out of these predicaments, MacGyver looks around to see what is at his disposal. Usually it is just a bunch of everyday stuff—not inherently good or bad—just stuff. He then figures out how to combine what is at his disposal to create a way out of his dilemma. He can make bombs out of household chemicals. He can use chewing gum and paper clips to find a way of escape. 

The value of the items is not in each individual item, but in the ways MacGyver combines them for the desired effect.

The same can be true for your business. Your business has a lot of things at its disposal, including money, customers, patents, distribution channels, business partners, image, employees, and so on. Rather than trying to slot each one into a singular category of good or bad, weak or strong, just look at it as a bunch of stuff at your disposal (no preconceived value judgements).

Then, like MacGyver, look for ways to combine it all to create a way out of your dilemma. It’s a lot easier to find creative solutions when you don’t poison your mind with preconceived notions about how various parts are only good or only bad. Having an open mind opens up more possibilities.

You’d be surprised at what kind of strategy you can come up with if you abandon the SWOT approach and use more of a MacGyver approach. So my suggestion is to take SWOT out of your strategic toolbox and replace it with the MacGyver tool.

I’ve covered this concept in a variety of posts in the past. To learn more about this idea, go here and here.

Strategies have a starting point—where we are today. Our current situation comes with all sorts of baggage. To sort through all that baggage, a common strategic approach is to quickly sort everything into different piles depending on whether the baggage is “good” or “bad.” This is called the SWOT analysis. Unfortunately, by initially putting value labels on things we miss out on the fact that there is both good and bad in everything. SWOT closes our minds prematurely to all the potential strategic options available to us. A better approach is to eliminate the labels and see it all as a just pile of raw materials (no value labels) from which we must build a strategy. Then, like MacGyver, we look for creative ways to combine it all so that the sum of the parts gives us the edge we need to escape trouble and achieve success.

You don't need a nose like mine to smell the benefits of MacGyver over SWOT.

Remember, the best strategy for your company is not some generic approach applicable to everyone. After all, if everyone can do it, where is your advantage? Instead, your advantage comes from making the most from what is uniquely you. Look at everything you have and figure out how to combine it for maximum impact.