The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an important matching tool

that helps managers develop four types of strategies: SO (strengths-opportunities) Strategies, WO
(weaknesses-opportunities) Strategies, ST (strengths-threats) Strategies, and WT (weaknesses-threats)
Strategies.3 Matching key external and internal factors is the most difficult part of developing a SWOT
Matrix and requires good judgment—and there is no one best set of matches. Note in Table 6-1 that the
first, second, third, and fourth strategies are SO, WO, ST, and WT strategies, respectively.

SO Strategies use a firm’s internal strengths to take advantage of external opportunities. All
managers would like their organizations to be in a position in which internal strengths can be used to
take advantage of external trends and events. Organizations generally will pursue WO, ST, or WT
strategies to get into a situation in which they can apply SO Strategies. When a firm has major
weaknesses, it will strive to overcome them and make them strengths. When an organization faces
major threats, it will seek to avoid them to concentrate on opportunities.

WO Strategies aim at improving internal weaknesses by taking advantage of external

opportunities. Sometimes key external opportunities exist, but a firm has internal weaknesses that
prevent it from exploiting those opportunities. For example, there may be a high demand for electronic
devices to control the amount and timing of fuel injection in automobile engines (opportunity), but a
certain auto parts manufacturer may lack the technology required for producing these devices
(weakness). One possible WO Strategy would be to acquire this technology by forming a joint venture
with a firm having competency in this area. An alternative WO Strategy would be to hire and train
people with the required technical capabilities.

ST Strategies use a firm’s strengths to avoid or reduce the impact of external threats. This does
not mean that a strong organization should always meet threats in the external environment head-on.
An example of ST Strategy occurred when Texas Instruments used an excellent legal department (a
strength) to collect nearly $700 million in damages and royalties from nine Japanese and Korean firms
that infringed on patents for semiconductor memory chips (threat) Rival firms that copy ideas,
innovations, and patented products are a major threat in many industries. This is still a major problem
for U.S. firms selling products in China.

WT Strategies are defensive tactics directed at reducing internal weakness and avoiding external
threats. An organization faced with numerous external threats and internal weaknesses may indeed be
in a precarious position. In fact, such a firm may have to fight for its survival, merge, retrench, declare
bankruptcy, or choose liquidation.

A schematic representation of the SWOT Matrix is provided in Figure 6-3. Note that a SWOT
Matrix is composed of nine cells. As shown, there are four key factor cells, four strategy cells, and one
cell that is always left blank (the upper-left cell). The four strategy cells, labeled SO, WO, ST, and WT, are
developed after completing four key factor cells, labeled S, W, O, and T. There are eight steps involved in
constructing a SWOT Matrix:

1. List the firm’s key external opportunities.

2. List the firm’s key external threats.

3. List the firm’s key internal strengths.

Source: Fred R. David, Strategic Management Concepts and Cases

 4. List the firm’s key internal weaknesses.

5. Match internal strengths with external opportunities, and record the resultant SO Strategies
in the appropriate cell.

6. Match internal weaknesses with external opportunities, and record the resultant WO
Strategies.

7. Match internal strengths with external threats, and record the resultant ST Strategies.

8. Match internal weaknesses with external threats, and record the resultant WT Strategies.

Some important aspects of a SWOT Matrix are evidenced in Figure 6-3. For example, note that
both the internal/external factors and the SO/ST/WO/WT Strategies are stated in quantitative terms to
the extent possible. This is important. For example, regarding the second SO #2 and ST #1 strategies, if
the analyst just said, “Add new repair/service persons,” the reader might think that 20 new
repair/service persons are needed. Actually only two are needed. Always be specific to the extent
possible in stating factors and strategies.

It is also important to include the “S1, O2” type notation after each strategy in a SWOT Matrix.
This notation reveals the rationale for each alternative strategy. Strategies do not rise out of the blue.
Note in Figure 6-3 how this notation reveals the internal/external factors that were matched to
formulate desirable strategies. For example, note that this retail computer store business may need to
“purchase land to build new store” because a new Highway 34 will make its location less desirable. The
notation (W2, O2) and (S8, T3) in Figure 6-3 exemplifies this matching process.

The purpose of each Stage 2 matching tool is to generate feasible alternative strategies, not to
select or determine which strategies are best. Not all of the strategies developed in the SWOT Matrix,
therefore, will be selected for implementation.

The strategy-formulation guidelines provided in Chapter 5 can enhance the process of matching
key external and internal factors. For example, when an organization has both the capital and human
resources needed to distribute its own products (internal strength) and distributors are unreliable,
costly, or incapable of meeting the firm’s needs (external threat), forward integration can be an
attractive ST Strategy. When a firm has excess production capacity (internal weakness) and its basic
industry is experiencing declining annual sales and profits (external threat), related diversification can be
an effective WT Strategy.

Although the SWOT matrix is widely used in strategic planning, the analysis does have some
limitations.4 First, SWOT does not show how to achieve a competitive advantage, so it must not be an
end in itself. The matrix should be the starting point for a discussion on how proposed strategies could
be implemented as well as cost-benefit considerations that ultimately could lead to competitive
advantage. Second, SWOT is a static assessment (or snapshot) in time. A SWOT matrix can be like
studying a single frame of a motion picture where you see the lead characters and the setting but have
no clue as to the plot. As circumstances, capabilities, threats, and strategies change, the dynamics of a
competitive environment may not be revealed in a single matrix. Third, SWOT analysis may lead the firm
to overemphasize a single internal or external factor in formulating strategies. There are
interrelationships among the key internal and external factors that SWOT does not reveal that may be
important in devising strategies.

Source: Fred R. David, Strategic Management Concepts and Cases

Source: Fred R. David, Strategic Management Concepts and Cases