The limitations of SWOT analysis
The mirror-image trap
Imagine the new manager of a Formula One team. His goal has been predetermined with extreme clarity: “Win the Formula One within three years.” Because he comes from a business background, he pulls out the tried and true SWOT analysis form (Strengths, Weaknesses, Opportunities, and Threats) and begins to do his assessment. If he is like most managers who use the SWOT analysis, he will occasionally succumb to the mirror-image trap: the strengths of the competitor show up in his weaknesses column, and any opportunities he lists will automatically show up as threats considering that the competitor might do it first. But even if he doesn’t fall into the mirror-image SWOT trap, at the end of the day all he really has with his SWOT analysis is a concise competitive assessment document.
How rigorous can you be with SWOT?
Would that be enough to dig into other important areas to determine all of the factors that can contribute to, or hinder, his team’s capability to win Formula One within three years? Where would he put funding issues and sponsor-related activities on the SWOT analysis – strengths and opportunities, or weaknesses and threats? How about new drivers coming up in the next two years, or new tracks to be added to the series? Clearly, those are threats, right? Has he included an assessment of potential new technologies from the tire manufacturers and the fuel experts? How about learning from other related fields? Is there anything in Nascar racing or in motorcycle technology that could be applied to his situation? And how about really digging into his own team’s performance?
You get the point. Even in a field that has very clear competitors and a very clear goal, the SWOT analysis can come up short. It’s limited no matter how rigorously you apply it. How well do you think SWOT works when you have to consider various customer targets, a complex value chain, and a competitive set that includes not only the usual suspects but also a range of products and services that could be viewed as substitutes for your product from the customer’s perspective?
You need a more complete assessment than SWOT if you are going to fully determine the key opportunities to reach your destination, as well as identify any existing or potential barriers, that may stand in your way.
Let’s go back to Formula One and modify the value diagnostics assessment process instead of attempting to impose our tried (and found wanting) SWOT method. The keyword is diagnostics. In motor racing, they perform diagnostics on a wide range of factors that affect the performance of the team. In Formula One, speed is paramount. For business, customer value is paramount. Just as the best team in Formula One is consistently the fastest, the best team in the business is the one that consistently provides the best value for its customers. And again, the best value is not necessarily the best price, but rather the best customer-delivered value for the price – more for more and worth it. So, let’s use a more appropriate analytical tool – value diagnostics.
A comprehensive 360-degree assessment
The focus of value diagnostics, as it should be, is on value. What is your brand doing, or not doing, to provide value to your customers? Who are your existing and potential customers, and what do they consider the value to be? How good has your performance been up to now in delivering value to your customers in an efficient manner across your value chain? Who are your competitors, from your customer’s perspective (i.e., available alternatives or substitutes)? What are they doing now, or what might they do in the future, to provide greater value for themselves as they correspondingly decrease the value of your product? What can you learn from related fields that can be potentially applied to your business?
We list six areas that a typical business would need to assess in its value diagnostics to determine the key opportunities in achieving its destination, as well as to identify barriers standing in its way. These are, however, only the six most common areas in need of diagnostic work. Your business may require several others or a completely different set for each group of customers or trade partners. The point is that value diagnostics is about taking a comprehensive 360-degree look around your business and your customers to determine what value is and how your company can provide it in a more meaningful way than any other alternative.
Exploring what’s relevant
Stick to what’s relevant
As you can see, there is a lot that you can explore and learn from your value diagnostics analysis – almost too much. So how do you keep from drowning in data as you struggle to complete this analysis? The answer is… relevance. You don’t need lots of data, you only need relevant data. Relevance is determined by what will contribute, or hinder value delivery to your customer. That isn’t to say that it is simple and easily achieved – it isn’t.
The most difficult of all the diagnostics work you will need to do is to develop a deep understanding of your customers’ functional and emotional needs relative to what your brand can deliver, and the value it can provide. Your understanding of the customers’ needs will allow you to discover most of what you must know so that you can craft a consumption-motivating strategy for your brand. It will also provide you with the lifestyle and ‘state of mind’ data that will help you reach your customers with the right messages at the right time, at the right place.
What business are you really in?
By looking comprehensively at your company’s performance in delivering customer value, you will discover how important it is that everyone, from production to sales to marketing, understands their special role in creating and delivering value to the customer. By looking at your competitors from your customers’ perception, rather than from your own perspective of the competitive set, you might come to realize that your real competition is much different from what you originally thought.
The business you are in may also be different than you previously imagined. For example, is a ski area in the skiing business, or is it in the family-bonding business? Or, depending on what type of customer we are talking about, maybe it is in the memory collection business or adventure business. It’s the same ski area, but how its benefits are perceived can vary depending on who is likely to come and spend money there. The value equation for each customer segment and the available alternatives differ a great deal.
Not all the information is relevant
One problem most people have when they set out an assessment of the current business situation is that they lose their way in the doing. They can’t see the forest from the trees. Whether it be analyzing potential competitors, establishing priority customer segments, or trying to figure out what has been working and what has not – an objective point of view is essential.
When you get a new position or a new assignment, you would maybe ask for the available information relating to what we are setting out to do. What you want is good customer data, a tight review of the competitive situation with an emphasis on how the customer views the field of alternatives. You take a look at current key business indicators that show you how you are doing on a trend basis. What you usually would get in this situation is a data dump of everything. The good news about the modern world is that everything is available at the touch of a button; the bad news is that you literally get everything.
Once the material has arrived and is cluttering your desk and every flat surface in sight, you start to wade through the jungle of information. You try to separate the meaningful from the meaningless. In the event you ever find yourself in a real jungle, you will quickly discover that the most useful things to bring along are a compass and a machete – the compass to keep you oriented toward your destination and the machete to slash a path through the morass. Getting through a data dump requires a machete mindset. Driven by a destination (where you want the business to be), you slash your way through the jungle of data. It is important that you quickly identify the relevant from the irrelevant.
Applying the relevant information
Keep in mind what you intend to do with any gems of information you are about to discover. How do you intend to apply the information you find? If it doesn’t help you develop your thinking in any of the following four strategic areas, slash it out of the way with your machete and keep moving.
Some data are specifically related to building a more motivating brand architecture, such as which features and benefits are the most meaningful and provide the best usage to focus on going forward. Segmenting customers on the basis of how they approach and interact with your product category is also important. How different customer segments perceive and value different functional and emotional benefits is even more important.
As you begin to understand the motivations of different customer segments based on lifestyles and values, you will need to also look for information on how they move through their world in order to gauge their moods and state of mind from one potential usage occasion to the next. Understanding the customer’s state of mind is crucial to developing an occasion-based sales activation plan, as well as helping you target the most effective communication touch-points.
Customer target assessment
Your customer assessment must break through the old demographic segmentation habit and come to understand customers as belonging to distinct lifestyle communities, interests groups, and cohorts. It would be nice to be able to target customers as individuals, but short of that perfect marketing world, wouldn’t it be much more effective to segment them, based on shared values and lifestyles, rather than on what city they live in or what their level of education or income happens to be?
Brand assessment is the process of determining the current value assigned by customers to the benefits a particular brand provides. The best place to start your search for brand data is internal. What you are looking for is information about how, when, and why people use your products.
If yours is a smaller company, you may not have much in the way of brand or customer data. You probably have limited resources to go out and conduct some of the more substantial types of research. One benefit of a small company over a large one is that management is usually in closer contact with the customer – often on a daily basis.
Consider a restaurant: the manager and wait staff are conducting almost a hundred focus groups every day. They’ve tried new product launches and seen how individuals and groups react firsthand. They also have a lot of what researchers call ethnographic data – they observe customers in the environment interacting with the product. That stuff is valuable and very expensive for a big company to create in a realistic format. Sure, restaurants are obvious, but just think about it. If you are managing a bank, a car dealership, any sort of retail shop, or a small to mid-size B2B (business to business), you have regular customer contact and a wealth of brand data just waiting to be scooped up.
Related products assessment
It is often helpful to look beyond your particular industry to see what other people are doing that can be applied to your business. When taking a broader look around, think of the Australian Dingo dog. It runs as fast as it can through the high brush, but every so often, it will leap high up into the air for a quick look around. Look for best practices and good ideas, wherever they are, while you move as fast as possible to your destination. We could use a little bit of Dingo in all of us.
An excellent Dingo example is how RyanAir assesses train travel. By looking at the motivations of train travelers between London and Paris, RyanAir can more effectively sell plane tickets for weekend getaways. It rightly understands that its customers are buying the destination – not necessarily the vehicle.
When looking at best practices in another field, it is important to understand not just what works, but why it works. With a bit of analysis and some common sense, you will find that only some elements will apply to your category and your brand situation, while others will not. That’s fine – pick and choose. The important thing is that you are starting to think outside the box that is your own industry.
When you are trying to figure out where to take your business, or to establish your current value proposition, it is a pretty safe assumption to say that the answer is not with the competitor; that is unless your business is based on simply being a cheaper knock-off of the category leader. Assuming you want to establish your own brand value, the answer lies with the customer and what you are doing to add to or detract from the value your brand provides.
While it is certainly true that there are competing products in the market and the customer can potentially substitute one of those products for yours, you should think of what you can do to make your product the first choice. Let the competitor deal with being an alternative.
Because you are customer-focused instead of competitor-focused, you are not initially looking at your competitor to establish your value proposition. You are linking customer needs with your core competencies. Consequently, the most important thing to do in the competitive assessment is to try and anticipate the competitor’s reaction to any new customer-driven initiative you are considering so that you can make your initiative meaningful but also defendable.
Your competitor’s subsequent actions can affect your brand’s value and you have to be ready with a range of options to protect or restore your brand’s value. Assessing the value customers place on competitive products, and how that will change as a result of what you may do is good practice. It is also important to understand how your principal competitors make decisions and how fast they can react. Remember, you should be setting the pace and controlling the competitive environment by consistently making your brand so close to the customers’ needs that there simply is no room for the other guy.
Keep the analysis relevant
You can always find something else to assess and you can always come up with something else you would like to know. Paralysis through analysis can easily be the result. You don’t need to know everything about the consumer, the market, or your business… and you could never achieve such a goal, even if you wanted to. Value diagnostics is not a tool so much as it is a mindset of how you should approach executing a situational analysis for your business. Approach the value diagnostics on the basis of customer value. How much value are you delivering? Where and how can you potentially deliver more value? What are the potential barriers standing in your way? And finally, as you shift through the relevant and discard the irrelevant, keep moving toward where you ultimately want your business to be.