SWOT Analysis is a commonly used strategic management framework which scans internal strengths and internal weaknesses of a product or service industry and highlights the opportunities and threats of the external environment. This will help to focus on the strengths, minimize weaknesses and take the greatest possible advantage of opportunities available by overcoming threats. SWOT Analysis becomes a useless exercise if it is not extended to TOWS Analysis where the strengths are used to capitalize on opportunities and to counter threats and, the weaknesses are minimized using opportunities and both weaknesses and threats are avoided.
Read More: SWOT Analysis – A Strategic Planning Tool
Weihrich developed TOWS Matrix in 1982, as the next step of SWOT Analysis in developing alternative strategies. TOWS Matrix is a conceptual framework for identifying and analyzing the threats (T) and opportunities (O) in the external environment and assessing the organization’s weaknesses (W) and strengths (S). TOWS Matrix is an effective way of combining a) internal strengths with external opportunities and threats, and b) internal weaknesses with external opportunities and threats to develop a strategy.
- The TOWS analysis starts with the external environment. Specifically, the listing of external threats (T) may be of immediate importance to the firm as some of these threats may seriously threaten the operation of the firm. These threats should be listed in quadrant T. Similarly, opportunities should be shown in quadrant O. Threats and opportunities may be found in different areas, but it is advisable to carefully look for the more common ones which may be categorized as economic, social, political and demographic factors, products and services, technology, markets and, of course, competition.
- The firm’s internal environment is assessed for its strengths (S) and weaknesses (W), and then listed in the respective quadrants. These factors may be found in management and organization, operations, finance, marketing and in other areas.
TOWS matrix identifies four conceptually distinct strategic groups: Strength-Opportunity (SO), Strength-Threats (ST), Weaknesses-Opportunities (WO), and Weaknesses-Threats (WT), for creating the alternative strategies. The primary concern here is strategies, but this analysis could also be applied to the development of tactics necessary to implement the strategies, and to more specific actions supportive of tactics.
- 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 where internal strengths can be used to take advantage of external trends and events. Organizations generally will pursue WO, ST, or WT Strategies in order to get into a situation where 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 in order 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 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 (strength) to collect nearly $700 million in royalties from nine Japanese and Korean firms that infringed on patents for semi conductor memory chips (threat). Rival firms that copy ideas, innovations, and patented products area major threat in many industries. This is a major problem for U.S. firms selling products in China.
- WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental 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.
Although the sets of variables in the TOWS Matrix are not new, matching them in a systematic fashion is. Many writers on strategic planning suggest that a firm uses its strengths to take advantage of opportunities, but they ignore other important relationships, such as the challenge of overcoming weaknesses in the enterprise to exploit opportunities. After all, a weakness is the absence of strength and corporate development to overcome an existing weakness may become a distinct strategy for the company. Although efforts are now being made to gain greater insights into the way corporate strengths and weaknesses are defined, much remains to be done.
The primary advantage of this approach is the influence of prioritized internal and external factors embedded in alternative strategies. The main disadvantage of the TOWS matrix is that certain combinations are not considered such as SW or OT.