A Four-Letter Word for (Your Organization’s) Future

What does a company try to achieve when it engages in strategic planning? Fundamentally, the company is trying to answer four key questions:

  1. Where do we want to be?

  2. When do we want to get there?

  3. How are we going to get there?

  4. Who is responsible for getting us there?

At its core, strategic planning is a decision-making process. You will decide the direction your organization will go over the next 1, 2, 5, or 10 years. You’ll develop a roadmap, a game plan, a shared vision of what’s possible.

But to develop the kind of roadmap an organization can really follow to get from point A to point B, you must have complete information—not just about where you’re going, but where you are right now. In doing so, you must assess all aspects – the good, the possible, the bad, the barriers.

But, where do you start? Pro-tip: It’s probably a four-letter word.

No, not one of those four-letter words; but we know that is what many people think when an organization announces its going to develop a strategic plan. This feeling comes in part because strategic planning is often not done properly. Strategic planning follows a well-established formula. If you follow it, you will develop a roadmap that everyone understands and supports that will successfully take you into your future.

Strategic planning breaks down into four components:

  1. Situational Analysis

  2. Strategy Formulation

  3. Strategic Plan Execution

  4. Evaluation

In this piece, we focus on the analysis phase because this is the phase most people skip over or don’t invest meaningful effort. However, it is the first step in strategic planning for a reason. As we say above, you can’t really know where you’re going until you really understand where you are at.

Situational Analysis

This is where vital business and organizational management tools like SWOT or PEST come into play. These tools help an organization’s leadership assess the current situation in a range of areas so that they can make informed and strategic decisions not just about where an organization needs to go to reach its goals, but also about the right way to get there.

There are a variety of such tools, and in some cases, there are variations of the same tool. An organization is unlikely to use just one tool in its strategic planning process. In fact, we encourage you not to. At a minimum, we recommend that an organization use both a SWOT analysis and a PEST analysis. We discuss each of these below. These tools assess different things from different perspectives. As a result, when done in combination, they paint a bigger picture with much more detail.

SWOT Analysis

Is TOWS different from SWOT?

Not really. If there is a difference, it is where the emphasis is placed. In SWOT, emphasis is on the internal factors (S,W), while in TOWS, the emphasis is on the external factors (T,O).

Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis is a tool that facilitates vital situational analysis. It is a simple, yet in-depth tool that allows an organization to evaluate internal factors: Strengths and Weaknesses, and external factors: Opportunities and Threats. Through a SWOT analysis, an organization can identify opportunities, assess strengths and determine how to maximize them, and identify weaknesses and threats that must be remedied or minimized. A primary benefit of SWOT is that it applies to any organization type, regardless of industry, size, structure, or length of operation.  

  • Strengths: the characteristics and capabilities of the company that provide a distinct competitive advantage and include, but are not limited to, brand and reputation, employees, culture, financial resources, and advanced technologies.

  • Weaknesses: the characteristics or processes that decrease an organization’s competitiveness or that require improvement and may include outdated technology, lack of appropriately skilled workforce, or lack of funding.

Strengths and weaknesses are typically thought of as internal factors because they are specific to your organization, but they should be considered from multiple perspectives (not just internal perspectives): staff and management, customers and partners, and as compared to your competitors.

  • Opportunities: Situations that present the opportunity for your organization to grow, including entry into new markets, the use of new technology, or new customers.

  • Threats: Obstacles that have the potential to disrupt your operations or inhibit your growth and competitiveness, including changes in regulations, severe weather, or a change in the economy.

The key to a successful SWOT analysis is that it is done from the perspective of multiple stakeholders: management, staff, members of the Board of Directors, real and potential customers, partners, and the community at large. It is necessarily a collaborative process, and it should never be done by one or two people at the top of the organization in isolation. Having just a few leaders at the top complete a SWOT provides a very narrow assessment of your organization. It’s like looping through the peep hole in a door versus looking through a big picture window. This narrow perspective means that decisions will be made with limited information and your roadmap for the future will be riddled with unanticipated barriers.  

Alternatives to SWOT

There are numerous alternatives to SWOT. These alternatives have been developed to address perceived limitations of SWOT, namely that SWOT seems to focus on the negative and/or on the present.

  • Needs, Opportunities, Improvements, Strengths, Exceptions (NOISE)

  • Strengths, Challenges, Options, Responses, Effectiveness (SCORE)

  • Situation, Core Competencies, Obstacles, Prospects, Expectations (SCOPE)

The benefit of these tools, over SWOT, is thought to be that they are more action-oriented. You don’t just identify the problem (Weakness or Threat), but also the response or the improvement that will be implemented. The words used also seem less negative, focusing on challenges or needs rather threats or weaknesses, which have more negative connotations.

We understand that alternatives to SWOT are not meant to ignore the negative, but instead seek to reframe them. For example, in SWOT a weakness may be that the company is not able to fulfill a customer need because of an operational limitation. In NOISE, this would be identified as a Need. Perhaps it is a need for a new technology.

Whether an organization uses SWOT or one of its alternatives is likely the result of the organization’s culture and how it prefers to approach things. What for one organization may appear to just be semantics may be the difference between successful strategic planning and a failed attempt at it.

We recommend that organizations use the tools that align most with their way of doing things. But, don’t make it unnecessarily complicated. Sometimes a weakness is a weakness and you just need to acknowledge that. Second, use an external facilitator. It is the job of the facilitator to assure that you don’t get bogged down in the negative. Finally, do not confuse analysis with strategy formation. They are distinct phases, with distinct objectives. The Analysis phase informs the Formation phase.

PEST Analysis

A PEST Analysis (Political, Economic, Socio-Cultural, Technological) is focused entirely on external factors and helps an organization identify and understand the changes occurring in the business environment or community.

  • Political: includes regulatory and statutory requirements (proposed and enacted), timing and status of elections, policies of those in office,  

  • Economic: economic factors, such as the status of the economy (growing, declining, etc.), interest, exchange and inflation rates, unemployment rates, ease of access to capital, consumer demand,

  • Socio-Cultural: potential size of the market, demographics of the market, social attitudes, changes in the demographics, cultural considerations such as religious or lifestyle choices, and

  • Technological: technological advancements, the rate at which technology advances in the industry, competitors’ access to technology, ability to partner to receive the benefit of new technologies, what research and development is occurring in local universities or research centers, what’s on the horizon?

There are multiple derivatives of PEST that address other, relevant external factors that may be relevant and important to your company:

  • PESTLE: Political, Economic, Socio-Culture, Technology, Legal, Environment

  • PESTLIED: Political, Economic, Socio-Culture, Technology, Legal, International, Environment, Demographic

  • SLEPT: Socio-Culture, Legal, Economic, Political, Technology

  • STEEPLE: Social/Demographic, Technology, Economic, Environment, Political, Legal, Ethical  

A PEST Analysis is different from a SWOT Analysis, though often you will identify some of the same issues with both tools. We recommend that a PEST analysis be completed prior to a SWOT analysis. As the PEST will help inform the Opportunities and Threats components of a SWOT analysis.

To inform the PEST analysis, we recommend that an organization conduct a market analysis. And, yes, for those nonprofit organization leaders reading this, this does apply to you. In fact, given the heavy reliance of many nonprofit organizations on grants – public and private – we strongly recommend that you understand the political environment you are operating in and what that could mean for your funding.

We find that conducting an extensive market analysis significantly helps a company understand these external factors. A market analysis provides data that can be used to understand the changes occurring in the external environment that a company can take advantage of, including identifying potential threats early and developing a plan to address them. For example, including an assessment of local, state, and federal legislative activity (political) can help determine if a change in law could make it more difficult for your business to operate (See Example Box). An assessment of the political environment is a core component of the market analyses we conduct for our partners.

SOAR Analysis – Situational Analysis or Strategy Formation Tool?

Example: Political impact on funding for nonprofits

Before 2010, when the Affordable Care Act was enacted into law, many nonprofits throughout the country advocated for improved access to affordable health coverage. Others provided services to support those without insurance.

When the ACA became law, many of these same organizations saw a significant reduction in funding from private and public funding sources. This is because many funders believed that with passage of the ACA, there was less need for funding of these activities. Many of the organizations that provided these services were not prepared for this response by funders.

While this was a clear threat, the ACA also created significant opportunities for nonprofit organizations, such as providing health insurance Navigator support, which brought a new source of funding.

Nonprofits that paid attention to these external factors were better prepared to respond to the threats and opportunities.

We were recently asked “Would you consider doing SOAR instead of SWOT?” and the response to that question really is that these are different tools. SWOT is meant to provide an assessment of the current situation, from multiple perspectives, so that an organization can make informed decisions about where it needs to go. SOAR (Strengths, Opportunities, Aspirations, Results), on the other hand, is more of a framework for change and therefore is future-oriented, rather than an assessment of the present. Instead, we use SOAR in the second phase of strategic planning – Strategy Formation.

To us, it’s not a matter of one or the other, but, depending on the circumstances, very likely both tools can be used to help an organization settle on its strategic plan.

If SOAR and SWOT are done together, it is our experience that the organization is more likely to not only identify opportunities but also identify potential operational limitations and develop a plan to address those limitations.

SOAR uses appreciative inquiry to focus on the company’s strengths and how to build on those strengths, rather than focusing on the company’s weaknesses or threats. The approach is action-oriented and focused on results. The idea is that you focus on the company’s strengths in order to take advantage of opportunities so that you achieve what you aspire to and it is all measured to demonstrate that you achieved what you aspired to.

The last two components of SOAR are critical components of any strategic plan:

  • Aspirations: What does your company want to achieve? Where do you want to be in the future? It is meant to be inspirational and to challenge the employees and leadership to move the company forward.

  • Results: Measurable, tangible outcomes that demonstrate what the company aspires to has been achieved. It’s the way that a company turns its vision into outcomes.

The first two components of SOAR really are about how the company will link its Strengths to its Opportunities; how it will build on its strengths to gain that competitive advantage. That is strategy formulation.

We see great value in SOAR. But we also see great value in tools like SWOT and PEST that help organizations truly understand where they are, where they’re going, and how to get there.

Atròmitos’ Proven Process

To effectively leverage a situational analysis tool for strategic planning purposes, the analysis must be done through a collaborative process.  True collaboration is achieved when an organization promotes a shared understanding and obtains buy-in from a broad spectrum of stakeholders. Therefore, when we work with partners (client organizations) on a situational analysis (regardless of the tool(s) used), we identify a diverse group of stakeholders and engage them in the following proven process:

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  1. We identify, in collaboration with the partner, a broad spectrum of stakeholders to include in the analysis phase.

  2. We educate stakeholders on what the selected tool(s) (i.e., SWOT, PEST, SOAR) is and how it informs the strategic planning process and provide guiding questions to help stakeholders understand what each tool is intended to identify.

  3. We ask each stakeholder to complete the tool individually.

  4. We compile the results into a single situational analysis based on our assessment of the individual stakeholders’ responses. The results include identifying alignment among responses and using indicators to quantify alignment, for example, out of 25 stakeholders, 23 identified brand reputation as a strength.

  5. We facilitate a discussion of the compiled tool with stakeholders. During this in-person session we provide all participants the opportunity to respond with questions; clarifications; and, adjustments, as appropriate.

We assure a robust stakeholder engagement process so that our partners obtain meaningful and extensive input. Each of the tools used in the analysis phase can be completed by different stakeholders with varying levels of information and different perspectives. Assuring a comprehensive stakeholder analysis is important in identifying the full spectrum of stakeholders to include. Synthesizing the feedback from stakeholders in a fair and impartial manner is vital to getting the information you need to make informed decisions.

We then facilitate brainstorming sessions to finalize the input received. Through our impartial facilitation support, we encourage full participation among stakeholders. Keeping the meeting focused and on track. As impartial facilitators, we seek to identify and resolve conflict in a constructive way, thereby building consensus among participants and gaining their buy-in and commitment not only to the process, but to the outcome of the analysis.

Tailor Your Approach

The business management and strategic planning tools available to companies to facilitate the strategic planning process, while not endless, are extensive. We do not attempt to identify and explain all of them here. What is important to know is that there are a range of tools available to help an organization engage in robust assessment of critical internal and external factors – both positive and negative – to gain invaluable insight about the present and make informed decisions about the future. We do not advocate for one tool over another, nor do we claim to have our own tool that is miles above the others.

Instead, we seek to work in collaboration with each partner to determine the best approach for that organization based on its circumstances and tailor the approach and tools utilized to guide the organization to an informed, inspirational, but achievable, roadmap for the future rooted in understanding its challenges and opportunities today.