Strengths. Weaknesses. Opportunities. Threats. You have seen the matrix before. SWOT analysis is a popular tool for strategic planners. But does it really work?
The Organizations and Markets Blog debates the issue. Here's the argument against SWOT.
The problem, Makadok explains, is that the relationship between the two drivers of profitability is presented as additive. Thus, in order to earn a high profit, a firm should seek attractive markets and position the firm to have a competitive advantage. However, this "advice is simple, intuitive and wrong" (p.9), because there is an inherent tension between "seeking attractive markets" (thereby advocating a collusion-based approach) and "position to gain competitive advantage" (which implies beating or dominating rivals). In fact, Makadok argues using a simple duopoly model, that the two profitability drivers are likely sub-additive rather than additive.
SWOT analysis is one of those things that is misused because people prefer oversimplification. Business situations are very often complex, but when discussing information with others, we often put things in a simplified form. SWOT is one such simplified form. Problems arise when people like the simplified form so much they use it as a substitute for thinking. They wrongly believe that the simplified tool represents the full analysis. The subtle complexities of the situation get lost, and SWOT (or whatever tool is used) ends up leading to inaccurate results.
Is SWOT analysis wrong? It depends on your perspective. As a quick analytical tool it's quite useful. As strategic dogma it fails miserably.