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178 PART 2 • STRATEGY FORMULATION

TABLE 6-1 Matching Key External and Internal Factors to Formulate Alternative Strategies
Key Internal Factor Key External Factor Resultant Strategy
Excess working capital (an internal + 20 percent annual growth in the cell phone = Acquire Cellfone, Inc.
strength) industry (an external opportunity)
Insufficient capacity (an internal + Exit of two major foreign competitors from = Pursue horizontal integration by buying
weakness) the industry (an external opportunity) competitors’ facilities
Strong R&D expertise (an internal + Decreasing numbers of younger adults (an = Develop new products for older adults
strength) external threat)
Poor employee morale (an internal + Rising healthcare costs (an external threat) = Develop a new wellness program
weakness)

20 percent annual growth rate (an external opportunity) by acquiring Cellfone, Inc., a
firm in the cell phone industry. This example portrays simple one-to-one matching. In
most situations, external and internal relationships are more complex, and the matching
requires multiple alignments for each strategy generated. The basic concept of matching
is illustrated in Table 6-1.
Any organization, whether military, product-oriented, service-oriented, govern-
mental, or even athletic, must develop and execute good strategies to win. A good
offense without a good defense, or vice versa, usually leads to defeat. Developing
strategies that use strengths to capitalize on opportunities could be considered an
offense, whereas strategies designed to improve upon weaknesses while avoiding
threats could be termed defensive. Every organization has some external opportunities
and threats and internal strengths and weaknesses that can be aligned to formulate
feasible alternative strategies.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an important match-
ing tool that helps managers develop four types of strategies: SO (strengths-opportunities)
Strategies, WO (weaknesses-opportunities) Strategies, ST (strengths-threats) Strategies,
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and WT (weaknesses-threats) Strategies. 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 opportuni-
ties. 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 gener-
ally 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 weak-
nesses 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 tech-
nology 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 environ-
ment 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).