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CHAPTER 6 • STRATEGY ANALYSIS AND CHOICE 179

Rival firms that copy ideas, innovations, and patented products are a major threat in many
industries. This is still a major problem for U.S. firms selling products in China.
WT Strategies are defensive tactics directed at reducing internal weakness and avoid-
ing external 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.
A schematic representation of the SWOT Matrix is provided in Figure 6-3. Note that a
SWOT Matrix is composed of nine cells. As shown, there are four key factor cells, four
strategy cells, and one cell that is always left blank (the upper-left cell). The four strategy
cells, labeled SO, WO, ST, and WT, are developed after completing four key factor cells,
labeled S, W, O, and T. There are eight steps involved in constructing a SWOT Matrix:

1. List the firm’s key external opportunities.
2. List the firm’s key external threats.
3. List the firm’s key internal strengths.
4. List the firm’s key internal weaknesses.
5. Match internal strengths with external opportunities, and record the resultant
SO Strategies in the appropriate cell.
6. Match internal weaknesses with external opportunities, and record the resultant
WO Strategies.
7. Match internal strengths with external threats, and record the resultant ST
Strategies.
8. Match internal weaknesses with external threats, and record the resultant WT
Strategies.
Some important aspects of a SWOT Matrix are evidenced in Figure 6-3. For example,
note that both the internal/external factors and the SO/ST/WO/WT Strategies are stated in
quantitative terms to the extent possible. This is important. For example, regarding the sec-
ond SO #2 and ST #1 strategies, if the analyst just said, “Add new repair/service persons,”
the reader might think that 20 new repair/service persons are needed. Actually only two are
needed. Always be specific to the extent possible in stating factors and strategies.
It is also important to include the “S1, O2” type notation after each strategy in a SWOT
Matrix. This notation reveals the rationale for each alternative strategy. Strategies do not rise
out of the blue. Note in Figure 6-3 how this notation reveals the internal/external factors that
were matched to formulate desirable strategies. For example, note that this retail computer
store business may need to “purchase land to build new store” because a new Highway 34
will make its location less desirable. The notation (W2, O2) and (S8, T3) in Figure 6-3
exemplifies this matching process.
The purpose of each Stage 2 matching tool is to generate feasible alternative strate-
gies, not to select or determine which strategies are best. Not all of the strategies developed
in the SWOT Matrix, therefore, will be selected for implementation.
The strategy-formulation guidelines provided in Chapter 5 can enhance the process of
matching key external and internal factors. For example, when an organization has both the
capital and human resources needed to distribute its own products (internal strength) and
distributors are unreliable, costly, or incapable of meeting the firm’s needs (external
threat), forward integration can be an attractive ST Strategy. When a firm has excess pro-
duction capacity (internal weakness) and its basic industry is experiencing declining
annual sales and profits (external threat), related diversification can be an effective WT
Strategy.
Although the SWOT matrix is widely used in strategic planning, the analysis does have
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some limitations. First, SWOT does not show how to achieve a competitive advantage, so
it must not be an end in itself. The matrix should be the starting point for a discussion on
how proposed strategies could be implemented as well as cost-benefit considerations that
ultimately could lead to competitive advantage. Second, SWOT is a static assessment (or
snapshot) in time. A SWOT matrix can be like studying a single frame of a motion picture
where you see the lead characters and the setting but have no clue as to the plot. As
circumstances, capabilities, threats, and strategies change, the dynamics of a competitive