Why SWOT analyses are so dangerous
Find out why our unconscious biases mean that strategic business analyses, like SWOT, are fundamentally flawed.
In the context of our increasingly disrupted, globalizing, and multicultural world, leaders greatly appreciate the security and comfort of clear-cut strategic plans for the future.
After all, following our in-the-moment intuitions frequently leads to business disasters, and strategic plans help prevent such problems.
However, unfortunately, popular strategic business analyses meant to address the weaknesses of human thinking are deeply flawed. And instead of presenting an accurate, unbiased perspective, they give a false sense of comfort and security, leading people into the exact business disasters they’re trying to avoid.
Why SWOT analyses are flawed
Take the most popular of them, the SWOT analysis, where you try to figure out the Strengths, Weaknesses, Opportunities, and Threats facing your business.
SWOT doesn’t account for the dangerous judgment errors revealed by recent research in behavioral economics and cognitive neuroscience, what scholars call cognitive biases.
We make these mistakes not only in work, but also in other life areas, for example in our shopping choices, as revealed by a series of studies.
Relying on SWOT to inform your strategic plans without accounting for cognitive biases results in appalling oversights that ruin profitable businesses and bring down high-flying careers.
Fortunately, recent research in these fields shows how you can use pragmatic strategies to address these dangerous judgment errors in your professional and personal life.
Why overconfidence bias is so dangerous
One of the most dangerous mental blindspots for business leaders is overconfidence bias.
Scholars have found that business leaders at all levels make bad decisions due to overconfidence, especially those who have been most successful in the past.
They tend to believe themselves infallible, a dangerous judgment error called the bias blind spot. To quote Proverbs 16:18, “Pride goeth before destruction, and an haughty spirit before a fall.”
A related problem is the optimism bias – our tendency to look through rose-colored glasses. Research shows that top business leaders are especially likely to be excessively optimistic about their success. Such optimism harms their ability to make effective strategic plans.
How cognitive biases influence SWOT
When taking on new coaching and consulting clients, I always whether they did a SWOT. In every single case when they had, I’ve seen their overconfidence and optimism biases lead them to disregard risks and overestimate rewards.
For example, consider Saraj, a technology startup founder. His venture capital investors encouraged him to turn to me for coaching as his company passed $10 million in equity.
Saraj showed me the SWOT he did himself several months earlier for his own role as a leader. I was surprised that he didn’t list effective delegation as an area of weakness, since some of the investors who directed him to me expressed that as a topic of concern.
Asking him about it, I heard an immediate defensive tone. Clearly, I hit on a sore spot. He felt strong ownership of what he perceived as the core activities in the startup, flinching away from the possibility of delegating these tasks.
Indeed, SWOT allows business leaders to sweep under the rug those areas of weakness and threats about which they feel defensive. Their optimism and overconfidence serve to justify failure to address these problems. Eventually, I was able to persuade Saraj that effective delegation makes him a stronger leader, one capable of best serving the startup in the long term.
How ‘groupthink’ increases bias in SWOTs
It’s particularly problematic when SWOT is performed in a group setting, since cognitive biases are often exponentially increased in such environments.
One particularly big problem is known as groupthink, where groups tend to coalesce around the opinions of a powerful leader.
Martha, the CEO of a Midwestern healthcare company for whom I started consulting in early 2016, showed me her SWOT analysis from mid-2015. I was surprised to see no discussion of political threats to Obamacare, despite her company’s growing reliance on patients covered under that program.
She told me that she didn’t see much probability of a threat to Obamacare and neither did other leaders in the healthcare company. To me, it was a clear example of groupthink, ignoring the elephant in the room (and on the ballot).
I eventually convinced her otherwise, and we developed some plans in the event of problems arising in this area. She was very glad we had done so when political headwinds threatened Obamacare from 2017 onward.
Be watchful for excessive confidence and optimism
So next time you’re thinking about doing strategic planning, take some time to consider the dangers of the excessive confidence and optimism that you and your team very likely experience, at least if you’re successful.
Watch out for these dangerous judgment errors by focusing much more than you intuitively feel is appropriate on risks, threats, and dangers, rather than achievements, hopes, and rewards.
If you notice yourself or anyone else flinching away from an uncomfortable topic, double down your commitment to explore it thoroughly. Only through vigilance and discipline will you ensure that you can avoid the pride that goeth before a fall.
Dr. Gleb Tsipursky is on a mission to protect leaders from dangerous judgment errors known as cognitive biases by developing the most effective decision-making strategies.
A best-selling author, his new book is Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters.
His expertise comes from over 20 years of consulting,coaching, and speaking and training as the CEO of Disaster Avoidance Experts. It also comes from over 15 years in academia as a cognitive neuroscientist and behavioral economist with dozens of peer-reviewed articles published in academic journals.
You can register for his Wise Decision Maker Course.
Photo by Trent Szmolnik