How SWOT Analysis Harms Leaders
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. Tragically, popular strategic business analyses are deeply flawed and give a false sense of comfort and security to business leaders.
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 done by a shopping comparison website.
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 shows how you can use pragmatic strategies to address these dangerous judgment errors, whether in your professional life, your relationships, or other life areas.
One of the most dangerous mental blind spots 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.”
When taking on new coaching and consulting clients, I always inquire whether they did a SWOT. In literally all cases when they did one, 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 overconfidence serves to justify their failure to address these problems. Eventually, I was able to persuade Saraj that effective delegation makes him a stronger leader.
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.
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.
So, the next time you’re thinking about doing strategic planning, take some time to consider the dangers of the excessive confidence 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. Only through vigilance and discipline will you ensure that you can avoid the pride that goeth before a fall.