Strategic Analysis with Threats, Opportunities, Weaknesses, and Strengths (TOWS) Matrix

 

By Omodiaogbe Samuel

Last Updated: December 11, 2023

Introduction

The TOWS Matrix is a decision-making framework for analyzing, generating, comparing, and selecting strategic options for an organization. The Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. It was created by a management consultant, Heinz Weihrich to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories. By analyzing the external environment (threats and opportunities), and your internal environment (weaknesses and strengths), you can use the outcome to formulate strategy for your organization. Both startups and large enterprises can use the TOWS analysis approach as a primary strategic planning tool to match internal and external factors. TOWS matrix is a powerful framework because it can prompt you to consider how your greatest strengths can make good of your best opportunities, or nullify the most serious threats. At the same time, it flags up the internal weaknesses that could stand in the way of external opportunities and draws attention to dangerous situations in which threats and weaknesses overlap.

 

                      Step-By-Step Approach to Developing the TOWS Matrix

 Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix is constructed in the following eight steps.

  • Start with the SWOT Matrix by computing your strengths, weaknesses, opportunities, and threats. You need to be realistic about the strengths and weaknesses of your organization. To determine your opportunities and threats, frameworks like PESTEL analysis and Porter Five Forces could be helpful. On the SWOT analysis, focus on the key factors, and always analyze in relation to your competition. The external and internal factors should be specific, actionable, and quantitative to the extent possible
  • Next is the TOWS matrix. Here, you match the internal strengths with the external opportunities (SO), internal weaknesses with the external opportunities (WO), internal strengths with the external threats (ST), and internal weaknesses with the external threats (WT).
  • Analyze your strategic options within your TOWS matrix. Keep in mind that the T.O.W.S. Matrix is a way to list up possible strategic choices. The ideas that you list on each quadrant are not listed in any priority. For each item you list, make reference with notations (examples: S1/O2, S3/T1, W1/O2, W3/T2, etc.) to indicate which S.W.O.T. items are being referenced to come up with the idea listed in the inner T.O.W.S. quadrants
  • Rank your options by priority. Priority should be based on a combination of the potential benefit of the strategy and how easy it is to execute that strategy. So easy to implement strategies that delivers a significant benefit should be implemented first. To give yourself the best chance of success, try to select only two or three main priorities to pursue

SWOT Framework:

Basically, the elements of the SWOT Analysis set the frame around the TOWS Matrix, and they are: Strengths, Weaknesses, Opportunities, and Threats. We now take a deeper look at each of the components:

Strengths

Strengths are the internal factors, positive characteristics of the organization, which distinguish it in the environment and from the competition.  They are often called key success factors. They are attributes of the business that are supportive in the accomplishing the objectives. In looking at your strengths, think about them in relation to your competitors – for example, if all your competitors provide high quality products, then a high-quality production process is not strength in the market, it is a necessity. While listing your company’s strengths, focus on the core elements that brought your company to the point it’s at. These core values will help you overcome future risks and threats. To understand your strengths, you need to provide answers to the following questions:

  • What makes your service the top tool for addressing consumer needs?
  • What are your cutting-edge features, your novel capabilities that set your company apart?
  • What is your competitive advantage?
  • What assets does your company have?
  • What do customers like about your company?
  • What are the features that help your company make a difference?
  • What do you do well?
  • What advantages do you have?

Weaknesses

Those attributes of the business which are harmful to the accomplishment of the objectives of the organization are regarded as weaknesses. This is a great opportunity for critical self-awareness. Weaknesses can be within the company, like lack of specialized personnel or lack of resources either in form of financials or maybe production requires specific materials which are difficult to attain. Take a good look at your competitors, if they are thriving, then see if what works for them, will work for you. It’s not easy to identify and accept your company’s downsides, but the better you indicate these factors, the quicker you will be able to take actions towards solving them

Key questions to ask on your weaknesses:

  • What elements can be improved?
  • How successful have past strategies been?
  • How secure are our finances?
  • What aspect of your company has room for growth?
  • What part of your business could be improved to strengthen your services?
  • What elements have prompted feedback?
  • What could you improve?
  • What do you do badly?
  • What should you avoid?

Opportunities

Opportunities (external positive) – phenomena and trends in the environment that if used appropriately could stimulate the development of company and weaken the threat. Useful opportunities can come from such things as: changes in technology and markets, changes in government policy related to your field, changes in social patterns, population profiles, lifestyle changes, etc. Strategy analysis tools such as PESTEL and Porter 5 Forces are useful tools to help you analyze your external environment (opportunity and threat). The primary purpose of opportunity is to find factors that can be turned into strengths for the company in the future.

Key questions to ask on your opportunity:

  • What are some external sources that could potentially be used in your company’s favor?
  • What could be the next best move for your company’s growth?
  • What do your customers want? A new product, feature or service to be considered?
  • Any possible partnerships? Look into who/what can help your company make an impact.
  • Are you taking advantage of current trends?
  • Are you utilizing your technology in the most efficient manner?
  • Does Research and Development have what it needs to meet your goals?

Threats

Those external conditions which are harmful to the accomplishment of your objectives are considered to be as threats. Threats are also external factors that you will have to acknowledge and analyze for your company’s success. Many companies fail to consider the threats to their business, whether it’s a threat caused by the market, competitor or simply a financial threat as a result of increased resource costs in relation to revenue.

Here’s how you can identify your company’s threats.

  • What obstacles do you foresee challenging your company’s success?
  • Which competitors have the potential to threaten your business? You might be doing everything right, but a step your competitor takes can turn things upside down
  • Are there any political or economic risks in the market you’re operating in? Ignoring these risks can cause a big and unexpected failure.
  • Are there emerging industries that threaten to take over your market?
  • What is the cost of your resources? Is it increasing?
  • Are you keeping up with technology?
  • What obstacles do you face?
  • Are the required specifications for your job, products or services changing?
  • Do you have bad debt or cash-flow problems?
  • Could any of your weaknesses seriously threaten your business?

                                                                          From SWOT to TOWS

SWOT systematically sorts out information and sets priorities, but TOWS rearranges this information, and provide a framework to identify possible strategic options to pursue. Every one of the four individual factors can influence and impact each other. The four strategy combinations of a TOWS Matrix are:

 

Strengths/Opportunities (SO): In this quadrant of the TOWS Matrix, a business must assess its strengths on a case-by-case basis to determine if it can use them to capitalize on opportunities. All managers would like their organizations to be in a position where internal strengths can be used to take advantage of external trends and events. In the TOWS analysis, you make a plan as to how you will turn the opportunity into strength to capitalize on each external opportunity.

 

Strengths/Threats (ST): Here, the business should assess each strength based on its ability to counteract or avoid external threats. You need to use your firm 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 environment head-on.

Weaknesses/Opportunities (WO): In this quadrant, an organization must determine how its weaknesses can be eliminated or offset by external opportunities. Sometimes key external opportunities exist, but a firm has internal weaknesses that prevent it from exploiting those opportunities

Weaknesses/Threats (WT): The strategic approach here is to try avoid threats and minimize weaknesses. These are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats. An organization faced with numerous external threats and internal weaknesses may indeed be in a precarious position

Case Study

Okoroh Energy Services

Okoroh Energy Services is an energy services company that provide solutions to oil & gas companies, power plants and petrochemical companies in Nigeria. The company has five Strategic Business Units (SBUs) comprising of maintenance, fabrication, electrical & Instrumentation (E&I), drilling, and installation services. At this time, the competitive environment is heating up and that resulted to slow growth, and therefore the company need to re-strategizes in order to maintain its competitive position, or stay ahead of competition. Okoroh Energy Services want to set an optimal strategy based on the analysis of its internal and external environments. On the internal dimensions, it wants to look at both its strengths and weaknesses, while on the external dimensions, the focus is on its opportunities and threats. Analysis of the information from both dimensions would determine the strategic focus of the company

For Okoroh Energy Service to understand the type of strategy to pursue or effectively allocate resources, it has decided to use the TOWS Matrix to match the internal and external competitive environments. The Matrix illustrates how the external opportunities and threats facing a particular organization can be matched with the internal strengths and weaknesses. The matching of the internal and external dimensions would result to four strategic options. And the strategies are based on how to use the strengths to capitalize on your opportunities, understanding the weaknesses that needs to be overcome in order to exploit opportunities, how to use strengths to overcome external threats, and figuring out the weaknesses that exposes the organization to the vulnerability of external threats. By identifying several action plans that could improve the company’s position, TOWS analysis allows management to choose those strategies that most effectively capitalize on the available opportunities, and at the same time, mitigate the downside vulnerabilities

 The TOWS Matrix is a decision-making process for developing strategic alternatives which allows you to develop a more effective strategic plan based on an in-depth understand of the current environment. For us at Okoroh Energy Services, the focus is on competitiveness in the energy services industry. Therefore, by analyzing both the external environment (threats and opportunities), and the internal environment (weaknesses and strengths), we would be able to determine the relationships between the factors. The resultant outcome of the analysis would enable us to design strategies that centers on taking advantage of opportunities, reducing threats, overcoming weaknesses and capitalizing on strengths. Essentially, the overarching goal of using the TOWS Matrix analysis is help Okoroh Energy Services to scrutiny competitive environment, give the company a clearer insight on its capabilities, enhances decision-making, and enables the formulation of a long-term strategic plan

To analyze the TOWS Matrix, we first need to derive the SWOT matrix for Okoroh Energy Services. We have decided to focus on five factors each dimension

Strengths

1: Net income grew by 44% from last year figure

2: Sales and earnings per share has not declined for 12 years

3: Total debt decline by 20% from last year figure

4: Our marketing campaign has increased our market share to 35% from 24% last year

5: Vendor confidence level has increased by 12% due to our timely delivery 

Weaknesses

1: Shortage of skills leading to low level of innovation

2: Operational inefficiency dues to head office not located in communities we operate

3: Debt servicing has been up by 12% due to accumulated debt

4: Cash flow from investing activities is down 6% due to low retained earnings

5: Poor management of supply chain leading to downtimes

Opportunities

1: Nigeria has power deficit of over 60%

2: More oil and gas reserve discovered, and that increase demand

3: Nigeria is the 6th largest oil producer, and has over 2 trillion cubic feet of gas

4: There is new horizon of FDI as a result of new regulation

5: High entry barrier into the industry

Threats

1: The economy has been into two recessions in five years

2: The legal system is weak and porous

3: There is high level of insecurity in the country

4: The host communities are not always friendly

5: High level of corruption in all the industries we provide services for

Okoroh Energy Services: From SWOT to TOWS

                                                   Strategies

 Strengths/Opportunities (SO) or Maxi-Maxi Strategy:

The aim of a Maxi-Maxi Strategy is to utilize internal strengths to make optimum use of the external opportunities available to the company. In other words, the company has to utilize the strengths by using its resources to cash in on potential opportunities. This strategy has the greatest potential for success because it focuses on using your organization’s internal strengths to maximize external opportunities. At this point, you’ve already identified your strengths and what opportunities you believe exist. Now it’s about mapping these areas together to tailor the strengths you have into the opportunities. Consider all strengths one by one listed in the SWOT Analysis with each opportunity to determine how each internal strength can help you capitalize on each external opportunity. What strategies can you use to best utilize your strengths and opportunities? How can your team’s skills, knowledge or tools work together with the opportunities in the market? How do we pursue the opportunity that fits our strengths?

For Okoroh Energy Services, the Maxi-Maxi strategies are the result of matching the following:

  • S1, O1, O2,03
  • (S2, S5, O2,04) (S1,04, 01, 02, 03)
  • S2, S4.01,02,03
  • (S3, 01, 02,03
  • S4, S5, 04,05

Weaknesses/Opportunities (WO) or Mini-Maxi Strategy

In this case, you can look at how the opportunities in the market can be leveraged to overcome your organization’s weaknesses. In this second strategy of TOWS Matrix, you indicate how your company will find various options and alternatives to overcome the weaknesses and take advantage of the opportunities that are coming your way. To do that, you consider all weaknesses one by one listed in the SWOT Analysis with each opportunity to determine how each internal weakness can be eliminated by using each external opportunity. You need to think of what elements of your business that need improvement. How can you use its opportunities to minimize or conquer weaknesses? Can you overcome your weaknesses by exploiting opportunities? How can your weaknesses feed into the opportunities in the market?

 

The Mimi-Maxi strategy for Okoroh Energy Services

  • W1, 01, 02, 03
  • W1, W2, 04, 05
  • W3, W4,01,02,03
  • W2, 01,03)
  • W5,01,05

Strengths/Threats (ST) or Maxi-Mini Strategy

The aim of a Maxi-Mini strategy is to maximize the strengths of a company while minimizing the threats with the support of these strengths. Thus, a company should take advantage of the internal strengths to avoid massive external threats. The idea is that you take the areas where you are strong and then work out how you can use these to tackle the threats. This strategy indicates that the management of the organization can employ all the internal strengths to counter any of the possible threats that can come in the way of the business as obstacles. You need to consider all strengths one by one listed in the SWOT Analysis with each threat to determine how each internal strength can help you avoid every external threat. Ask, how can your company exploit its strengths to avoid threats? How do you use your strengths to work against the threats?

 

The Maxi-Mini strategy of Okoroh Energy Services

 

  • S2, S4, T3,T4)
  • S1, S3.T1, T5
  • S1, S2, T3, T4
  • S2, S4, T2, T4
  • S1, S2, T3, T5)

Weaknesses/Threats (WT) or Mini-Mini Strategy

 

In the final strategy combination, the business assesses each weakness and threat and determines if they can be avoided. This position is any company’s worst nightmare. The company holds a number of weak sides, while it is also confronted by threats. The company’s very existence could be endangered.  In this defensive strategy, you’ll look at both your internal weaknesses and external threats to find ways to minimize both. The mini-mini strategy is nothing but a pessimistic style of liquidation of a company. In this case. it might close down poor-selling products, cut down underperforming employees and build a hostile technique of selling. If optimistic, the company might look for merging with another suitable company to leverage its expertise and resources for hanging on to funding. To compute this strategy, you need to consider all weaknesses one by one listed in the SWOT Analysis with each threat to determine how both can be avoided. How can you minimize weaknesses and avoid threats? How can we ensure that your weak sides don’t make you even more sensitive to threats?

The Mini-Mini strategy of Okoroh Energy Services

  • W1, T1, T4
  • W3, W4, T1.T5
  • W5, T3, T4
  • W3, W4, T2, T5
  • W4, T5
                                                   Strategic Choices

Evaluate the options you’ve generated, and identify the ones that give the greatest benefit, and that best achieve the mission and values of your organization. To give you the best chance of success, try to select only two or three main priorities to pursue

 

For Okoroh Energy Services, we have decided to focus on the following three strategies. These are the strategies that aligned with our mission, values, and objectives. We will execute them in order of priority, starting from 1-3. Then you might ask, what do we do with the other possible strategies identified? The answer is, they are backup strategies, and we can always go back to them if the need arises. So, the ones to focus on are:

 

1: Use the financial resources to invest more in capacities in order to take advantage of the opening opportunities (S1, O1, O2,03)

2: Build technical capacities through alliances and strategic partnerships (W1, W2, 04, 05)

3: Efficient working capital management to free up resources to explore other technologies outside fossil fuel (W4, T5)

 

                                   Advantages and Disadvantages of the Matrix

Advantages

  • It helps organizations to upgrade their strategies with changing dynamics
  • It’s not just merely brainstorming some strategic ideas. It’s about actually linking internal factors to external factors to generate the best strategies for the organization.
  • It can help you identify strategic options you may not have previously considered.
  • Simple to understand through all levels of management and is relatively simple to execute. This increases employee focus and cohesiveness.
  • The TOWS Matrix also facilitates the discovery of unknown aspects of a business. Whether they are unquantified strengths or hidden threats, newfound insights into operations help a company plan for the future, and facilitate growth
  • It is cost-effective in nature.
  • TOWS Analysis can be applied to any company irrespective of the industries and economies.

Disadvantages

  • TOWS analysis becomes tough to handle if we are overloaded with information.
  • On many occasions, TWOS Matrix doesn’t take the ever-changing competitive environment into consideration and can affect the main agenda of finding out the best strategies
  • It can be cumbersome to use if you have too much information in your SWOT analysis.
  • While the matrix takes you further towards selecting a strategy than a SWOT matrix, it doesn’t choose for you; you still need to decide upon which approach to pursue yourself.
  • The quality of the strategic options you generate from your TOWS matrix will be dependent on the quality of the people you have in the room.
  • It doesn’t help you create a strategic advantage.

                               Summary

TOWS Matrix is a modified version of a SWOT analysis, and it’s a framework to assess, create, compare, and decide upon the best strategies for an organization. When developing your strategy, you perform lots of research, investigate your competitors, look at industry trends, speak to your customers, and take a look at your internal capabilities. This analysis will generate lots of data, and SWOT analysis can be a great way to summarize all the information you’ve collected. However, the purpose of a TOWS matrix is to take you beyond data gathering, but to make strategic decisions with the information. To do that, TOWS analysis links your external factors to your internal factors. By combining the external environment’s opportunities and threats with the internal organization’s strengths and weaknesses, you can come up with four basic strategies. Essentially, the Matrix helps in brainstorming and generation of ideas in relation to decision-making that centers on taking advantage of opportunities, diminishing threats, overcoming weaknesses, and capitalizing on strengths. TOWS Analysis can be applied to any company irrespective of the industries and economies. It is user-friendly and can be performed by any layman after learning a few parameters. However, the TOWS analysis has some limitations. To overcome the down-sides, you need to use the model in combination with other strategic management tools  

 

Omodiaogbe Samuel, MSc. CMC, ChMC, FIMC

Omodiaogbe is a Strategic Management Consultant, and he the Principal Consultant/CEO at Vast Thinking Consults Ltd where he help organizations and business leaders to create superior value. Omodiaogbe holds BSc. and MSc. in Economics. Also, he is a Certified Management Consultant (CMC), a Chartered Management Consultant (ChMC), and a Fellow, Institute of Management Consultants, Nigeria. He is an Instructor on Coursera, where he teaches 25 courses in Strategic Management. Omodiaogbe is one of the world’s leading  learners on Coursera and Edx with over 500 Certificates from top-ranked Universities and Business Schools, and Organizations

Contact him:
Email; somodiaogbe@vastthinking.com.ng
Visit: www.vastthinking.com.ng

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