Cognitive biases lead to typical business strategic analyses such as SWOT giving a false sense of comfort and security. This results in appalling oversights that ruin profitable businesses and bring down high-flying careers.That’s the key take-away message of this episode of the Wise Decision Maker Show, which describes why your SWOT analysis is broken, and how you can fix it.
Video: “Your SWOT Analysis is Broken (Here’s How You Can Fix It)”
Podcast: “Your SWOT Analysis is Broken (Here’s How You Can Fix It)”
Links Mentioned in Videocast and Podcast
- Here’s the article: Your SWOT Analysis is Broken (Here’s How You Can Fix It)
- The book Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters is available here
- You are welcome to register for the free Wise Decision Maker Course
Welcome to another episode of the Wise Decision Maker Show. Where you improve your ability to make the wisest and most profitable decisions. Today we will improve that ability by talking about strategic planning and the SWOT analysis. Many business leaders see it as a wonderful opportunity to have a clear plan. That’s what strategic planning is about right? And you do various analyses to address the weaknesses of human thinking because we can have a lot of problems when we make strategic plans for the future as human beings. Because of the way our brain is wired. Dangerous judgment errors are called cognitive biases. If you have been watching the Wise Decision Maker Show for a while you probably know this pretty well.
Business, who know a bit about the problems we experience use strategic planning assessments such as the SWOT analysis. The SWOT analysis refers to accessing your Strengths, Weaknesses, Opportunities and Threats. Usually it’s in groups, Sometimes a single business leader or professional who accesses their career or a solopreneur accesses their business, more often it’s a group of people, business leaders who get together in a room and look at a, Hey here’s a project or here is a strategic plan for the next five years, what are the Strengths facing our business, what are the Weaknesses, what are the Opportunities and what are the Threats?
Unfortunately, for these folks whether they do it by themselves individuals look at their business or their career or look at their enterprise or for a group of leaders for a team effort for a department. The SWOT analysis is fatally flawed. It’s a really dangerous analysis in many ways. Because it gives leaders a sense of false comfort, false security. People feel like they are doing the right things but unfortunately, it kind of screws them up in the end because they think they are all safe, they did what they needed to do and they invested resources in accordance with what they believe are their Strengths, Weaknesses, Opportunities and Threats.
Now, you might be surprised that I am criticizing this. That I am saying there are serious issues with the SWOT analysis, many similar strategic assessments because of our cognitive biases and the vast majority of SWOT analysis don’t take into account our cognitive biases. So, they are all skewed, they are all skewed in the bad direction that really harms leaders, professions who do these SWOT analysis and other sorts of strategic assessments. One of the most dangerous cognitive biases that harms leaders, teams that do assessments like the SWOT analysis is the overconfidence bias.
Now, research on this topic has shown that all levels, whether they are at the very top, whether they are middle management, whether they are supervisors tend to be greatly overconfident about themselves, their abilities, their teams. They have way too much confidence about what’s going on in the future, so they unfortunately make bad decisions when they do the SWOT analysis and it’s actually the people who are most successful who tend to be the most overconfident. Now that I say this it might not be a surprise to you, but before I said it you probably would not have guessed it. Because you see people who are successful, they must be doing something right? They are also the most overconfident they tend to grow more arrogant over time. There is a quote in Proverbs 16:18 “Pride goes before destruction, a haughty spirit before a fall.” You might have heard that. So, this is a dangerous problem and there are warnings already in the bible over this. So that’s one big one.
Another related problem is the optimism bias. We have a tendency to look at the world through rose colored glasses about things that we like. And especially this is a big problem for leadership at the very top, they tend to be the most optimistic. Whether it is CEOs, or entrepreneurs, founders, owners, they tend to be people who are most optimistic and that of course harms their ability to make effective strategic plans. They tend to overvalue their skills, their knowledge, their ability, the value of their business, the value of the team, and so on and that results in a huge set of problems according to the research, ranging from for public companies making the high earnings estimates, for mergers paying too much for companies, and so on. So lots and lots of problems.
How does this play out in terms of SWOT, you might be wondering? In lots of times when I go into a client engagement as a coach or a consultant, about 70% of my clients have done some sort of strategic planning and a for a little over half of those 70 (so about 35%) have done the SWOT analysis and literally every time, and I am not exaggerating here, literally every time I see people who have done the SWOT analysis, they will list way too many strengths, way too many opportunities and not nearly enough Weakness and not nearly enough Threats because of what we just talked about because of what we just talked about. Because they have this problem in their heads where they tend to be too optimistic and over-confident. And so naturally people who are optimistic and over-confident would list too many strengths, too many opportunities and not enough weaknesses or not nearly enough threats. And that is a big problem.
I will give you an example of how this plays out. There was someone I was working with, his name was Seraj, he was a technology startup founder. Now the venture capital investors who were investing in the startup, they asked him to work with me once the startup passed 10 million dollars in funding. And so they sent him to me. They knew me and so they sent him to me. I started working with him and he did a SWOT analysis by himself for himself, and I looked at it and I said, “Hey, you know, what about this issue of delegation?” and Seraj was immediately defensive. I have to tell you that I knew about delegation because this is what some of the venture capital investors, they were kind of worried about this. Obviously if you have a founder, CEO figure who is unable to delegate effectively, you are not going to grow beyond a certain mark in the company. But Seraj was really defensive about this. Lots and lots of founders and entrepreneurs may find it hard to delegate. It’s kind of their baby, their company, their enterprise, they really want to do as much as possible and they don’t trust other people to handle tasks.
I had to have some serious conversations with Seraj about “Hey, the most successful entrepreneurs, if you want this company to truly succeed, he needed to learn how to delegate effectively, it’s a learnable skill, and the scariest part of delegating effectively, For Seraj was allowing other people to Fail. Allowing them Fail, seeing them fail and Hey now This is a big problem He had a lot of trouble with doing that. Once we had this conversation and there was some research about these techniques which I am not going to go into here. About how to use social intelligence to have these effective conversations in a way that addresses his emotional concerns, his anxiety about these topics. He was able to see that for the long-term success of his venture, that he needed to be able to let go even if other people failed. And even if other people would not do the task as well as he would because his time was more Importantly spent elsewhere.
Eventually with Seraj we were able to move him to the stage where he was able to let go and taught him some skills in effective delegation. However, he would not have done this if he had just proceeded with a SWOT analysis and the company would not have grown beyond a certain ceiling. The venture capitalists would have been kind of screwed. Because they invested the money expecting certain things to happen. So that’s Seraj.
Now there is another aspect of the SWOT analysis Is more commonly done in Group settings. In Group settings, The biggest problem that I’ve seen is groupthink where the opinions of team members align Around the opinion of the most powerful person in the room and that of course is a problem because The most powerful person in the room tends to be the Top leader Who tends to be especially optimistic overconfident .
I’ll give an example from another consulting engagement, so Martha was the CEO of a Midwestern Healthcare company that Ran several hospitals in the Midwest. And I started consulting for them in early 2016. Consider what was happening at that time when I’m telling you this, this is the reason I’m telling you the year. She showed me her SWOT analysis from mid-2015 And I was surprised that there was nothing in the SWOT analysis about the dangers of Obamacare at that time, if you remember the politics at that time. There was the election going on and so on a lot of people were thinking that Hillary Clinton would win and so she thought that this wouldn’t be a problem, Obamacare is not going to be threatened and her Hospitals were actually quite dependent on Obamacare. This is part of the context. I was showing her the statistics, the percentage and the probabilities, regardless of your opinion, there was a significant probability that Donald Trump would win, and he was promising to do away with Obamacare. And so, the team, when the SWOT analysis that they did, completely ignored this issue, they ignored the elephant in the room and on the ballot.
I convinced them eventually, that even if they think there was a very low chance of Donald Trump winning and to create a contingency plan, as a risk, a serious real risk in order to address this. And so, with some prodding and shoving they eventually ended up doing that and there is a reason that they hired me, right, they eventually did that. And they were so thankful that they did. A little bit over a year later when I reconnected with them, they were so thankful they did when the threats to Obamacare became real. It was really challenging, it was a tough time for the hospitals, but it would have been much, much worse, if they didn’t have the contingency plan in place when the politics hit the fan so-to-speak and Obamacare was under attack. So that was another example of how the SWOT analysis can lead a group of a serious large company leadership in the wrong direction.
When you are doing the SWOT analysis which you want to be doing when you are doing or even when you are thinking about a strategic plan. A SWOT analysis is not a bad technique if you consider these two, the optimism bias and the overconfidence bias. And there are a number of other biases which I haven’t gone into, a number of cognitive biases which I haven’t talked about that you need to consider as part of doing strategic planning assessments. Otherwise it will give you a false sense of comfort and you will make your plans in such a way that they are going to be screwy, and you will cause yourself serious problems down the road. So, don’t do that.
Think about the problems that you might want to be thinking about. Think about the risks, pay much more attention to the risks and the threats, the SWOT analysis the “T” the threats and the Weaknesses that are going on. The weaknesses with Siraj. Obamacare with Martha, so that’s the kind of thing that I am talking about here. Pay less intention to your impression of your Strengths and your Opportunities. Kind of decrease your optimism on those things. Watch out for these dangerous judgment errors. Focus, be vigilant about problems that might arise because those are things due to the optimism bias and the overconfidence bias that we don’t tend to look at nearly enough. It’s only through this vigilance and discipline that you ensure that you can avoid the pride that goes before a fall.
There is much more about this in the blog on this topic which is linked in the show notes and there are a variety of other blogs linked in the show notes as well. What do you think about this episode? I would love to hear your thoughts. Please leave them in the comments. Please click like on this episode and share this episode with others. I really hope that you’ll leave a review of this episode on wherever you’re getting this episode. Make sure to click subscribe to the Wise Decision Maker show so you can follow and get future shows. And follow us on social media all of that is linked in the show note.
To learn much more about making the wisest and most profitable decisions I recommend that you, you want a free resource, a great free resource, my Wise Decision Maker course, 8 video-based modules, at disasteravoidanceexperts.com/subscribe and that’s also linked in the notes. If you want to get more in depth information, you can also check out my book, Never Go With Your Gut: How Pioneering Leaders Make The Best Decisions And Avoid Business Disasters.
I will hope to see you on the next episode of the “Wise Decision Maker Show” and as always, the wisest and most profitable decisions to you.
Bio: An internationally-recognized thought leader known as the Disaster Avoidance Expert, 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, he is best known for Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters (Career Press, 2019), The Blindspots Between Us: How to Overcome Unconscious Cognitive Bias and Build Better Relationships (New Harbinger, 2020), and Resilience: Adapt and Plan for the New Abnormal of the COVID-19 Coronavirus Pandemic (Changemakers Books, 2020). He published over 550 articles and gave more than 450 interviews to prominent venues such as Inc. Magazine, Entrepreneur, CBS News, Time, Business Insider, Government Executive, The Chronicle of Philanthropy, Fast Company, and elsewhere. His expertise comes from over 20 years of consulting, coaching, and speaking and training as the CEO of Disaster Avoidance Experts. It also stems from over 15 years in academia as a behavioral economist and cognitive neuroscientist. Contact him at Gleb[at]DisasterAvoidanceExperts[dot]com, Twitter @gleb_tsipursky, Instagram @dr_gleb_tsipursky, LinkedIn, and register for his free Wise Decision Maker Course.