TOWS Matrix – How to write a TOWS Matrix

• Every organisation, like a living organism, is surrounded by its environment through which it survives. The environment is the source of opportunities for any business. For instance, business enterprises rely on satisfied customers to survive through the provision of goods and/or services. However, the same environment is a source of threats for any organisation, for instance, through the entry of new competitors, adverse economic changes, changes in regulations, etc.
• As discussed in one of my previous posts, an organisation’s environment is made up of three layers, a) the macro-environment; b) industry; and c) competitors. Among other tools, the macro-environment can be analysed through the use of PESTEL analysis, which I have discussed in greater detail here.
• However, businesses are not distinguished by their environment, which presents both threats and opportunities, but more by their strategic capabilities. One of the most useful tools for analysing an organisation’s strategic capabilities is the SWOT analysis, which I have also discussed here. SWOT facilitates the development of strategic options which drives an organisation’s strategic path.

Application of The TOWS matrix – TOWS matrix of Domino’s Pizza
• TOWS matrix represents one of the tools that can be used in business strategy to analyse the suitability of strategic options. It is based on a SWOT analysis. If you are an entrepreneur, knowing how to make the TOWS matrix can enable you to develop a set of strategic options which will ensure that your business concentrates on those strategies that shall steer your business to success.
• For instance, looking at figure 1, the top-left quadrant of the TOWS matrix prompts one to think of options that use the strengths of the business to capitalise on the opportunities in the business environment while the bottom- right quadrant prompts the consideration of options that minimise wastes and avoids threats. Figure 1 shows the essential structure of the TOWS matrix.

TOWS matrix

Figure 1 : TOWS Matrix

• In order to understand how to make the TOWS matrix and apply it, I shall use a SWOT analysis of Domino’s Pizza from a 2011 case study in order to learn how to make the TOWS matrix.

Brief overview of Domino’s Pizza
Domino’s Pizza is an international company that specialises in the making and delivery of Pizza in the United States and in more than 65 other countries. A public company headquartered in Michigan, U.S.A, the company is the second largest pizza chain after Pizza Hut in the United States. As at January 2011, Domino’s had 4, 475 domestic franchise stores, 454 company-owned stores in the United States and 4,422 stores worldwide resulting in a total store count of 9, 351 and operates in more than 65 countries in the world.

An example of how to use the TOWS matrix
Step 1 – Prepare a SWOT analysis
Table 1 is a SWOT analysis of Domino’s Pizza following information gathered from the company’s annual report, website and other sources.

SWOT analysis of Domino's Pizza

Step 2 – Use the SWOT analysis to prepare the TOWS matrix
TOWS Matrix of Domino’s Pizza
From the SWOT analysis (Table 1), the TOWS matrix of Domino’s Pizza can now be written. The strategic options are the bulleted points in the pink-shaded quadrants (see Table 2).

TOWS Matrix for Domino's Pizza.JPG

TOW Matrix Template
A template of the TOWS matrix (like the one shown above) is available for download as a Word Document (.doc) here.

For an in-depth discussion of the TOWS matrix see the following:

Weihrich, H, 1982, ‘The TOWS matrix – a tool for situational analysis’, Long Range Planning, pp. 54–66.

Helms, M & Nixon, J 2010, ‘Exploring SWOT analysis – where are we now? A review
of academic research from the last decade’, Journal of Strategy and Management, vol. 3, no.3, pp. 215-251.


SWOT Analysis – How to write a SWOT analysis

Background on SWOT analysis
• Knowing how to write a SWOT analysis is an important activity in strategic analysis. An acronym referring to strengths, weaknesses, opportunities, and threats, SWOT is a summary of key issues that emanate from an organisation’s environment and its strategic capabilities which have the highest impact on the development of strategy. SWOT is also a useful guide for generating strategic options and in the assessment of an organisation’s future course of action.
• SWOT analysis is one of the tools employed to analyse an organisation’s strategic capabilities.
• Strategic capability refers to the resources and competencies that an organisation requires in order to continue surviving at the marketplace and to prosper.
• Other tools used to analyse an organisation’s strategic capabilities include value chain and value network analysis, activity mapping, and benchmarking. This article concentrates on SWOT analysis.
Figure 1: Tools for analysing an organisation’s strategic capabilities

Tools for analysing strategic capability

• An organisation’s environment produces both threats and opportunities. However, different companies operating under the same environment have different capabilities. For example, Apple and Techno produce smartphones in the same market but Apple is a superior performer than Techno.
Why this difference? There are three concepts that bring about this kind of differentiation:

  • Organisations are not identical but possess different strategic capabilities.
  • One firm cannot copy another firm’s capabilities, for instance Techno cannot acquire Apple’s management or experience.
  • An organisation might possess a competitive advantage relative to competitors by possessing rare, hard-to-copy capabilities.

• Essentially, SWOT aims at investigating the degree to which strengths and weaknesses are capable of dealing with changes occurring in the business environment.

SWOT usage
In writing a SWOT analysis during strategic analysis, managers usually consider internal strengths and weaknesses at the top row of a 2 x 2 matrix. External threats and opportunities occupy the bottom row of the matrix. Figure 1 shows the 2 x 2 matrix and the general factors that are considered.

Johnson, G, Scholes, K & Whittington, R 2008, Exploring Corporate Strategy: Text and Cases, 8th edn, Pearson Education, Essex.

Helms, M & Nixon, J 2010, ‘Exploring SWOT analysis – where are we now? : A review of academic research from the last decade’, Journal of Strategy and Management, vol. 3, no. 3, pp. 215 – 251.

Table 1: SWOT analysis matrix and sample factors

Sample SWOT


Specific tips on how to write a SWOT analysis during strategic analysis

1. Using an organisation’s latest annual report
From the annual report, the CEO’s opening remarks can give a hint of SWOT factors relevant to the organisation. Taking specific examples;

a) Strengths
• Research initiatives can be judged from the financial section. From here, it is possible to see how much the company has invested in R&D. To be useful, this has to be compared to the industry or to the company’s competitors.
• Organisation resources can also be obtained from the company’s balance sheet (for financial stability) or to ascertain whether the company has allocated enough financial resources for the acquisition of new resources.
• Brand identity can be established from online magazines or newspapers. A company’s brand value can be obtained from rankings of the world’s most valuable brands. For instance, (see discussion on online sources of SWOT factors).
b) Weaknesses
Weaknesses are the converse of strengths. For example;
• Lack of good brand image and/or identity, poor R&D initiatives, lack of skilled workers etc as identified in the strengths.
Note: These are useful if they can be compared to the industry standard or to competitors

c) Opportunities
• Cheap and readily available materials might give a firm a cost advantage. For instance, a steel company such as AcelorMittal might stumble upon several mines rich
in iron ore. This can enable the company to produce large quantities of steel at low energy cost, thus giving the company a cost leadership advantage.
• Demand for goods and/or services represent an opportunity. For instance, there is great demand for Samsung’s new Smartphones, the Samsung Galaxy S4 and now the Samsung Galaxy S5.

d) Threats
Threats can be deduced from the company’s annual report. A company’s Form 10-K usually lists some threats (in the form of risks) which the company faces. This includes:
• Reduced demand for goods due perhaps to changing consumer preferences, technology etc. For example consumer preference of digital cameras is a threat to traditional film-processed camera manufacturers.
• Unfavourable Governmental regulations, legislations, regulators can affect business.
For instance, the market for Personal Navigation Devices (PNDs) manufactured by companies such as TomTom may be adversely affected if governments of countries such as Australia and Canada ban such devices due to the accidents which they are thought to cause. Such issues may be mentioned in a company’s annual report.
2. Use of other sources

Some of the sources mentioned here are also mentioned in this post that I have written discussing on how to write PESTEL analysis.
• To write a SWOT analysis, industry publications and surveys are useful for obtaining additional information. For example, for the airline industry, we have publications such as CAPA, ATW, IATA annual review etc which can be found online. There also exist publications made by national authorities for instance, Indian Aviation Authority (IAA), British Aviation Authority etc. These authorities usually release comprehensive annual surveys or reports.

3. Use of online sources

This post that I have written discusses some aspects mentioned here. Points to note are:
• In writing SWOT analysis, only reputable news sources should be used for example TheGuardian, BusinessReview, and CNN etc.
• When searching, typing a phrase like “Toyota, BusinessReview, research and development” may yield news articles related to the company’s research and development. More articles may obtained by searching within the newspaper/magazine’s search box.
Examples of SWOT analysis – SWOT analysis for EasyJet

Figure 2 shows EasyJet’s SWOT analysis covering the period of 2012:
Figure 2: EasyJet’s SWOT analysis

PESTEL Analysis – How to write PESTEL analysis

Background on PESTEL analysis

·      PESTEL analysis is a strategic tool used to analyse an organisation’s macro-environment. An organisation’s environment comprises of three layers, 1) Competitors; 2) Industry; and 3) Macro-environment.

·      As an acronym for political, economic, social, technological, environmental factors, PESTEL assesses how these factors may impact on business strategy and future business performance.

·      Understanding PESTEL factors is the key to writing a good PESTEL analysis.


            Figure 1: The layers of an organisation’s business environment

Org bus environment

·      The macro-environment comprises the broad environmental factors that affect virtually all organisations. The PESTEL framework can be used to discuss how future trends in PESTEL factors can affect an organisation. PESTEL analysis gives raw information from which it is possible to identify key drivers of change. Key drivers of change are in turn used to construct scenarios of possible future outcomes.

·      Key drivers for changes are factors in the environment that highly impact on the success or failure of business strategies. Scenarios consist of detailed and feasible views of how an organisation’s business environment might progress in future based on those key drivers of change which are highly uncertain.


·      References:

Johnson G., Scholes K., & Whittington, R. (2008). Exploring Corporate Strategy: Text and Cases (8th ed.). Essex: Pearson Education.


Specific tips on how to write PESTEL analysis

1.         Using an organisation’s latest annual report

·         From the annual report, read the CEO’s opening remarks. Usually, an organisation’s CEO might mention factors that have affected the firm’s performance for the year of review. For instance, there might be increased government regulations which according to the PESTEL framework, falls under Political factors. Other factors will also usually be mentioned in other areas of the annual report. These factors can be used in research writing to discuss the business environment.

·         Environmental factors can be obtained under the corporate government report section of the annual report. Some corporations have corporate reports written as separate reports. However, since an organisation is unlikely to paint itself in negative light, it is good to seek other sources for a more balanced view.

·         Some economic factors that affect a business, for instance, fuel prices can be obtained from the CEO’s comments or notes in the financial analysis section of the annual report.

·         Another source of factors can be found under an organisation’s Form 10-K report. This section mentions aspects concerned with the organisation’s business environment which can be used to write a PESTEL analysis.

Note: One cannot entirely rely on a company’s annual report and other sources should be sought in order to obtain more balanced factors.

2.         Use of other sources

·      To write PESTEL analysis, industry publications and surveys are useful for obtaining additional information. Search for relevant industry publications. For instance, in the airline industry, there is the industry monitor, IATA annual review, CAPA, ATW etc. These can be found in the internet. Other sources include national aviation authorities for instance, Indian Aviation Authority (IAA) etc.

·      Journal publications on research may be useful; these can be found at Google scholar and better yet, from journal databases. It may be useful to know consumer perceptions on environmental issues and how these perceptions affect a company’s brand image. The search date needs to as recent as possible.


3.         Use of online news sources

·      Academic research writing usually demands the use of latest material which is reputable. In writing PESTEL analysis, online sources provide current news but should be from reputable sources. An example of reputable online newspapers and magazines include CNN, BusinessReview, TheGuardian, Forbes etc.

·      During search, typing a phrase like “Toyota, Forbes, and environment” in Google search will yield a news article related to Toyota’s environmental issues published in Forbes magazine – information gathered can be used to write PESTEL factors concerned with Toyota’s environmental issues. Further, searching within the online newspaper’s search box may yield more specific news items for the organisation in question.  


Examples of PESTLE analysis – writing PESTEL analysis for EasyJet

EasyJet’s PESTEL analysis covering the period of 2012 is shown in figure 2 below:


 Figure 2: EasyJet’s PESTLE Analysis

EasyJet's Pestel Analysis