Today, strategy designers have been aided by a number of matrices showing the relationships of critical variables. For example the Boston Consulting Group developed the Business Portfolio matrix, which will be discussed later. For many years, the SWOT analysis has been used to identify a company’s strengths, weaknesses, opportunities, and threats. However, this kind of analysis is static and seldom leads to the development of distinct alternative strategies based on such an analysis. Therefore, the TOWS Matrix has been introduced for analysing the competitive situation of the company or even of a nation leading to the development of four distinct sets of strategic alternatives.
The TOWS Matrix has a wider scope, and it has different emphases from those of the Business portfolio matrix discussed in the next section. The former does not replace the latter. The TOWS Matrix is a conceptual framework for a systematic analysis that facilitates matching the external threats and opportunities with the internal weaknesses and strengths of the organization.
It has been common to suggest that companies identify their strengths and weaknesses as well as the opportunities and threats in the external environment. But what is often overlooked is that combining these factors may require distinct strategic choices. To systematize these choices, the TOWS Matrix has been proposed; T stands for threats, O for opportunities, W for weaknesses and S for strengths. The TOWS model starts with the threats because in many situations a company undertakes strategic planning as a result of a perceived crisis, problem or threat.
The strategies are based on the analysis of the external environment (threats and opportunities) and the internal environment (weaknesses and strengths).
The WT strategy aims to minimize both weaknesses and threats and may be called the mini-mini strategy. It may require that the company, for example, form a joint venture or even liquidate.
The WO strategy attempts to minimize the weaknesses and maximize the opportunities. Thus, a firm with certain weaknesses in some areas may either develop those areas within the enterprise or acquire the needed competencies (such as technology or persons with needed skills) from the outside making it possible to take advantage of opportunities in the external environment.
The ST strategy is based on the organization’s strengths to deal with threats in the environment. The aim is maximize the former while minimizing the latter. Thus, a company may use its technological, financial, managerial or marketing strengths to cope with the threats of a new product introduced by its competitor.
The most desirable situation is one in which a company can use its strengths to take advantage of opportunities (the SO strategy). Indeed it is the aim of enterprises to move from other positions in the matrix to this one. If they have weaknesses, they will strive to overcome them, making them strengths. If they face threats, they will cope with them so that they can focus on opportunities.
So far, the factors displayed in the TOWS Matrix pertain to analysis at a particular point in time. However, external and internal environments are dynamic: some factors change over time, while others change very little. Because of the dynamics in the environment, the strategy designer must prepare several TOWS Matrices at different points in time, as shown. Thus, one may start with a TOW analysis of the past, continue with an analysis of the present and perhaps most important focus on different time periods (T1, T2, etc) in the future.
The business portfolio Matrix was developed by the Boston Consulting Group (BCG). A simplified version of the matrix shows the linkages between the growth rate of the business and the relative competitive position of the firm, identified by the market share. Business in the question marks quadrant with a weak market share and a high growth rate usually require cash investment so that they can become stars of the businesses in the high growth strongly competitive position. These kinds of businesses have opportunities for growth and profit. The cash cows with a strong competitive position and a low growth rate, are usually well established in the market, and such enterprises are in the position of making their products at low cost. Therefore, the products of these enterprises provide the cash needed for their operation. These businesses are usually not profitable and generally should be disposed of.
The portfolio Matrix was developed for large corporations with several divisions that are often organized around strategic business units. While portfolio analysis was popular in the 1970s, it is not without its critics who contend that it is too simplistic. Also, the growth rate criterion has been considered insufficient for the evaluation of an industry’s attractiveness. The market share, as a yardstick for estimating the competitive position, may be inadequate.