54 Long Range Planning, Vol. 15, No. 2, pp. 54 to 66, 1982 0024-6301/82/020054-13SO3.

00/0
Printed in Great Britain Pergamon Press Ltd.

The TOWS Matrix A Tool for

Situational Analysis
Heinz Weihrich, Professor of Management, University of San Francisco

This article has two main purposes. One is to review general opportunities (0) in the external environment and
considerations in strategic planning and the second to assessing the organization’s weaknesses (W) and
introduce the TOWS Matrix for matching the environmental
threats and opportunities with the company’s weaknesses and
strengths (S). For convenience, the matrix that will
especially its strengths. These factors per se are not new; what be introduced is called TOWS, or situational
is new is systematically identifying relationships between analysis. Although the sets ofvariables in the matrix
these factors and basing strategies on them. There is little are not new, matching them in a systematic fashion
doubt that strategic planning will gain greater prominence in is. Many writers on strategic planning suggest that a
the future. Any organization-whether military, product-
firm uses its strengths to take advantage of
oriented, service-oriented or even governmental-to remain
effective, must use a rational approach toward anticipating, opportunities, but they ignore other important
responding to and even altering the future environment. relationships, such as the challenge of overcoming
weaknesses in the enterprise to exploit oppor-
tunities. After all, a weakness is the absence of
strength and corporate development to overcome
an existing weakness may become a distinct
strategy for the company. Although efforts are now
Situational Analysis: A New
being made to gain greater insights into the way
Dimension in Strategic Planning corporate strengths and weaknesses are defined,
much remains to be done.’
Today most business enterprises engage in strategic
planning, although the degrees of sophistication
The TOWS matrix, discussed later in detail, also
and formality vary considerably. Conceptually
serves as a conceptual framework for future
strategic planning is deceptively simple: analyze the
research about the combination of external factors
current and expected future situation, determine
and those internal to the enterprise, and the
the direction of the firm and develop means for
strategies based on these variables. Equally import-
achieving the mission. In reality, this is an ex-
ant, the matrix ‘forces’ practicing managers to
tremely complex process which demands a sys-
analyze the situation of their company and to
tematic approach for identifying and analyzing
develop strategies. tactics, and actions for the
factors external to the organization and matching
effective and efficient attainment of its organiz-
them with the firm’s capabilities.
ational objectives and its mission.
The purpose of this article is twofold: first, the
concept of strategy and a model showing the
strategic process are introduced. This part not only Strategic Planning
provides an overview of strategic planning, but also
alerts the reader to the various alternatives available The term ‘strategy’ (which is derived from the
for formulating a strategy. The second purpose of Greek word ‘strategos’, meaning ‘general’) has been
the article is to propose a conceptual framework for used in different ways. Authors differ in at least one
identifying and analyzing the threats (T) and major aspect. Some, such as Kenneth Andrews,’
Alfred D. Chandler,3 George A. Steiner/John B.
Miner,‘and Richard Vancil,’ focus on both the end
points (purpose, mission, goals, objectives) and the
Theauthor ISProfessor of Management, McLaren Collegeof Business. means of achieving them (policies and plans). But
Umversity of San Francisco, San Francisco, CA 94117, U.S.A. He has other writers such as Igor H. Ansofp and
had many years of business and consulting experience in the United
States and Europe, working with such compames as Volkswagen,
Charles W. Hofer/Dan Schcndel’ emphasize the
Hughes Alrcrah Company, erc. means to the ends in the strategic process rather than
 The TOWS Matrix-A Tool for Situational Analysis 55

the ends per SE. The great variety of meanings of the (6) Development of alternative strategies, tactics
word ‘strategies’ is illustrated in the glossary of one and other actions.
book : (7) Evaluation and choice of strategies.

lStratcglcs are] general programs of action and dcploynlcnt (8) Consistency testing.
of emphasis and resources to attain comprehensive objcc-
(9) Preparation of contingency plans.
rives: the program of objcctlvcs of an organization dnd
their changes. resource’s used to attain these objectives. and
politics governing rhc dcqulsitlon, USC. and disposition of These steps-shown in Figure l-then, serve as the
thrse rcsoumx: the dctcrmimtion of the basic long-term framework for the discussion that follows.
objectives of an enterprise and the adoptlon of courses of
xtion and allocation ofrcsources necessary to xhicvc these
g031S.H Inp14tr _fnr Strategic Planniq
Strategic planning, to be effective, must carefully
In this article, primarily because of space limi- consider the inputs into the system. These inputs,
tations, the narrow meaning will be used, that is, de-emphasized in this dicussion, are enclosed by
the ends will not be emphasized so that sufficient broken lines, as shown in Figure 1. They include
attention can be given to the analysis of the current people, capital, managerial and technical know-
situation. It is assumed that the purpose of the firm ledge and skills. In addition, various groups of
has already been established, yet is subject to change people make demands on the enterprise.
after an evaluation of the situation. Unfortunately, many of the goals of these claimants
are incongruent with each other and it is the
Although specific steps in the formulation of the manager’s task to integrate these divergent needs
strategy may vary, the process can be built, at least and goals.
conceptually, around the following framework:

(1) Recognition of the various organizational Employees, for example, want higher pay, more
inputs, especially the goal inputs of the benefits and job security. Consumers demand safe
claimants to the enterprise. and reliable products at a reasonable price. Srrpplicrx
want assurance that their products are purchased.
(2) Preparation of the enterprise profile.
Stockholders want not only a high return on their
(3) Identification of the present external investment but also security of their money.
environment. Federal, state and local goueytz~~zetitSdepend on taxes
paid by the enterprise; they also expect the
(4) Preparation of a forecast with predictions of the
enterprise to comply with their laws. Similarly, the
future environment.
community demands that enterprises be ‘good
(5) Preparation of a resource audit with emphasis citizens’, providing jobs and emit a minimum of
on the company’s internal weaknesses and pollutants. Otlzer claimants to the enterprise may
strengths. include financial institutions and labor unions; even

External
Threats I
and
Opportunities

1
Internal
b Weaknesses
and
’ Strengths

1Consistency
Testing
______-
Contingency
Planning

Figure . Strategic planning process

56 Long Range Planning Vol. 15 April 1982

competitors have a legitimate claim for fair play. It Top kfanagement Orientation. An enterprise profile is
is clear that many of these claims are incongruent shaped by people, especially executives. They set
with each other, and it is management’s job to the organizational climate, they influence the
integrate the legitimate objectives of the claimants. atmosphere in the organization and they determine
the direction of the company. For example,
The Enterprise Projle management may not pursue opportunities in the
The way an enterprise has operated in the past is liquor business because it conflicts with top
usually a starting point to determine where it will management’s values which are against the
go and where it should go. In other words, top production and consumption of alcohol. Another
executives wrestle with such fundamental questions example of the influence of values may be
as: management’s commitment to socially responsible
‘What is our business?’ actions, believing that these activities will benefit
the enterprise in the long run.
‘Who are our customers?’
‘What do our customers want?’ An understanding of the past and the present
‘What should our business be?’ postures ofthe enterprise and its policy as well as the
values of managers are important factors in the
These and similar questions should provide answers development ofthe enterprise profile. The next step
about the basic nature of the company, its products in the strategic planning process is the analysis of
and services, geographic domain, its competitive threats, opportunities, weaknesses and strengths.
position and its top management orientation and
values. These topics demand elaboration.
The External Environment: Threats urd
Opporturiities
Geoyraplric Orientation. A company must also
answer questions such as: In the analysis of the external environment, many
diverse factors need to be considered. Today, the
‘Where are our customers!’ threats certainly would include the problems of
‘Where are those who should be our customers, inflation, energy, technological change and govern-
but are not at present?’ ment actions. The diverse factors-which can be
either threats or opportunities- can be grouped
Companies need to develop a profile of their into the following categories: economic, social and
geographic market. While some firms may restrict political factors, products and technology, demo-
themselves to the eastern part of the United States, graphic factors, markets and competition, plus
others view the whole country as their region of others.
operations. Many large companies, of course,
conduct their business on different continents.
Economic Fgctors. The general state of the economy
Competitive Situation. Business firms usually do not certainly affects strategy formulation. For example,
have an exclusive market, instead, they compete the expansion phase of the business cycle in the
with other firms. But current market share is not 1960s created an abundance of business oppor-
necessarily a sufficient indicator of a firm’s long- tunities while the recession in the first half of the
range potential. One must also consider other 1970s required many industries to change their
factors and competitive items such as price, quality, strategy, and drastically reduce their business
activities. The strategist, of course, takes other
cost, service, product innovation, distribution
economic factors besides the business cycle into
systems, facilities and locations.
account, such as the level of employment, the
availability of credit and the level of prices. Also.
The assessment of the competitive situation
individual companies are affected differently by
involves several steps. First, key success factors
must be identified. Then the relative importance of economic factors. What is a threat to one firm is an
these key success factors needs to be estimated. opportunity for another.
Next, the firm’s competitive position in respect to
these key success factors must be evaluated and Social and Politic‘llFactors. Social developments also
ranked. Thus, only a careful analysis of the current influence the business strategy. For instance,
competitive position provides an indication of the consumerism and consumer protection movements
company’s future growth and profits. require the firm’s attention to product safety and
truth in packaging. Similarly, managers are
The competitive analysis, especially for large firms, confronted by a host of federal, state and local laws
is done for individual business units, product lines and regulations. The public’s demand for clean air,
or even specific products. Moreover, the competi- clean water and a clean environment is often
tive analysis focus is not only on the present considered a threat to business. At the same time,
situation, but also looks into the more distant these factors can become opportunities, as shown
future.’ This analysis becomes intricate for firms by the car emission test requirements in many states
that compete in the national and international which presented opportunities for companies to
markets. develop, produce or operate such test equipment.
 The TOWS Matrix-A Tool for Situational Analysis 57

Products arld Technology. Products need to be sales persons, published sources, and personal and
adjusted to technological changes. For example, the professional contacts with competitors and cus-
astonishing success of the Volkswagen Beetle in the tomers. Other less frequently used sources include:
1960s diminished in the 1970s. New customer formal market research, brokers, wholesalers and
demands for optional equipment, safety require- other middlemen, analyses of processes and
ments and competition, along with new tech- products of competitors, and suppliers. The least
nology, gave rise to a new generation of VWs. It utilized sources include: employees of competitors,
must be remembered that in almost all situations advertising agencies and consultants.‘O
success is only temporary and product innovation is
needed to ensure a competitive advantage for the Since there are many factors that need to be
firm. Of course, innovation is also costly and risky analyzed, the executives must be selective and
and the failure rate of new products is high; yet, a concentrate on those factors which are critical for
policy of no innovation at all may cause the demise the success of the enterprise. Furthermore, it is not
of a company. enough for the strategist to assess only the present
environment. Planning for the future, and strategic
Dmographic Factors. Demographic changes sig- planning in particular, is very much concerned with
nificantly affect business. In the United States there the more distant future. Thus, managers must
are geographic shifts such as the movement of many anticipate the future and forecast changes in the
people to the ‘sun belt’. White-collar jobs tend to environment that will crucially affect the
increase proportionally to blue-collar occupations. enterprise.
Income levels are expected to change, although the
direction is less clear and may vary for different The hternal E~zvirotzmwr: Cthakr~e_w.z ar7d Srrcr7cqt/7s

sectors of the labor market. The age composition The demands of the external environment on the
will also change with elderly people making up an organization must be matched with the resources of
increasing proportion of the population. The the firm. Internal strengths and weaknesses vary
strategist must take these and other factors into greatly for different enterprises; they may,
account because they influence the preferences for however, conveniently be categorized into (1)
the kinds of products and services demanded by management and organization, (2) operations, (3)
consumers. finance and (4) other factors important for a
particular organization.
Markets md Competition. In the United States,
coping with competition in the marketplace is a Managen7erzt arid Organization. This category in-
corporate way of life. The following questions and cludes not only managerial talent but also the labor
the answers to them are crucial for formulating a force as a whole. It also encompasses labor relations;
strategy : personnel policies; the appraisal, selection, training
and development of employees; and the reward
‘Who are our competitors!’
system. The planning and control system as well as
‘How does our company compare with the the organization structure and climate are equally
competition?’ important for the success of the organization.
‘What are the strengths and weaknesses of our
Operations. Operations must be carefully analyzed
competitors?’
in terms of research and development capabilities,
‘What are their strategies?’ and the adequacy and productivity of the
manufacturing facilities available to meet the
‘How do we best compete?’
expected growth and other objectives of the fn-m.
Other Factors. There are, of course, many other Similarly, marketing must be assessed in terms of
factors that might be particularly important to a product distribution channels, brand name protec-
specific firm. The availability of raw materials, tion, competitive pricing, appropriate customer
suppliers and the transportation system, are a few identification, service and company image.
examples. The everchanging environment de-
mands continuous scanning for opportunities and Firlance. A careful evaluation of the company’s
threats. A company that discovers customer needs strengths and weaknesses also must be made in the
and provides the products and services demanded, areas of capital structure, financing, profitability,
certainly has a better chance for success than an the tax situation, financial planning and the
enterprise that ignores such changes. accounting system. Many financial ratios are
available for making analyses. But financial
It!forruatiorl Gathriq arld Forecart of tlw F~rt~rrc. To management not only requires focusing on the past
collect data on the various factors is, to say the least, and the present situatron, it also demands short- and
a tedious task. The study by Jerry Wall of 1211 long-term financial planning congruent with the
executives, all readers of the Harvard Business firm’s objectives and strategy.
Review , gives some insights on how companies
collect information about their competitors. The Other Factors.The focus here is on the obvious
sources used most frequently include: company factors on which the strengths and wreaknesses of
58 Long Range Planning Vol. 15 April 1982

the organization must be evaluated. Other factors, Still another strategic alternative is for an enterprise
however, such as patents, inventions and the firm’s to decide on liquidation, which may require
image may be peculiar to an enterprise or may be terminating an unprofitable product line or service.
prominent during a particular time period. If the company is a one-product firm, this may
mean dissolving the company-an especially
Strategic .4lternatives difficult strategic decision.
The foregoing analysis of environmental op-
portunities and threats and the company’s strengths In some cases the extreme decision of liquidation
and weaknesses, encourages the creative process of may not be necessary. Instead, a retrenchment
developing alternatives. As any experienced man- strategy may be more appropriate. To be sure, this
ager knows, in almost all situations, alternative is often only a temporary measure and may involve
courses of action are available. reducing operating expenses or restricting the scope
of the operation. Still, such a strategy may be a
One strategy is to specialize or concentrate. Thus, a viable alternative to liquidation.
company may utilize its energy and strengths to
pursue a single purpose or it may restrict its efforts Finally, there is the alternative of engaging in joirlt
to only a few aims. For example, American Motors ventures, which may take different forms. For
for many years used its limited resources primarily example, corporations may join with foreign firms
for the production of small cars, rather than to overcome political and cultural barriers. Another
competing directly with General Motors, Ford or example of a joint venture is the Alaskan Pipeline
Chrysler who had a cotnplete product line ranging which was a project even too big for one of the
from relatively small models to large, luxurious financially strong oil companies. Still another kind
cars. of joint venture occurs when two or more firms
pool their resources and establish a new company,
Other alternative strategies are backward and which then is jointly owned.
forward integration. In backward integration a
company may acquire suppliers to ensure a steady The strategies discussed above provide an overview
flow of materials. InJhward integration the attempt of possible approaches. Within these categories, of
is to secure outlets for products or services and to course, many variations are possible. In reality,
reach toward the ultimate user of the product. enterprises often pursue a cornbirzatiorz of these
strategies. What has become clear is that evaluating
Another strategy focuses on diversification by and choosing a strategy, the next topic of
moving into new and profitable markets. This may discussion, is not a simple task.
result in greater growth than would be possible
without diversification. Evaluation arld Choice of Strategies
The strategic manager has to evaluate a multiplicity
Still another strategy would be to focus on of possible strategies. Clearly, such a manager has to
inrtovation-new products and new services. Thus, a take into consideration both external realities and
company, vulnerable to obsolescence, may look for internal capabilities. Unfortunately, environments
new ideas whose time has arrived. Polaroid, a are not static, but are dyrmrnic and subject to
company known for innovation, developed constant change. Thus, the strategist has to make
through tremendous research and development predictions of changes about the future.
efforts the successful SX70 instant picture camera, a
truly innovative product. But, as exemplified by In making strategic choices, opportunities must be
the same company, investing in innovation is also evaluated in the light of risks. There may indeed be
risky. Polaroid may have persisted too long and profit opportunities for a new product, but the
invested too much in promoting Polavision, the company may not be able to afford the risks
instant movie system. involved in the new venture. At other times,
however, a firm cannot afford not taking a
A company may adopt a ‘no change’ strategy and calculated risk.
decide to do nothing. Instead of innovation or
expansion, a firm may continue to follow the tried Timit?? is another critical element in the strategic
and proven path, utilizing existing products and decision. Although early action may at times be
services and letting others make possible mistakes desirable (e.g. to be the first in the market), a firm
in innovation. may not be able to take the risk associated with it.
On the other hand, a company may have to enter a
A company may also select an inrernntional strategy, new field because its survival depends upon it.
repeating the approach which was successful in its
home country and extending its operations from Companies do not operate in a vacuum, of course.
there to different parts of the world. Companies A new strategic action is usually met with a reaction
with global strategies include Unilcver, from one or more comperitorx, this, in turn, requires
Colgate-Palmolive, Singer, Nestle and IBM, to counteractions. Clearly, strategic choices are made
mention a few. in a dynamic environment and to cope with the
 The TOWS Matrix-A Tool for Situational Analysis 59

many uncertainties demands executives with the market share). However, this approach has been
tolerance for ambiguity. criticized as being too simplistic, and the growth
rate criterion has been considered insufficient for
the evaluation of the industry’s attractiveness.
During all stages of strategy formulation, the steps Similarly, the market share as a yardstick for
have to be examined for consistency with the estimating the competitive position may be
enterprise profile, the present and projected inadequate.
environment, and the resources of the firm. In
addition, the goals of the claimants to the Another useful matrix for developing a firm’s
organization have to be considered since the choice strategy 1s General Electric’s Bcr.<ir~e.~ Screen.
of strategy is not only based on a rational analysis of Basically, the GE matrix consists of two sets of
‘the facts, but also on personal values and personal variables: business strengths and industry attrac-
goals, especially those of the chief executive officer, tiveness. Each variable is divided into low, medium
an important claimant to the enterprise, as pointed and high ratings, resulting in a nine-cell grid.
out above. Business strengths, for example, evaluates size,
growth, share, position, profitability, margins and
Alternative strategies are then tested for congru- technology position, to mention a few of the items.
ency with other medium- and short-range plans Industry attractiveness, on the other hand, isjudged
which, in turn, may require adjustments of the in terms of size, market growth, market diversity,
master strategy. Similarly, the feasibility of competitive structure, industry profitability and so
implementing the plans also needs to be examined. on. But Charles W. Hofer and Dan Schendel
For example, the organization structure as well as suggest that the GE Business Screen does not give
the availability and suitability of human resources adequate attention to new industries that are
should be considered before strategic choices are beginning to grow. Consequently, they suggest a
made. As shown in the model in Figure 1, matrix in which the ‘competitive position’ and
consistency testing is necessary at the various steps their ‘stage of product/market evolution’ are
in the strategic planning process. plotted. ” Both matrixes, however, appear to give
insufficient attention to the threats and constraints
ContirtgetKy Plan_? in the external environment.
Contingency plans will have to be prepared. Since
the future cannot be predicted with great accuracy, The TOWS Matrix, described in this paper, has a
plans need to be made with different premises. To wider scope and has different emphases than the
be sure, not all possible contingencies can be taken ones mentioned above. This matrix does not
into account, but those crucial to the survival and replace either the Business Portfolio Matrix, the GE
success of a firm-such as a cutoff or reduction of Business Screen, or the matrix by Hofer and
oil from foreign sources-should provide premises Schendel, but it is proposed as a conceptual
for alternative plans. framework for a systematic analysis that facilitates
matching the external threats and opportunities
with the internal weaknesses and strengths of the
organization.
An Operational Model for Analysis
The TOM’S Matrix: A Conceptual Model
of the Situation
The process of strategy formulation, shown before
As pointed out above, it has been common in the in Figure 1, is now surrounding the TOWS Matrix
past to suggest that companies identify their in Figure 2. Preparation of the enterprise profile,
strengths and weaknesses, and the opportunities Step 1, deals with some basic questions pertaining
and threats in the external environment. But what to the internal and external environments. Steps 2
is often overlooked is that combining these factors and 3, on the other hand, concern primarily the
may require distinct strategic choices. To system- present and future situation in respect to the
atize these choices, the TOWS Matrix is proposed external environment. Step 4, the audit of strengths
in which ‘T’ stands for threats, ‘0’ for op- and weaknesses, focuses on the internal resources of
portunities, ‘W’ for weaknesses and ‘S’ for the enterprise. Steps 5 and 6 are the activities
strengths. Before describing this matrix, however, necessary to develop strategies, tactics and more
one should be aware of other ‘tools’ that have been specific actions in order to achieve the enterprise’s
used effectively in strategy formulation. purpose and overall objectives. During this process
attention must be given to consistency of these
Today, strategy designers have been aided by a decisions with the other steps in the strategy
number of matrixes showing the relationships of formulation process. Finally, since an organization
critical variables. For example, the Boston operates in a dynamic environment, contingency
Consulting Group developed the Bttsine_cs Po+lio plans must be prepared (Step 7).
Matrix, which essentially shows the linkages
between the business growth rate and the relative There are different ways of analyzing the situation.
competitive position of the enterprise (identified by One is to begin with the identification ofimportant
60 Long Range Planning Vol. 15 April 1982

Step 1.” Prepare an Enterprise Profile: (althe Kind of Business; (b) Geographic Domain;
(c) Competitive Situation; (d) Top Management Orientation

Step 4. Prepare a SW Audit in: (a) Management and Organization;

(b) Operations; (cl Finance; (d) Marketing; (e) Other

List Internal Strengths (S): List Internal Weaknesses (W

(11 (1)

List External Opportunities (01: SO: Maxi-Maxi WO: Mini-Maxi

(Consider Risks Also)
%
9
E (1)
2 a
Is
0 I=
.I-
2 n
;
EC
e: ‘;j
8t; 2
U+ E
32 2
--a
I
gz
0- 2

List External Threats (T): ST:Maxi-Mini WT: Mini-Mini

00 E
LL (1)
-g “,
2 3 ‘Z
c _-‘Z
$88 1
a .-
2 c E ;
%$ %
LLI u 0
Zc B
2-m LL
“is (11
5’3 5 E
‘; 0 m
CcnZ x
%:I;= 2
--- a
L+ ti
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mI Gi I

*The Steps Are Suggestive and May Vary

Figure 2. Process of corporate strategy and the TOWS analysis

problems. A second approach is to start with remember that the process followed here is just one
determining the purpose and objectives of the firm. of several options.
A third way is to focus on opportunities. l2 The
question may be raised whether one should start The External Etzvirorlrnunt. Within the suggested
with the analysis of the external environment or framework, the analysis starts with the external
with the tit-m’s internal resources. There is no single environment. Specifically, the listing of external
answer. Indeed, one may deal concurrently with the threats (T) may be of immediate importance to the
two sets of factors: the external and the internal firm as some of these threats (such as the lack of
environment. It is important, therefore. to available energy) may seriously threaten the
 The TOWS Matrix-A Tool for Situational Analysis 61

operation of the firm. These threats should be listed tactic would be to hire and train people with the
in box ‘T’ in Figure 2. Similarly, opportunities required technical capabilities. Of course, the firm
should be shown in box ‘0’. also has the choice of doing nothing, thus leaving
the opportunity to competitors.
Threats and opportunities may be found in
different areas, but it is advisable to carefully look (3) T~JC ST Srrutcgy (taxi-h~i). This strategy is
for the more common ones which may be based on the strengths of the organization that can
categorized as economic, social, political and deal with threats in the environment. The aim is to
demographic factors, products and services, tech- maximize the former while minimizing the latter.
nology, markets and, of course, competition. As This, however, does not mean that a strong
mentioned above, the analysis of these factors must company can meet threats in the external
not only pertain to the present but, even more environment head-on, as General Motors (GM)
important, the future environment. realized. In the 196Os, mighty GM recognized the
potential threat posed by Ralph Nader. who
7% Z~ter.rzal E~~virnrwmt. The firm’s internal exposed the safety hazards of the Corvair
environment is assessed for its strengths (S) and automobile. As will be remembered, the direct
weaknesses (W), and then listed in the respective confrontation with Mr. Nader caused GM more
spaces in Figure 2. These factors may be found in problems than expected. In retrospect, the initial
management and organization, operations, finance, GM response from strength was probably in-
marketing and in other areas. Since they were appropriate. The lesson to be learned is that
previously discussed, they will not be repeated here. strenghts must often be used with great restraint
and discretion.
Stratqicr, Tactic> md Ahons. The TOWS Matrix,
Figure 2, indicates four conceptually distinct (4) Tire SO Strurcyy (maxi-maxi). Any company
alternative strategies, tactics and actions. In would like to be in a position where it can
practice, of course, some of the strategies overlap or maximize both, strengths and opportunities. Such
they may be pursued concurrently and in concert. an enterprise can lead from strengths, utilizing
But for the purpose of discussion the focus is on the resources to take advantage of the market for its
interactions of four sets of variables. The primary products and services. For example, Mercedes Benz,
concern here is strategies, but this analysis could with the technical know-how and the quality
also be applied to the development of tactics image, can take advantage of the external demand
necessary to implement the strategies, and to more for luxury cars by an increasingly affluent public.
specific actions supportive of tactics. Successful enterprises, even if they temporarily use
one of the three previously mentioned strategies,
(1) T/w W’T Strategy (wini-mirii). In general, the aim will attempt to get into a situation where they can
of the WT strategy is to minimize both weaknesses work from strengths to take advantage of
and threats. A company faced with external threats opportunities. If they have weaknesses, they will
and internal weaknesses may indeed be in a strive to overcome them, making them strengths. If
precarious position. In fact, such a firm may have to they face threats, they will cope with them so that
fight for its survival or may even have to choose they can focus on opportunities.
liquidation. But there are, of course, other choices.
For example, such a firm may prefer a merger, or Tinzc Dinwwsior~ ad tl~e TOW’S A4utrix
may cut back its operations, with the intent of So far, the factors displayed in the TOWS Matrix
either overcoming the weaknesses or hoping that pertain to analysis at a particular point in time.
the threat will diminish over time (too often External and internal environments are dynamic;
wishful thinking). Whatever strategy is selected, some factors change over time while others change
the WT position is one that any firm will try to very little. Because of the dynamics in the
avoid. environment, the strategy designer must prepare
several TOWS Matrixes at different points in time,
(2) Tllc IV0 Strute~~ (mini-maxi). The second as shown in Figure 3. Thus, one may start with a
strategy attempts to minimize the weaknesses and TOWS analysis of the past, continue with an
to maximize the opportunities. A company may analysis of the present, and, perhaps most
identify opportunities in the external environment important, focus on different time periods in the
but have organizational weaknesses which prevent future.
the firm from taking advantage of market demands.
For example, an auto accessory company with a Complexity qf Interactions qf Situutiorzul Fuctors
great demand for electronic devices to control the The conceptual model provides a good framework
amount and timing of fuel injection in a for identifying relationships, but it can become a
combustion engine, may lack the technology complex process when many factors are being
required for producing these micro-processors. identified. The matrix, shown in Figure 4, is an
One possible strategy would be to acquire this example of one approach to identity combinations
technology through cooperation with a firm of relationships which, in turn, may become the
having competency in this field. An alternative basis for strategic choices.
62 Long Range Planning Vol. 15 April 1982

Present Plus T,, etc.

Past

Figure 3. Dynamics of TOWS analysis

In Figure 4, a ’ + ’ indicates a match between the A word of caution is in order here. One cannot
strengths of the company and external op- simply add up the number of pluses (although
portunities, while an ‘0’ indicates a weak or especially strong relationships could be indicated by
nonexistent relationship. Analysis of Figure 4 two pluses such as ’ + + ‘) in each row and in each
indicates that Strength No. 1 can be matched with column to determine the best match between
several opportunities. Similarly, many strengths several strengths and opportunities. Clearly,
can be utilized to exploit Opportunity No. 7. different relationships may have different weights
Although this figure shows only the relationship in terms of their potential, so each should be
between strengths and opportunities, similar tables carefully evaluated. Still, it is suggested that this
can be used for analyzing the other three strategy matrix is a relatively simple way of recognizing
boxes (WO, ST, WT) shown in Figure 2. promising strategies that use the company’s
strengths to take advantage of opportunities in the
external environment.

12 3 4 5 6 7 8 910 Application of the TOWS Matrix to

1 +o+oo++ooo Volkswagen
2 +00+000+00
3 ooo+ooooo+ The foregoing discussion of the conceptual
4 +++ 0++0+++ framework for strategic planning can be illustrated
5+0+000+000 by an example. Volkswagen (VW) was chosen
6+000+000++ because it demonstrates how a successful company
7++0++0++++
experienced great difficulties in the early 197Os, but
800000+00+0
then developed a strategy that resulted in an
9+00+000+00
10 + + 0 0 + 0 0 0 0 0
excellent market position tn the late 1970s. The
TOWS Matrix shown in Figure 5 will focus on the
Figure 4. Interaction matrix crucial period from late 1973 to early 1975. The
 The TOWS Matrix-A Tool for Situational Analysis 63

-
Internal Strengths. Internal Weaknesses:

(1) Strong R & D and Engineering
(2) Strong Sales and Service
Network
(3) Efficient Production/Automation
Capabilities
(1) Heavy Reliance on One Product
(Although Several Less
Successful Models were
Introduced)
(2) Rising Costs in Germany
(3) No Experience With U.S. Labor
Unions if Building Plant in U.S.

External Opportunities: wo:

(Consider Risks Also)
(1) Growing Affluent Market
Demands More Luxurious
Cars with Many Options
(2) Attractive Offers to Build
an Assembly Plant in U.S.
(3) Chrysler and American Motors
Need Small Engmes
-so
(1) Develop and Produce
Multiproduct Line with Many
Options, in Different Price
Classes (Dasher, Scirocco,
Rabbit, Audi Line) (0, S, S,)
(2) Build Assembly Plant Using
R & D, Engineering, and
Production/Automation
Experience (0, S, S,)
(3) Build Engines for Chrysler and
AMC (0, S,)
(1) Develop Compatible Models
for Different Price Levels
(Ranging from Rabbit to Audi
Line) (0, W, 1
(2) To Cope with Rising Costs in
Germany, Built Plant in U.S.,
Hiring U.S. Managers with
Experience in Dealing with U.S.
Labor Unions (0, W, W,)

External Threats: -ST: WT:

(1) Exchange Rate.
Devaluation of Dollar in
Relation to Deutshe Mark (DM)
(2) Competition from Japanese and
U.S. Automakers
(3) Fuel Shortage and Price
(1) Reduce Effect of Exchange
Rate by Building a Plant in the
U.S. (T, T, S, S,)
(2) Meet Competition with Advanced
Design Technology - e.g. Rabbit
(T, T, S, S,)
(3) Improve Fuel Consumption
Through Fuel Injection and
Develop Fuel Efficient Diesel
Engines (T, S, 1
A. Overcome Weaknesses by Makin!
Them Strengths ,( Move Toward
OS Strategy)
(1) Reduce Threat of Competition
by Developing Flexible Product
Line (T2 W, 1
B. Possible Options nor Exercised
by VW:
(1) Engage in Joint Operation with
Chrysler or AMC
(2) Withdraw From U.S. Market

Figure 5. Application of the TOWS matrix to Volkswagen. This.illustrative analysis covers the period
from late 1973 to early 1975

external threats and opportunities pertain mostly to enterprise mission and comprehensive objectives.
the situation VW faced in the United States, but a Tactics, on the other hand, refer to action plans by
similar situation prevailed in Europe at that time. which strategies are executed. In practice, and even
conceptually, these distinctions are often blurred.
The Extcrr~al am’ Imwal Etzvironmerlr
In a situational analysis as conceptualized above, M’eaknesscs and Threats (Id/T). A company with
one would first list and analyze the threats and great weaknesses often has to resort to a survival
opportunities in the external environment and the strategy. VW could have seriously considered the
weaknesses and strengths of the enterprise before option of a joint operation with Chrysler or
developing alternative strategies and tactics. American Motors. Another alternative would have
However, in this illustration, to be concise, the been to withdraw from the American market
situation and the related actions, shown in Figure 5, altogether. Although in difficulties, VW did riot
are combined. have to resort to a survival strategy because the
company still had many strengths. Consequently, a
Strategies alld Tactic3 more appropriate strategy was to attempt to
Strategies, as discussed earlier, pertain to major overcome the weaknesses and develop them into
courses of action for the achievement of the strengths. In other words, the direction was toward
64 Long Range Planning Vol. 15 April 1982

the strength-opportunity position (SO) in the Strengths and Opportmities (SO). In general,
matrix shown as Figure 5. Specifically, the strategy successful firms build on their strengths to take
was to reduce the competitive threat by developing advantage of opportunities. VW is no exception.
a more flexible new product line that would Throughout this discussion VW’s strengths in
accommodate the needs and desires of the car- research, development, engineering, and its experi-
buying public. ence in production technology became evident.
These strengths, under the leadership of Rudolf
Leiding, enabled the company to develop a product
Weakvtesses arrd Opportunities ( WO). The growing
line that met market demands for an economical
aflluence of customers has resulted in ‘trading up’ to
car (the Rabbit, successor to the Beetle), as well as
more luxurious cars. Yet, VW had essentially
the tastes for more luxurious cars with many
followed a one-model policy which presented a
available options (Scirocco and the Audi line).
problem when the design of the Beetle became
obsolete. A new model line had to be introduced to
Eventually the same company’s strengths enabled
reach a wider spectrum of buyers. In order to
VW to plan and build the assembly facility in New
minimize the additional costs of a multiproduct
Stanton, Pennsylvania. Thus, VW could benefit
line, the building block principle was employed in
from substantial concessions granted by the state
the design of the new cars. This allowed using the
government to attract VW which, in turn,
same parts for different models that ranged from
provided many employment opportunities.
the relatively low-priced Rabbit to the higher
priced Audi line.
In another tactical move, VW manufactured and
sold small engines to Chrysler and American
Another weakness at VW was the rising costs in
Motors. These companies urgently needed small
Germany. For example, in 1973 wages and salaries
engines for installation in their own cars and
rose 19 per cent over the previous year. Similarly,
revenues from these sales improved the financial
increased fuel costs made the shipping of cars to the
position of VW.
United States more costly. This situation favored
setting up an assembly plant in the United States.
However, this also created some problems for VW
because it had no experience in dealing with
American organized labor. To overcome this Application of the TOWS Matrix to
weakness, VW’s tactic was to recruit managers Winnebago Industries Inc.
from Detroit who were capable of establishing
good union relations. Winnebago, the largest. manufacturer of recre-
ational vehicles (RVs) produced a full line of such
vehicles, but emphasized traditional motor homes.
S~re~t@s and Threats (ST). One of the greatest The’ company, located in Forest City, Iowa,
threats to VW was the continuing appreciation of operated a large, modern and efficient plant.”
the Deutsche mark against the dollar. For example,
between October 1972 to November 1973 the mark The External arzd Intemal E~trlironment
appreciated 35 per cent. This meant higher prices The threats and opportunities in the external
for the buyer. The result, of course, was a less environment are condensed into the table shown as
competitive posture. Japanese and American Figure 6. In the past, the company had prospered by
automakers obtained an increasingly larger share of the high demand for RVs. However, serious threats
the small-car market. To reduce the threats of from competitors as well as the gasoline shortage
competition and the effects of the unfavorable could have a great impact on the firm.
exchange rate, VW was forced to build an assembly
plant in the United States. While Winnebago has considerable strengths,
heavy reliance on essentially one product makes the
Another strategy for meeting competitive pressures company vulnerable to the esternal threats.
was to build on VW’s strengths by developing a car
based on advanced-design technology. The result of Strategies and Tactics
this effort was the Rabbit, a model with features Based on the analysis of the situation, several
later adopted by many other car manufacturers. alternative strategies and tactics are available to
Winnebago.
The oil crisis in 1973-1974 not only caused a fuel
shortage, but also price rises, a trend that has Weaknesse_s and Threats (W7J. The factors in the
continued. To meet this threat, VW used its external environment, particularly the gasoline
technological capabilities not only to improve its shortage, the high fuel prices, the slackening in
engines (through the use of fuel injection, for demand for recreational vehicles, as well as the
example), but also to develop the very fuel-efficient increased competition constitute serious threats to
Diesel engine. This tactic, which was congruent the enterprise. When these threats are seen in
with its general strategy, helped improve the firm’s relation to the weaknesses, an alternative would be
market position. to sell the company. But this strategic choice would
 The TOWS Matrix-A Tool for Situational Analysis 65

Strengths: Weaknesses:

(I) Identifiable Corporate Name (1) Vulnerability Because of

With a Good Reputation
(2) Good Service and Warranty
(3) Established Dealer Network
With Good Dealer Relations
(4) Extensive Research and
Development Capabilities
(5) Automated, Economical Plant
(6) Manufacturing of Most Parts
for the Motor Home
One-product Company
(2) Concentration on Higher Priced
Units
(3) Heavy Investment in Toolmaking
will Raise Cost of Model Changes
(4) One-plant Location
(5) No Preparation for Transition
from Family to Corporate
Management

Opportunities: so: wo:

(1) Demand for Smaller RVs
(2) Development of International
Market
(3) Demand for Low-cost Modular
Housing (FHA Subsidy for
Mortgage Loans)
(1) Emphasize Smaller, More
Efficient Motor Homes
(0, s, s, s, s, s, S,)
(2) Expand into Foreign Markets
(0, s, S,)
(3) Diversity into Modular
Housing (0, S, S, Se)
(1) Develop and Produce Smaller
RVs (0, 0, W, W,)
(2) Built Smaller Plants in Different
Parts of the Country and
Abroad (0, 0, W,)

Threats: ST: WT:

(1) Gasoline Shortage and Higher (1) Diversity into Farm Equipment, (1) Sell the Company (T, T, T,
Prices of Gasoline Railroad Cars (T, T, T, WI w4 W5)
(2) Slackening Demand for RVs SlS3S4S5)
(3) “Trade-up” Creates Secondary (2) Consider Diesel Engines for
Market Motor Homes (T, S, 1
(4) Increased Competition (GM, (3) Make RVs Safer in Anticipation
Ford, International Harvester, of Safety Regulations
VW, Toyota) (e.g. Visibility, Flanie Retardent,
(5) Impending Safety Regulations Crash Resistent, Brakes)
(T, 7-4 S, 1

Figure 6. Application of the TOWS matrix to Winnebago. This illustration covers the period of the early
1970s

probably be unacceptable to the family-dominated in the external environment the company may use
management group. its strengths. Specifically, diversifying into farm
equipment and railroad cars, using the firm’s
Weaknesses and Opportmities (IWO). Customers in capabilities, can alleviate problems caused by the
the United States and abroad demand smaller RVs. slackening demand for RVs due to the secondary
But one of the weaknesses of the firm was the heavy market created by the custom of ‘trading up’.
reliance on relatively larger and higher-priced units. Similarly, the use of diesel engines in motor homes
Consequently, the development and manufacture can reduce fuel consumption of these vehicles.
of smaller vehicles could take advantage of the Impending safety regulations are expected to make
demand for small RVs in a market segment more demands on RV manufacturers. Rather than
neglected in the past by the firm. Furthermore, reacting to these regulations, Winnebago can use its
smaller plants could be built in various parts of the extensive research and development capabilities to
country, thus alleviating the comparatively high develop safer vehicles.
transportation costs for the smaller RVs from the
factory to the dealers. Strength and Opportunities (SO). Winnebago needs
to use its strengths to take advantage of the
Strerlgths and Threats (ST). To cope with the threats opportunities. The good reputation of the firm, its
66 Long Range Planning Vol. 15 April 1982

service network, its research and development as Does Thomas suggest that strategic management
well as the manufacturing facilities, can be does not apply to the service industry? Certainly
effectively used to produce smaller RVs. Similarly, not. What is needed, however, is a change in the
most of these strengths facilitate the expansion into thinking pattern away from product-oriented
the international market. Finally, the firm’s management to the application of techniques and
capabilities can be used to diversify into modular language peculiar to service-oriented businesses.
housing. But the company has little or no
knowledge of the housing market and some Of all the different kinds of organizations, Western
difficulties can be anticipated. governmenrs probably make the least use of strategic
planning. For example, little systematic planning
So far, the focus has been on strategy formulation in was done to prepare for the oil shortage. There is a
two product-oriented businesses, Volkswagen and tendency to respond to problems rather than to
Winnebago, but does strategic planning also apply anticipate them and prepare contingency plans.
to other kinds of organizations? Many large businesses now make a situational
analysis and establish goals that give the enterprise
direction. Why should not the same managerial
concept be applied by our government?
Who Needs Strategic Planning?
For a long time strategic planning meant making
plans in light of the actions or potential actions of an
adversary. In fact, it is the militnry that has had long
experience with strategic planning.
Rejkences
In the business world, strategic planning has been
(1) See the exploratory study by Howard H. Stevenson, Defining
used extensively by product-oriented firms. The corporate strengths and weaknesses, Sloan Management
concern is about the deployment of resources to Review, Spring (1976).

make the kind of product the customers want at a (2) K. Andrews, E. Learned, C. R. Christensen and W. Guth,
price they are willing to pay. Companies also have Business Policy: Text and Cases, Richard D. Irwin, Homewood.
lllinors (1965).
to decide whether they want to be a product leader
or follow the lead of innovative competitors. (3) A. Chandler, Strategy and Structure: Chapters in the History of
American Industrial Enterprise, MIT Press, Cambridge,
Massachusetts (1962).

But to focus only on businesses that make a distinct (4) G. A. Steiner and J. 0. Miner, Management Policy and Strategy.
product leaves out the important sector of the Macmillan, New York (1977).

servile industry. Examples of service businesses are (5) R. Vancrl, Strategy formulation in complex organizations, Sloan
consulting, law, computer service firms, airlines, Management Review, in Peter Lorange and Richard F. Vancil.
Strategic Planning Systems, Prentice-Hall, Englewood Cliffs,
banks and theaters. Dan R. E. Thomas drew NJ (1977).
attention to the fact that strategic management for
(6) H. I. Ansoff, Corporate Strategy, McGraw-Hill, New York
such enterprises is significantly different from (1965).
companies that make a physical product.‘”
(7) C. W. Hofer and D. Schendel, Strategy Formulation: Analytical
Concepts, West Publishing, St. Paul (1978).

Clearly, to describe services is abstract and more (8) H. Koontz. C. O’Donnell and H. Weihrich, Management, 7th edn,
McGraw-Hill, New York (1980). p. 847. For additional mean-
difficult than to show and demonstrate a product. ings, see Roger Evered, ‘The Strategic Decision Process’, in Don
There are two kinds of services: one is equipment- Hellriegel and John W. Slocum, Jr., eds., Management in the
based (e.g. automatic car washes) while the other is World Today, Addison Wesley, Reading, Massachusetts (1975).

people-based (e.g. consulting). A few illustrations (9) For an excellent discussion of the various approaches to
of the latter will indicate some implications for forecasting, see Spyros Makridakis and Steven C. Wheelwrioht,
Forecasting: issues and challenges for marketing management,
strategic planning. It may be extremely difticult to Journal of Marketing, October (1977) in Harold Koontz. Cyril
evaluate the quality of services of a consulting firm. O’Donnell and Heinz Weihrich. Management: A Book of
Consequently, a client tends to employ the services Readings. 5th edn, McGraw-Hill, New York (1980).

of large consulting firms with established repu- (10) J. Wail, What the competmon IS domg: your need to know,
tations. Unfortunately, this makes it extremely Harvard Business Review, November-December (1974).

difficult for a small consulting firm without such an (ll! Hofer and Schendel, op. cit., Chapter 2
image to enter the market. Another example See, for example, the comparison of steps suggested by different
(12)
pertains to pricing in the service industry. Product- authors in G A. Steiner and J. 8. Miner, op. cit., Chapter 8.
oriented firms usually aim to reduce the cost and
price of a product to increase their market share. In (13) H. E. R. Uyterhoeven,
Strategy
R. W. Ackerman and J. W. Rosenblum,
and Organization, Rrchard D. Irwin, Homewood,
the service industry, however, a low price is often Illinois (1977).
perceived as and associated with providing poorer (14) D. R. E. Thomas, Strategy IS different in service businesses,
quality of professional services. Harvard Busmess Review, July-August (1978).