How does a firm decide to pursue one course of action over another? Along with SWOT analysis, TOWS analysis is a process that requires management to think critically of its operations. 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.For companies to develop adequate and successful business strategies, they must sufficiently analyze their internal and external environments.
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One helpful strategic development tool entails SWOT analysis, which identifies the strengths, weaknesses, opportunities, and threats facing a company.
However, a major shortcoming of this method involves its focus on the company's internal environment at the expense of its external situation. Subsequent to the SWOT model, organizations should conduct a TOWS analysis, a procedure that focuses more on the external environment. Although the acronym is simply SWOT reversed, TOWS analysis takes a different approach to linking a company's internal strengths and weaknesses with its external opportunities and threats. This approach allows a business to clearly identify and evaluate the options it could pursue.
To perform a proper TOWS analysis, the company must first conduct a SWOT analysis to identify its internal strengths and weaknesses and external opportunities and threats. The rest of the procedure involves dividing and linking the appropriate classifications into four categories:
- Maxi-Maxi
- Maxi-Mini
- Mini-Maxi
- Mini-Mini
Creating a TOWS matrix is an easy and visually helpful way to aid in this process.
"Maxi-Maxi" Strategy
Under the Maxi-Maxi classification, an organization identifies the appropriate strengths it can use to take advantage of its opportunities. The firm needs to distinguish and list the strengths that could aid in the maximization of each one of its listed opportunities. For example, possible strengths that could help a company penetrate a new market could include high-brand recognition, high-brand loyalty, large levels of research and development spending, and superior customer service.
"Maxi-Mini" Strategy
The Maxi-Mini category identifies the strengths the company can exploit to minimize its external threats. For instance, a potential threat to a firm could be the loss of market share to a new competitor entering the market. One way the firm could protect its position involves developing a marketing campaign emphasizing its superior customer service or its competitor's inferior customer service.
"Mini-Maxi" Strategy
With the Mini-Maxi strategy, a company wants to use its external opportunities to minimize its internal weaknesses. To illustrate, consider a company that faces rising labor costs in its home country. Simultaneously, it has identified an attractive opportunity to outsource some of its operations to another country where the cost of labor is far cheaper. This outsourcing prospect reduces the company's threat of rising labor expenses.
"Mini-Mini" Strategy
Mini-Mini strategies attempt to minimize the company's weaknesses and prevent external threats. This section matches the firm's threats and weaknesses in order for the company to recognize the potential situations that could harm its operations. Once these possible conditions are realized, the company can conceive of ways to protect its business. For example, a firm can enter into a strategic alliance or merge with one of its competitors to protect its operations from a rival firm. Moreover, the options to withdraw from a market or suspend operations are always present.