TOWS analysis is a method of strategic analysis used to study the environment of the organization and company situation analysis. TOWS concept is closely related to the SWOT analysis. According to H. Weihrich: Threats, Opportunities (in the environment), Weaknesses, Strengths (of the organization) should be analysed in this order, as a proper problem-solving sequence in the process of strategy formulation.

TOWS analysis is method of the strategic analysis process, involving systematic and comprehensive assessment of external and internal factors that determine current competitive position and growth potential of the company.

It is based on a simple classification scheme: all of the factors influencing the current and future position of the organization is divided into:

• external and internal to the organization,

• having negative and positive impact on the organization.

The intersection of above distinctions give four categories of factors:

• external and positive (Opportunities),

• external and negative (Threats),

• internal and positive (Strengths),

• internal and negative (Weaknesses).

Comparing opportunities and threats with strengths and weaknesses of the company allows to define its strategic position, and can also be a source of innovation, and ideas of breakthrough products or services.

Fig. 1. Procedure of TOWS analysis

Steps of TOWS analysis

Basic steps of TOWS analysis procedure are as follows (fig. 1.):

1. Identification of enterprise profile (industry, customers, needs, trends), strategic goals (mission and vision of managers) and resources of organization (financial, material, employee, knowledge and information),

2. Identification of the external environment to the organization (external factor influencing its strategy, political, legal, economics, technology, social, ethical),

3. Forecasting possible changes of environment and its influence on organization (scenario analysis, trends, perspectives),

4. Audit and assessment of internal resources of the organization to identify weaknesses and strengths,

5. Preparation of interaction matrix between TOWS factors, and indicating best alternative strategies,

6. Evaluation of alternative strategies, evaluating feasibility of various possible actions, choice of best strategies,

7. Testing internal consistency of identified portfolio of strategies (in relation to competition and environment),

8. Preparation of contingency plans in case of failure of the undertaken actions.

Usually general guidelines and recommendations for management derived from using TOWS analysis are simple but difficult in execution:

• company should avoid threats,

• company should exploit opportunities,

• company should strengthen its weaknesses,

• company should base important activities on its strengths.

There are four basic strategies depending on the prevalence of the analysed group of factors (positive or negative) in the environment and within the company:

Fig. 2. TOWS matrix of strategic choices.

• SO situation - maxi-maxi strategy. This situation applies to the company for which dominates strengths in the environment and opportunities within. This situation corresponds to the maxi-maxi strategy: strong expansion and diversified development.

• WO situation - mini-maxi strategy. In this situation company has more vulnerabilities - weaknesses, but its environment gives more opportunities. The strategy should include the use of these opportunities while reducing or correcting weaknesses within the organization.

• ST situation - maxi-mini strategy. The source of development difficulties for the company are unfavourable external conditions (prevalence of threats). The company may use large internal strengths in attempt to overcome threats from environment.

• WT situation - mini-mini strategy. The company in this case is devoid of any development opportunities. It operates in hostile environments, and its potential for change is small. It does not have significant strengths, which could withstand threats. Mini-mini strategy boils down to a pessimistic version of the liquidation or in optimistic situation - to strive for survival, or merger with another organization.

Final results of TOWS analysis is presented graphically on Fig. 2.

The colour red in the picture indicates the strategies to be adopted for the negative combination of threats and weaknesses. The green colour indicates the strategies of strongly positive character from the point of view of the company.

Relation to SWOT analysis

According to Michael Watkins order of word in acronym acronym SWOT implies wrong order of doing process of serious strategic analysis. Starting from analysis of Strengths is wrong, because managers should first identify all threats from environment in order to do following steps of planning and preparation.

See also:

• Strategic portfolio analysis