TOWS analysis is a form of business analysis, a kind of extension of the well-known SWOT Analysis framework. TOWS is an acronym for Threats, Opportunities, Weaknesses, and Strengths. This form of analysis is used as a strategic plan tool. It can add crucial value for the company, focusing instead on matching internal factors to the external aspects of the company’s environment. The primary purpose of this analysis is to reduce threats, take advantage of opportunities, exploit strengths, and last but not least, remove weaknesses. What is a TOWS analysis?
Components of TOWS analysis template
In the first place, the TOWS analysis template includes matching internal strengths with external opportunities (SO). It enables a company to develop a so-called “maxi-maxi” strategy, which has the most significant potential for success. In this plan of action, a company can exploit strengths to respond to the potential opportunities in the market.
The second extreme is the “mini-mini” strategy, highlighting vulnerability to an organization’s threats based on its weaknesses (WT). It is a perfect strategy to avoid potential dangers and minimize weaknesses.
It is worth mentioning that besides these radical two approaches, we can also divide two strategies in-between — “mini-maxi” and “maxi-mini.” The first can give a vital answer to how opportunities can remove weaknesses (WO). Last but not least — “Maxi-mini,” which uses strengths to minimize threats (ST).
The difference between SWOT and TOWS analysis
What about difference between SWOT and TOWS? These two strategies are said to be very similar because both of them involve the identification of an organization’s strengths, weaknesses, opportunities, and threats. There is, however, an essential difference between them — although SWOT analysis also focuses on such factors as strengths, weaknesses, opportunities, and threats, it does not concentrate on the relationship between each factor and categories. In SWOT, the company perceives each factor as a singular perspective. TOWS matrix identifies the relationships between factors and them and, on their basis, selects categories. Moreover, another critical difference between these two tolls lies in the outcomes — SWOT tends to be used instead for identifying the company’s current situation, and it is a great tool to do it. In contrast, the TOWS analysis template can be referred to as a continuation. A company can use TOWS to apply SWOT’s outcomes in future strategy.
TOWS analysis of private investment behavior in the Chinese biogas sector
Private investment is a crucial factor for the biogas sector to fulfill expectations of achieving global climate change policy targets. Banks, insurance companies, pension funds, and high network individuals are perceived as primary stakeholders here. Oliver Gottfried (School of Environment, Tsinghua University, Beijing) wrote an article “SWOT-AHP-TOWS analysis of private investment behavior in the Chinese biogas sector,” in which he applied SWOT, AHP (Analytical Hierarchy Process), and TOWS analysis to analyze private investment institutions as stakeholders of biogas development. It is a perfect TOWS analysis example of coining these three strategies to create one big picture of private investment institutions in the biogas market. Gottfried used SWOT Analysis to identify strengths, weaknesses, opportunities, and threats, AHP to prioritize all factors, and TOWS matrix to support the development of private investment strategies and match internal factors to the external aspects of these institutions.
Application of the TOWS Matrix to Volkswagen
Another interesting TOWS analysis example is a Volkswagen company’s fundamental analysis made in the 1970s, when VW experienced great difficulties and managed to gain an excellent market position in the late 1970s, using TOWS analysis. VW developed four types of strategies, linking external factors with internal strengths and weaknesses. The first was SO (power with opportunities). Throughout evident strengths in strong engineering, strong sales, and efficient production, they developed a new product line that met with growing market demands for more luxurious cars with many options. Then comes WT strategy (weaknesses and threats) — they were aware of high competition from the Japanese and USA as a significant threat and heavy reliance on one product in VW. As they linked them together, they decided to reduce competition by developing a new flexible product line. When it comes to WO strategy, they build a plant in the USA to answer attractive offers to build an assembly plant in the USA (opportunity) and rising cost in Germany (weakness).
Last but not least – ST (strengths and threats). One of the greatest threats to VW was the continuing appreciation of the Deutsche Mark against the Dollar — this meant higher prices for the buyer from the USA. Consequently, the company reduced the exchange rate by building a plant in the USA, which was linked with the major strength, efficient production, and automation capabilities.
Who needs TOWS analysis?
Because it is such an excellent tool for strategic planning, the TOWS analysis template can be used for every company, not as a substitute to SWOT, but as an additional tool, giving a broader, complementary perspective.