TOWS Matrix Explained: How to Make Informed Business Decisions

The TOWS Matrix—also called a TOWS Analysis—is a valuable tool when organizations are using business model innovation as a way of separating themselves from their competitors.

It’s one of the approaches we use for strategic planning.

What is the TOWS Matrix?

The TOWS Matrix is used in strategic planning to identify the strengths, weaknesses, opportunities, and threats (SWOT) of an organization. It combines internal and external factors to generate strategic options for the organization.

The Matrix is divided into four quadrants, each representing a different combination of internal and external factors:

• The first quadrant identifies the strengths and opportunities
• The second quadrant identifies the weaknesses and opportunities
• The third quadrant identifies the strengths and threats
• The fourth quadrant identifies the weaknesses and threats

Based on these combinations, organizations develop strategic options to maximize strengths, minimize weaknesses, capitalize on opportunities and mitigate threats.

Background and Origin of the TOWS Matrix

The TOWS Matrix was developed as a variation of the SWOT analysis in the late 1960s by Heinz Weihrich, a professor of Management at the University of San Francisco. This approach was then popularized by Albert Humphrey, a consultant at the Stanford Research Institute.

The SWOT analysis was already widely used in strategic planning at the time, but Weihrich and Humphrey felt that it had limitations. It lacked clear guidance on how to convert SWOT findings into actionable strategies. They wanted a tool that would not only analyze the internal and external factors of an organization but one that could also provide strategic options based on these factors.

The TOWS Matrix takes a more proactive approach to strategic planning by starting with the identification of opportunities and threats and then working backward to determine how to capitalize on a business’s advantages and minimize the impact of its deficiencies.

The TOWS Matrix is now a popular tool in strategic planning, particularly in the business world, and has been used by organizations of all sizes and industries to generate actionable strategies based on their SWOT analysis.

SWOT vs TOWS: What is the Difference Between SWOT & TOWS?

The primary difference between the SWOT and TOWS tools lies in their approach to strategic planning.

A SWOT analysis identifies the strengths, weaknesses, opportunities, and threats of an organization. It provides a snapshot of the current situation of the organization, and the analysis is usually conducted as a part of the strategic planning process. The SWOT analysis is an effective tool for identifying the internal and external factors that may impact the organization’s performance. However, it doesn’t provide clear guidance on how to convert the SWOT findings into actionable strategies.

TOWS analysis is a variation of the SWOT analysis that provides a more proactive approach to strategic planning. The TOWS analysis takes the strengths and weaknesses of an organization and matches them with its opportunities and threats to generate strategic options.

Understanding the TOWS Matrix: TOWS Matrix Breakdown

Based on the analysis of its four sections, the TOWS Matrix helps in developing various strategies that can be used to leverage an organization’s strengths, address its weaknesses, exploit opportunities, and mitigate threats.

These strategies can be categorized as SO (Strengths-Opportunities), WO (Weaknesses-Opportunities), ST (Strengths-Threats), and WT (Weaknesses-Threats) strategies, each of which helps in achieving specific objectives for the organization.

Let’s take a closer look at each section.

(1) Strengths/Opportunities (SO)

Where the company’s strengths can be leveraged into opportunities for growth or innovation.

For example, you may have a team that’s excellent at building software solutions that are needed in an already-existing market.

In this section of the matrix, you consider the strategic options with the greatest potential for success.

(2) Strengths/Threats (ST)

Existing organizational capabilities can be leaned upon to counter outside threats.

Perhaps your company sells slow plows. During an unusually warm winter, your company pivots to use its workforce to perform other services that keep it profitable.

Here, you should be able to develop strategic options that rise to the occasion of your challenges.

(3) Weaknesses/Opportunities (WO)

Shoring up your business’s internal deficiencies through external opportunities.

Good examples include outsourcing capabilities your business lacks, or hiring new people who have the skills your current team needs.

The strategic options available here should have the biggest impact on what your business can do tomorrow versus its capabilities today.

(4) Weaknesses/Threats (WT)

Here the business is most vulnerable, threatened by outside forces for which it has no available response.

This section of your analysis should energize the organization to make the necessary changes to address these glaring deficiencies. The strategic options you develop here have the highest stakes—without augmenting your situation, outside threats are likely to cause lasting damage to your business.

Download TOWS Matrix Package: Instructions + SWOT vs TOWS Included

We are proud to offer a complete package of helpful guidance so your business can complete its own TOWS Analysis.

Importance of the TOWS Analysis for Businesses

The TOWS Analysis is an important tool for businesses because it provides a comprehensive and proactive approach to strategic planning. Businesses capitalize on their strengths and opportunities while reducing the impact of their weaknesses and threats.

A TOWS Analysis provides a structured and systematic approach to strategic planning that enables businesses to make informed decisions based on a thorough understanding of the internal and external factors affecting their performance. In today’s competitive business environment, a TOWS Analysis can be critical for businesses to stay ahead of the competition and achieve long-term success.

While the value of a TOWS Analysis is obvious in a general description, the importance of such an analysis is even clearer when you look at specific ways the approach can help your business.

(1) Strategic Planning

Organizations use Strategic Planning to gather all their stakeholders to evaluate the collection of current circumstances and decide upon their ongoing goals and benchmarks. They decide upon long-term objectives and establish a vision for the company’s future.

The efforts behind an organization’s Strategic Planning Processes are vital to its success, and yet, while many organizations acknowledge they need to do this kind of planning, they often don’t understand how to make it a reality.

A TOWS Analysis helps with your Strategic Planning because it focuses on your understanding of your company and the business climate in which you operate. It makes room for consideration of business elements you may not have considered without its guidance.

As always, Digital Leadership welcomes the opportunity to partner with you and your business. If you have questions or comments or would like to leverage the experience of one of our global experts, schedule a free consultation by visiting our CONTACT US page today!

(2) Identify Market Opportunities

A TOWS Analysis can also help you identify hidden market opportunities.

Because you’re putting so much effort into properly understanding your strategic situation, the TOWS process often reveals opportunities that you wouldn’t otherwise recognize.

These hidden market opportunities can become the foundation for success if they help you gain a competitive advantage over other players in your marketplace.

(3) Maximizing Organization’s Strengths

What do you do well? What could your business do well if you captured the entirety of your organization’s abilities?

A TOWS Analysis helps develop a complete picture of your company’s abilities and identifies where those strengths can be applied to the greatest effect.

(4) Develop a Competitive Advantage

We are always searching for the innovation that gives us an edge over the competition.

The TOWS analysis is an excellent tool for identifying where your competition might be struggling and where you can shore up your deficiencies.

If you can do that more effectively than other companies, you greatly increase your odds for success.

(5) Effective Decision Making

Finally, a TOWS Analysis powers effective decision-making by giving you the building blocks of data to move forward with confidence.

Without the right information, all our efforts are left to chance. A completed TOWS Matrix provides a full-picture view of danger zones and profit centers so you can apply your resources accordingly.

TOWS Matrix Examples: Real-Life Examples of TOWS Matrix in Action

As always, it’s easier to understand concepts when you can see them in action. Let’s look at how some global brands would stack up in a TOWS Analysis.

Example (1): Coca-Cola TOWS Analysis

Our first example is the global beverage brand Coco-Cola.

Strengths

• Strong brand recognition and loyalty
• Global reach and distribution network
• Wide variety of products and flavors
• Experienced and diverse workforce

Weaknesses

• Dependence on carbonated soft drinks, which are declining in popularity
• Negative perception of sugary drinks and health concerns
• Limited product diversification compared to competitors
• Controversies over environmental and labor practices

Opportunities

• Growing demand for healthier and low-calorie beverages
• Expansion into emerging markets with growing middle class
• Innovations in packaging and distribution technology
• Increasing trend towards e-commerce and direct-to-consumer sales

Threats

• Intense competition from other beverage companies
• Changing consumer preferences and tastes
• Government regulations and taxes on sugary drinks
• Fluctuations in commodity prices and currency exchange rates

We can apply our observations to an analysis that reveals some important pathways for strategic planning.

(1) Strengths/Opportunities (SO)

SO: Coca-Cola can leverage its strong brand recognition and global distribution network to expand into emerging markets with growing demand for healthier and low-calorie beverages.

(2) Strengths/Threats (ST)

ST: Coca-Cola can innovate in packaging and distribution technology to take advantage of the trend towards e-commerce and direct-to-consumer sales for its wide variety of products and flavors.

(3) Weaknesses/Opportunities (WO)

WO: Coca-Cola can diversify its product line to offer more options for health-conscious consumers and tap into the growing demand for healthier and low-calorie beverages.

(4) Weaknesses/Threats (WT)

WT: Coca-Cola should continue to monitor changing consumer preferences and tastes and adjust its product line accordingly, while also addressing controversies over environmental and labor practices to mitigate potential negative impacts on its brand image.

Example (2): Airbnb TOWS Analysis

For our next example, let’s consider Airbnb, the tech-driven rental company.

Strengths

• Strong brand recognition and reputation
• User-friendly platform and mobile app
• Large and diverse range of accommodations
• Ability to provide unique and local travel experiences

Weaknesses

• Dependence on the travel industry, which is vulnerable to economic downturns and external factors
• Regulatory challenges and legal restrictions in some markets
• Limited control over quality and consistency of accommodations
• Negative incidents reported in the media such as safety concerns and fraud

Opportunities

• Growing demand for alternative and affordable accommodations
• Expansion into new markets and international locations
• Diversification into related travel services, such as transportation and experiences
• Use of technology, such as AI and machine learning, to improve the customer experience

Threats

• Intense competition from other travel and accommodations providers, such as hotels and vacation rental companies
• Economic downturns and external factors affecting the travel industry
• Government regulations and legal challenges in some markets
• Negative media coverage of incidents and controversies related to the company

COVID-19 had a big impact on Airbnb’s business. Let’s look at some of the ways the company could respond to trouble and work to build competitive advantage through innovation and strategic planning.

(1) Strengths/Opportunities (SO)

SO: Airbnb can leverage its strong brand recognition and reputation to expand into new international markets and diversify its offerings to related travel services, such as transportation and experiences.

(2) Strengths/Threats (ST)

ST: Airbnb can use technology such as AI and machine learning to improve the customer experience and provide more personalized recommendations for accommodations and activities.

(3) Weaknesses/Opportunities (WO)

WO: Airbnb can address regulatory challenges and legal restrictions in some markets by collaborating with local authorities and implementing safety measures to ensure the quality and consistency of its accommodations.

(4) Weaknesses/Threats (WT)

WT: Airbnb should continue to monitor economic downturns and external factors affecting the travel industry, while also addressing negative incidents reported in the media by improving safety measures and fraud prevention for its users.

Example (3): Netflix TOWS Analysis

A pioneer among streaming services, Netflix now finds itself competing in a much more crowded marketplace. Customer expectations have shifted, and content creation has evolved.

Strengths

• Wide selection of content and original programming
• Strong brand recognition and loyal customer base
• User-friendly platform and personalized recommendations
• Global reach and distribution network

Weaknesses

• Dependence on licensed content from other providers
• High costs associated with producing original programming
• Increasing competition from other streaming services
• Limited control over content availability in some international markets

Opportunities

• Growing demand for streaming and digital entertainment
• Expansion into new international markets
• Diversification into related entertainment services, such as gaming and live events
• Use of data analytics and AI to improve content recommendations and user experience

Threats

• Intense competition from other streaming services, such as Amazon Prime and Disney+
• Changing consumer preferences and viewing habits
• Government regulations and taxes on streaming services
• Increasing costs associated with licensing and producing content

How can a company that’s become a fixture of our popular culture awareness adjust to its changing circumstances?

(1) Strengths/Opportunities (SO)

SO: Netflix can leverage its wide selection of content and original programming to expand into new international markets and diversify into related entertainment services, such as gaming and live events.

(2) Strengths/Threats (ST)

ST: Netflix can use data analytics and AI to improve the user experience by providing more personalized recommendations and developing new features for its platform.

(3) Weaknesses/Opportunities (WO)

WO: Netflix can address its dependence on licensed content from other providers by investing in more original programming and collaborations with independent studios and filmmakers.

(4) Weaknesses/Threats (WT)

WT: Netflix should continue to monitor changing consumer preferences and competition from other streaming services by exploring new distribution channels and partnerships, while also complying with government regulations and taxes on streaming services.

How to Apply TOWS Analysis to your Business?

Let’s consider a step-by-step application of a TOWS Analysis that will work for most businesses no matter the industry.

Step (1): Conduct a SWOT Analysis

Start by identifying the internal strengths and weaknesses of your company, as well as the external opportunities and threats in your market.

Step (2): Mapping your Findings in a TOWS Matrix Worksheet

Use a TOWS matrix to match up the strengths and opportunities, strengths and threats, weaknesses and opportunities, and weaknesses and threats to generate potential strategies.

Step (3): Generate, Analyze & Evaluate your Strategic Options

Use this analysis to determine how to leverage your strengths to take advantage of opportunities, mitigate weaknesses in the face of threats, and develop strategic options to address weaknesses and take advantage of opportunities.

Step (4): Develop an Action Plan

Make informed decisions to improve your business performance and stay ahead of your competition. Your Action Plan will sketch out strategies for the immediate future and beyond. But be willing to revisit your analysis and your plans if the environment or your capabilities change.\

TOWS Matrix Against other Strategic Analysis Tools

The TOWS Matrix is just one tool we recommend you use to spur innovation and keep your competitive edge. There are several others we like and think you should use.

TOWS Matrix vs Porter’s Five Forces

The TOWS Matrix and Porter’s Five Forces analysis both analyze the external environment of a business. However, there are some key differences between the two:

• Focus: The TOWS Matrix focuses on the relationship between a company’s internal strengths and weaknesses and the external opportunities and threats in the market. Porter’s Five Forces focuses on the competitive environment and the five forces that impact a company’s profitability.
• Perspective: The TOWS Matrix provides a more holistic perspective of a company’s situation, considering both internal and external factors. Porter’s Five Forces has a narrower view, focusing on the competitive landscape.
• Application: The TOWS Matrix is used to generate potential strategies by matching internal strengths and weaknesses with external opportunities and threats. Porter’s Five Forces is used to analyze the industry structure and competitive dynamics to determine the attractiveness of a market.

Both tools can be used in conjunction with each other to provide a more complete understanding of a company’s situation.

TOWS Matrix vs PESTLE Analysis

The TOWS Matrix and PESTLE analysis are both used to analyze the external environment of a business. They aren’t completely the same, however, and each has its particular uses:

• Scope: The TOWS Matrix analyzes the relationship between a company’s internal strengths and weaknesses and external opportunities and threats. PESTLE analysis examines the broader external environment, including political, economic, social, technological, legal, and environmental factors.
• Application: While the TOWS Matrix is used to develop potential strategies by matching internal strengths and weaknesses with external opportunities and threats, a PESTLE analysis is used to identify trends and potential impacts of external factors on a business.
• Timeframe: The TOWS Matrix is typically used for short-term strategic planning and decision-making. PESTLE analysis provides insights into both short-term and long-term impacts of external factors on a business.

While they have their differences, these tools can be used together to provide a more complete understanding of a company’s situation and help inform strategic decision-making.

TOWS Matrix vs Growth Matrix (BCG Matrix)

The TOWS Matrix and the Growth Matrix (BCG Matrix) are used to analyze a company’s position in the market. There are some significant differences between the two, however:

• Scope: The TOWS Matrix is used to analyze a company’s internal strengths and weaknesses and external opportunities and threats. The Growth Matrix, also known as the BCG Matrix, is used to analyze a company’s product portfolio based on market growth and market share.
• Focus: The TOWS Matrix focuses on generating potential strategies by matching internal strengths and weaknesses with external opportunities and threats. The Growth Matrix, on the other hand, focuses on determining which products a company should invest in and which it should divest from based on their relative market position.
• Application: The TOWS Matrix is typically used for short-term strategic planning and decision-making. The Growth Matrix is used for long-term portfolio management. Understanding how each tool develops a specific type of strategic option will ensure that you apply them correctly.

TOWS Matrix vs Ansoff Matrix

Finally, the TOWS Matrix and the Ansoff Matrix are both used to analyze a company’s growth opportunities. However, they differ in their approach and focus:

• Scope: The TOWS Matrix analyzes a company’s internal strengths and weaknesses and external opportunities and threats to generate potential strategies. The Ansoff Matrix, on the other hand, analyzes a company’s product and market strategies based on four growth alternatives: market penetration, market development, product development, and diversification.
• Focus: The TOWS Matrix is focused on generating potential strategies by matching internal strengths and weaknesses with external opportunities and threats. The Ansoff Matrix focuses on identifying growth opportunities for a company’s existing or new products in existing or new markets.
• Application: The TOWS Matrix is typically used for short-term strategic planning and decision-making. The Ansoff Matrix is used for long-term growth strategy planning.

Whatever tools you decide to employ, using a variety of approaches is more likely to create positive results. Understanding the strengths and weaknesses of each tool is helpful, too, as is looking to an expert to guide your first steps toward strategic planning.

Closing Thoughts

The TOWS Matrix is a powerful tool to help drive your strategic planning so you can make informed business decisions.

The Digital Leadership experts are here to help make your strategic planning efforts successful. For a consultation with one of our global innovation specialists, visit our Contact page on our website.