Coping with Imprecision in Strategic Planning: A Case Study Using Fuzzy SWOT Analysis

In this article, it is shown that using the conventional SWOT analysis in the vicinity of strategic regions in the matrix of internal and external factors, ambiguity can exist in defining final strategies. To cope with this difficulty and to enhance the accuracy of the decision process, a straightforward fuzzy SWOT analysis is presented and exemplified by extracting and analyzing strengths, weaknesses, opportunities and threats in a company known as KPPP. The analysis is performed based on actual field data using 90 external and 85 internal factors and a group of 12 experts. Next to the identification of the fuzzy SWOT matrix, it is shown that the external threats and internal weaknesses of KPPP can have stronger effects compared to its external opportunities and internal strengths.

section_content: It is well known that a company's success in today's competitive business environment requires its ability to create and update strategic plans [1] [2] [3] [4] [5] [6]. While various management analysis techniques such as the Total Quality Management (TQM) [7] [8] [9] [10] and Re-engineering [2, 4] have proven to be beneficial for meeting organizational specific objectives, strategic planning remains the single most important element for companies' overall success. Reported case studies indicate that organizations using the principles of strategic planning are by far in better condition in marketing, profitably and beneficiation [2, 4, 11, 12]. 

Earlier studies have been performed on improving the classical strategic planning methods such as the strengths, weaknesses, opportunities, and threats (SWOT) analysis. Ghazinoory et al. [13] applied a fuzzy set approach to both the internal and external factors using conventional membership functions. The algorithm prioritizes and extracted the most significant strategies based on intensity of effects. Kuo-liang and Lin Shu-chen [14] proposed a fuzzy SWOT method to evaluate the competitive environment of different transshipment locations as international distribution centers (IDC) in the Pacific-Asian region. Their work suggested that the fuzzy method identifies more competitive locations as compared to the conventional SWOT. Zhangjiajie [15] presented a new fuzzy decision-making tool for small and medium enterprises (SMEs) under a set of ambiguous strategic policies. The model can assist SMEs to train their own core strengths and gradually explore their ideal strategies. Lee et al. [16] presented a mechanism for integrating a fuzzy cognitive map (FCM) within strategic planning simulations, where FCM helps decision makers understand complex dynamics between a certain strategic goal and related environmental factors. Wang and Chang [17] investigated the properties of fuzzy scenario analysis to cope with the issue of data shortage and the linguistic expression of experts. Their study successfully incorporated the fuzzy set theory into the scenario analysis such that uncertainties are accounted for. Kahraman1 et al. [18] proposed a method to evaluate different alternative strategies for an e-government application in Turkey. They used the SWOT approach in conjunction with the analytic hierarchy process (AHP) to prioritize their strategies. Shuliang et al. [19] proposed a hybrid approach for integrating a group Delphi, fuzzy sets and expert systems in developing marketing strategies. The method was specifically employed to help groups of managers undertake SWOT analysis. It is worth adding that next to the strategic planning area, fuzzy sets have been widely used in a range of applications including linear and nonlinear control, pattern recognition, financial systems, etc [13, 18, 20]. 

This article is intended to first indentify a potential imprecision problem in the use of conventional SWOT analysis for particular strategic planning problems, and then present an application of a fuzzy SWOT method to resolve the problem. The method has been exemplified via a case study on the strategic planning of the KPPP company. The case is based on actual field data, collected from 12 experts based on 90 external and 85 internal decision factors. Section 2 reviews the basics of the conventional SWOT analysis. Section 3 identifies the potential problem with the conventional SWOT matrix and extends the analysis to the fuzzy method. Section 4 presents the KPPP's case study and discusses the results using a quantitative measure for determining the total distance between the obtained fuzzy internal and external factors. Section 5 concludes the article.
section_name: Introduction

section_content: Strategic planning in an organization can involve making decisions on allocating resources such as capital and people. During strategic planning, main objectives are often presented as vision and mission statements and subsequently the company's strengths, weaknesses, opportunities, and threats (SWOT) are assessed [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31]. The vision statement is an image or state to which the company aspires. It emphasizes the desire of where the company would be at a specific time. The nature of a business is often expressed in terms of its mission indicating the purpose of the business; for example, to design, develop, manufacture and market specific product lines for sales based on certain features to meet the identified needs of specific customer groups via certain distribution channels in particular geographic areas. Having built up a picture of the company's past and current achievements, the SWOT analysis can commence. The following four steps are considered for analyzing the internal factors:

1) All internal factors are scored based on their existing status in the company. The scores are crisp values and usually range from -2 to 2 as shown in Figure 1. 

2) An overall importance coefficient/weight of 1 to 100 is assigned to each internal factor based on the viewpoints of experts. The weights are then normalized such that their sum is one. 

3) The weighted score of each factor is calculated by multiplying the corresponding normalized importance coefficient by the score of the factor from Step 1. 

4) The summation of the weighted scores is considered as the overall score of internal factors. 

The external opportunities and threats to the company can fall in the areas such as customers, distribution channels, identities, substitute products, etc. The same procedure used for scoring the internal factors can be employed to evaluate the external factors; i. e., eventually an overall weighted score for the external factors is estimated. 

Next, the company's overall internal and external scores are used to locate its position in a SWOT matrix as shown in Figure 2. The two overall internal and external scores define the coordinates of a strategic point that fall in one of the matrix cells. The matrix cells normally indicate known strategies for the managers. For example, if a company's position is located in cell #1, growth strategies for adding new products are proposed; for cell #9, divestiture strategies are considered and so on.
section_name: Basic SWOT Analysis

section_content: Whilst a list of strategies should be suggested based on the final position of a company in the SWOT matrix, the crisp division of two adjacent cells may be a methodological limitation. This can be especially problematic when most of the data collected during the scoring process are qualitative. For instance, assuming a company with a total external score of 1. 5 and a total internal factor of 1. 001, the company's position is then placed in cell #1 in Figure 2 and therefore, growth strategies for adding new products would be proposed. In a very similar case, assuming the same external score of 1. 5 but with an internal score of 0. 999, the company's position would be placed in cell #2 and consequently, a different strategy such as keeping existing situation would be proposed. 

Hence, in such cases, two close internal or external scores can cause a major difference in the dictated -2 -1

strategies, while practically there are no large differences between the companies' ability and status with respect to the internal and external factor values (in the presence example, 0. 999 vs. 1. 001). To overcome the above difficulty, a fuzzy scale (Figure 3 ) for scoring the internal and external factors may be considered and consequently, the evaluation matrix can compass fuzzy regions as shown in Figure 4. Using this fuzzy approach, the likelihood of a company's strategic point falling in a weak/medium or medium/strong state in the vicinity of two adjacent cells varies gradually (with a reasonable slope of the membership function). As a result, a sudden change from the weak to medium or from the medium to strong state is avoided. For example, recalling Figure 4, internal scores of 0. 999 or 1. 001 would both be considered within the intersection of the weak and medium states. 

The following steps are proposed within the fuzzy SWOT framework:

1) Analyze the background data and define company's vision. 

2) List the company's all external environment factors, including political, economical, social and technological factors. For each factor, its sub-factors/attributes can also be defined. 

3) List the company's all internal environment factors, including those related to the marketing, functional sources, employee, general management, information and quality management. For each internal factor, its attributes can also be defined. 

4) List the effective internal and external factors based on the company's main objectives and activities. 5) Considering a factor (e. g., the j-th factor), define a triangular fuzzy number ( jk A, jk B, jk C ) for each of its attribute values (e. g., the k-th attribute) based on a scale of -2 to +2, where -2: complete threat/weakness, -1: weak threat/weakness, + 1: weak opportunity/strength, + 2: complete opportunity/strength. Averaging these fuzzy numbers for the j-th factor, k-th attribute gives [32]

The process can be repeated for all attributes of external and internal factors. 

6) Define a weight, jk, for each attribute based on its influence on the company's activities and objectives by using a scale of 1 to 100 (subsequently the weights can be normalized to one). Weights may be found by brain storming among experts or by averaging individual weights from the experts. w 7) Calculate an average fuzzy numbers j C for each factor based on its attribute values and weights:

where j n is the number of attributes for the j-th factor. 8) Calculate a total score of the internal factors (FIF) and a total score of the external factors (FEF) by summing the corresponding fuzzy scores ( j A, j B, j C ) from the previous step. Note that FIF and FEF will also be fuzzy numbers.
section_name: A Fuzzy SWOT Analysis

section_content: Due to the confidentiality reasons, let us name the company under study 'KPPP'. KPPP carried out various national and international activities. The IT department of KPPP has the role of facilitating the technology integration and IT service development towards integrated solutions. This department manages KPPP's electronic services and internal information systems. In the beginning of 2011, KPPP made the decision that it should revisit its strategic planning for a better performance. 

The company's vision during strategic planning is defined, e. g., based on a better control over its future, the need for better circulation, environmental alterations, opportunities and threats and also cultural modifications. 

Considering the opportunity for a strategic evaluation of the company's production and service, the vision and objective of KPPP were defined as follows. "The company is capable of continuing the production and service with a high level of quality and quantity and with a stable progress, and it can aim at becoming the source of better services for other related industries. "

1) All potential internal and external factors on KPPP's activities and aims were listed. 

2) The effective factors were short-listed, regardless of their form of influence (positive or negative effect). It was recognized that an exact analysis of internal environment is essential in confronting weaknesses by utilizing strengths. Internal factors were classified into marketing, money, employees, general management, etc. The main external factors were grouped into political, social, economical, technological, etc. In total, 5 external and 7 internal factors were used (to be discussed for Tables 3 & 4 ). 

To apply the fuzzy SWOT method of Section III, data for both internal and external environmental factors were collected from a committee of 12 experts in the area. In doing so, the company's general background and its condition relative to the nation's activities were accounted for; e. g., the company's share in job security and employment. 

3) The attributes of each factor in Step 2 were identified. For instance, for the 'Economical' factor (Table 1 ), attributes were chosen as: more predictable cash flow, 4) Fuzzy numbers using the linguistic scale of Figure 3 were assigned by each expert and an average score was found for each attribute of a factor as ( jk A, jk, B jk ). Sample results are included in Tables 1 and 2 for the external 'Economical' and internal 'Employee' factors, respectively. The weight of each attribute within each factor category (e. g., political) was also determined contingent to its influence on the KPPP activities. A scale of 1 to 100 was used and the final weights were normalized.
section_name: Case Study

section_content: 1) The attribute scores within each factor group were averaged and a total score for the factor was calculated as ( j A, j B, j C );

. Complete results are shown in Tables 3 and 4. For instance, the weighted average of attribute scores in Table 1 for the 'Economical' factor resulted in (-0. 0133, -0. 0065, 0. 0075) as indicated in Table 3.
section_name: C

section_content: To locate the strategic position of KPPP in a SWOT matrix, the FEF and FIF values were calculated by summing the fuzzy number in Tables 3 and 4, respectively. It was found that FEF= (-0. 23, -0. 11, 0. 034) and FIF= (-0. 27, -0. 11, 0. 018). Consequently, the locations of the best, most probable, and worst strategic points were shown in Figure 5.
section_name: 1, ,12 j  

section_content: Managers often intend to know which factors (external or internal) are more influential in their strategic decision making. The distance between the two fuzzy numbers of FIF and FEF can be calculated as:

In the KPPP case this gives:

Considering a negative distance (FIF-FEF<0), it could be recommended that the total effect of the internal (strengths/ weaknesses) factors is greater than the total effect of the external (opportunities/threats) factors and therefore, more focus should be made on reducing the company's weaknesses and strengthening its strengths. 

Finally, of the three strategic points in the Fuzzy SWOT matrix in Figure 5, two points have been located in the threatening area; i. e., emphasizing sizable external threats and internal weaknesses of KPPP. Therefore, close attention should be paid to the external threats and internal weaknesses in making strategies for this company. The only point located in the desirable area with positive factor values is point 1 (with the least possible external threats and internal weaknesses). Nevertheless, considering the minimum likelihood of this point, no strategy would be taken up on point 1. In fact, only a small area portion (< 25%) of the overall triangle has fallen in the positive region. Both points 2 and 3 belong to a strategic cell with a score between 0 and -1 (medium-to-week).
section_name: Determining a Distance between the Internal and External Factors -a Decision-Making Case:

section_content: Internal strengths and weaknesses are vital for strategic planning of companies to cope with the external threats and benefit from the external opportunities. One of the potential shortcomings of the conventional SWOT matrix was shown and a simple fuzzy SWOT approach was suggested to overcome the problem. The method was exemplified using a case study in the KPPP company. It was shown that the current strategic position of the KPPP company is identifiable as a three-point region by means of the coordinates of FIF and FEF fuzzy numbers. In particular, the position of the ideal point with the least possible external threats and the least possible internal weaknesses, or the most external opportunities and the most internal strengths was revealed. Similarly, strategic points corresponding to the most probable (mean) and the worst condition were located. Eventually, based on the general position of the strategic triangle (relative position of the three points), a realistic strategy can be chosen. In the conventional SWOT analysis, only one point is identifiable and it may cause a decision ambiguity, specially in the vicinity of adjacent cells in the SOWT matrix. Further research is worthwhile to extend the fuzzy approach to more complex strategic planning models (e. g., TOWS [33] ) where interactions among decision factors may also be included.
section_name: Conclusions