When you think of today’s most successful enterprises, what’s the first thought that comes to mind? To give you an idea, think of Dell’s relationship with Intel. Think of how strong this relationship is and how it allows both to benefit from a collaborative partnership that empowers each company to increase its market share. Both rely upon one another in order to provide custom-made desktops to a hungry consumer base. This collaboration is considered the benchmark by which all strategic partnerships are measured.
However, it didn’t happen overnight. Companies looking to emulate this success must be willing to define their own strengths and weaknesses relative to their market’s opportunities and threats. After all, a strategic partnership is meant to capitalize on the opportunities present in the market. They work when both parties can use each other’s core competencies without having to develop them internally. This is where the TOWS analysis comes in. What is the TOWS analysis and how can it be used to secure a strategic partnership?
TOWS and SWOT
You’ve likely heard of the age-old SWOT analysis and its myriad of uses. SWOT simply stands for strengths, weaknesses, opportunities and threats, where each of these headings placed within a square grid. Companies use this universal planning tool to align their marketing strategies, address their deficiencies in operations, improve sales and customer service, reduce supply chain costs and improve a number of other business related activities.
Unfortunately, this planning tool is somewhat limited in its ability to define these four aforementioned categories. For instance, a company may see its threats differently from how its market and customer base sees them. In addition, the SWOT tool doesn’t allow for an easy transition from high level strategy, to individual plan. Where the SWOT fails, the TOWS analysis succeeds.
The TOWS analysis works by forcing companies to define their internal company factors versus their external market factors. For instance, the external market factors are the opportunities and threats facing the company within its market. The internal factors include the company’s strengths and weaknesses. Next, the TOWS tool forces the company to align internal strengths and weaknesses to external opportunities and threats. So, how does this help a company to define its strategic partnership?
More importantly, how can it be used to outline the need for that partnership and allow the company to decide how that partnership should be structured? We’ll answer both questions by providing an example of how the TOWS tool is used. Next, we’ll define the internal strategies emanating from the middle of the grid, and how they may be used to define the type of partnership a company may pursue with another interested party.
The outline of a strategic partnership
In the TOWS grid below, the company has defined its strengths and weaknesses as internal to its company’s operations. Next, it has defined its market’s opportunities and threats. The internal portion of the TOWS grid forces the company to align its company strengths and weaknesses to its market’s threats and opportunities. In this case, the company’s weaknesses relate to its management of spare parts for its equipment sales and its service and repair costs on customer calls.
While the company has an excellent product offering, it also realizes that its cost to serve is too high. It has used this weakness to outline the company’s need to enter into a strategic partnership with a vendor who can both manage its spare part needs, while servicing the company’s end-user customer base on repairs. If successful, the company will reduce its inventory and service costs and have a partner who will increase their revenue.
|TOWS Analysis||Strengths (Company)1. Engineering capabilities
2. Market share
3. Reputation as innovator
|Weaknesses (Company)1. Design times
2. Spare parts management
3. Service and repair costs
|Opportunities (Market)1. Increased market size
2. Increased demand
3. Low cost suppliers
|Strengths / OpportunitiesS1, S2 to O2, O3: Use capabilities and market share to entice low cost supplier to become a partner.||Weaknesses / OpportunitiesW2, W3 to O2, O3: Use strategic partnership to improve spare parts management and lower service and repair costs.|
|Threats (Market)1. Low cost competition
2. Cheaper service and repair costs from competition
3. Faster turn times on new products from competition
|Strengths/ThreatsS2, S3 to T2, T3: Use market share and reputation to keep low cost competition away from end-user customer base.
|Weaknesses / ThreatsW1, W3 to T2, T3: Use strategic partnership to reduce impact of low cost competition and encroachment from smaller competitors.|
Now, is this all there is to coming up with a strategic partnership? Absolutely not! However, the TOWS analysis can help explain the importance of the partnership and provide the framework for how it would be structured. In this example, the company has an excellent product offering, is known as a market leader and innovator, but also has a reputation for high service and repair costs with its end-user customer base.
The right supplier may be willing to take over the management of these spare parts and provide invaluable service calls to the company’s end-user customers. This will help reduce costs for the company and increase revenue for the smaller supplier. In the end, the TOWS analysis has forced the company to assess its internal factors against its external factors and use them as the basis to outline their need for a partnership to reduce costs.