January 17, 2013 Articles

Business School Lessons for Lawyers: SWOT Analysis in Law Practice

A SWOT analysis can be used to assess the potential costs and benefits of a legal course of action and ultimately helps serve the clients' best interests.

By John A. Nasr and Stephanie McCoy Loquvam

An analysis of strengths, weaknesses, opportunities, and threats—or SWOT analysis—is a business management tool that managers use to evaluate a project, new product, or other business endeavor, and make well-informed decisions regarding such business endeavors. More specifically, a SWOT analysis forces a manager to evaluate his or her organization’s internal strengths and weaknesses against other competitors in the marketplace. In addition, the manager must analyze the potential impact of external forces—known as opportunities and threats—on the endeavor.

The goal of a business is to maximize shareholder value. Businesses maximize shareholder value by maximizing profits and minimizing expenses. In the litigation context, generally a party is seeking a remedy for a perceived wrong. The parties may be businesses, business owners, partners, employees, financiers, suppliers, customers, competitors, or other stakeholders. A SWOT analysis can be used to assess the potential costs and benefits of a legal course of action or settlement in the context of the relationship between the parties. Each element of the SWOT analysis must be applied with the goal of maximizing the client’s stakeholder value.

S – Strengths
In a SWOT analysis, strengths are things that are internal to an organization and are not otherwise dependent on market forces or external forces.In analyzing business endeavors, important factors to consider are institutional knowledge (including experience, staffing, firm reputation, and firm know-how), human capital, customer base, market position, financial resources,supply chain channels, and maturity of industry.

In litigation, the analysis of strengths should include an assessment of the characteristics of the parties, the dispute, and counsel:

  • Parties—market position, reputation, supply-chain channels, financial resources, staffing resources
  • Dispute—merits of the parties’ respective claims and defenses, the forum, the time frame
  • Counsel—staffing, experience, legal knowledge and skill, reputation

W – Weaknesses
Like strengths, weaknesses are characteristics that are internal to an organization and are not otherwise dependent on market forces or external forces. In business, important factors to consider are such things as a lack of human capital, tight profit margins, a weak market position, limited sales channels, and a poor mix of products and services.

In litigation, the analysis of weaknesses involves assessing the characteristics of the parties, the dispute, and counsel, but it also involves assessing maximum dollars at risk for your client. Costs (including legal fees), opportunity costs, and publicity costs should be carefully considered before choosing to prosecute or defend a claim. Generally, only outcomes with a net positive value should be explored.

O – Opportunities
Opportunities are things that are external to an organization and exist irrespective of internal dynamics. In business, opportunities include new markets, consumer tastes, strategic alliances, partnerships, and supply chains. Opportunities also may include a shift in market tastes, demands, or demographics.

In litigation, opportunities are mediation, arbitration, settlement conferences, and other dispute resolution options. Opportunities also may manifest themselves in creative (nonmonetary) dispute resolution options to foster continuing business relationships. Such opportunities may include discounted pricing schemes, joint ventures, ownership interests, and intellectual property or other assets. In addition, for a defendant, opportunities may include the ability to assert affirmative defenses or counterclaims to exert pressure on the opposing party. On the plaintiff’s side, opportunities may include leveraging debt covenants or even owners’ financial interests (including piercing the corporate veil and personal guaranties). Opportunities are arguably the most effective means through which a lawyer can alter the outcome of a case. Carefully assessing the opportunities for advancement of a case or correctly predicting and reacting to your opponent’s next move is often the difference between winning and losing.

T – Threats
Threats are negative forces that affect the health, profitability, or even the outright survival of a project or business. Threats may be internal, but they are usually external to an organization and exist irrespective of internal dynamics. In business, threats can be assessed from the macro-level or the micro-level. From a macro-perspective, the overall health and well-being of the economy may adversely affect a business. For example, the lack of availability of human capital or government regulations may threaten the profitability or viability of firms in certain industries. From a micro-perspective, the loss of key personnel, limited financial resources, or outdated technology can threaten a firm’s market share and profitability.

In the litigation context, threats are more than claims or causes of action. At a basic level, a threat in commercial litigation is anything that forces a party to spend money on the dispute. This may include discovery costs, expert witnesses, and court-ordered alternative dispute resolution. Remember that the goal of a business is to maximize shareholder value and that the goal in litigation is to maximize your client’s stakeholder value. Therefore, regardless of your client’s relationship to the enterprise (or if it is the enterprise itself), anything that threatens the financial resources of an organization is a threat to stakeholders.

Conclusion
A SWOT analysis is a tool that a lawyer (and a client) can use to assess the viability of a course of action, whether filing a lawsuit, defending a lawsuit, settling a dispute, or pursuing an appeal. The SWOT analysis requires the lawyer (and the client) to consider all aspects of a dispute and the potential outcomes. Relying on a systematic method of decision making fosters rational, unemotional decisions that are in the interest of sustaining business operations (and ultimately in serving clients’ best interests).


John A. Nasr is with Gust Rosenfeld in Phoenix, Arizona, and Stephanie McCoy Loquvam is with Aiken Schenk in Phoenix, Arizona.