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The Home Depot SWOT Analysis / Matrix
Essays, Term Papers & Research Papers
SWOT analysis is a strategic planning tool that can be used by The Home Depot managers to do a situational analysis of the firm . It is a handy technique to evalauate the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) The Home Depot is facing in its current business environment.
The The Home Depot is one of the leading organizatations in its industry. The Home Depot maintains its dominant position in market by critically analyzing and reviewing the SWOT analysis. SWOT analysis a highly interactive process and requires effective coordination among various departments within the firm such as – marketing, finance, operations, management information systems and strategic planning.
The SWOT Analysis framework facilitates an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps the managers of the The Home Depot to develop four types of strategies:
- SO (strengths-opportunities) Strategies
- WO (weaknesses-opportunities) Strategies
- ST (strengths-threats) Strategies
- WT (weaknesses-threats) Strategies
SWOT Matrix Strategies Objective
The central purpose of SWOT matrix is to identify the strategies that a firm can use to exploit external opportunities, counter threats, and build on & protect The Home Depot strengths, and eradicate its weaknesses.
Step by Step Guide to The Home Depot SWOT Analysis
Strengths of The Home Depot – Internal Strategic Factors
As one of the leading firms in its industry, The Home Depot has numerous strengths that help it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of The Home Depot are –
- Superb Performance in New Markets – The Home Depot has built expertise at entering new markets and making success of them. The expansion has helped the organization to build new revenue stream and diversify the economic cycle risk in the markets it operates in.
- Strong Free Cash Flow – The Home Depot has strong free cash flows that provide resources in the hand of the company to expand into new projects.
- Automation of activities brought consistency of quality to The Home Depot products and has enabled the company to scale up and scale down based on the demand conditions in the market.
- Good Returns on Capital Expenditure – The Home Depot is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
- Highly successful at Go To Market strategies for its products.
- Highly skilled workforce through successful training and learning programs. The Home Depot is investing huge resources in training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more.
- Successful track record of developing new products – product innovation.
- High level of customer satisfaction – the company with its dedicated customer relationship management department has able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers.
Weakness of The Home Depot – Internal Strategic Factors
Weakness are the areas where The Home Depot can improve upon. Strategy is about making choices and weakness are the areas where an organization can improve using SWOT analysis and build on its competitive advantage and strategic positioning.
- Not highly successful at integrating firms with different work culture. As mentioned earlier even though The Home Depot is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
- Limited success outside core business – Even though The Home Depot is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
- The marketing of the products left a lot to be desired. Even though the product is a success in terms of sale but its positioning and unique selling proposition is not clearly defined which can lead to the attacks in this segment from the competitors.
- Financial planning is not done properly and efficiently. The current asset ratio and liquid asset ratios suggest that the company can use the cash more efficiently than what it is doing at present.
- High attrition rate in work force – compare to other organizations in the industry The Home Depot has a higher attrition rate and have to spend a lot more compare to its competitors on training and development of its employees.
- Investment in Research and Development is below the fastest growing players in the industry. Even though The Home Depot is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.
- Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.
Opportunities for The Home Depot – External Strategic Factors
- New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for The Home Depot. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.
- Government green drive also opens an opportunity for procurement of The Home Depot products by the state as well as federal government contractors.
- The market development will lead to dilution of competitor’s advantage and enable The Home Depot to increase its competitiveness compare to the other competitors.
- New trends in the consumer behavior can open up new market for the The Home Depot . It provides a great opportunity for the organization to build new revenue streams and diversify into new product categories too.
- New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represent a great opportunity for The Home Depot to drive home its advantage in new technology and gain market share in the new product category.
- The new technology provides an opportunity to The Home Depot to practices differentiated pricing strategy in the new market. It will enable the firm to maintain its loyal customers with great service and lure new customers through other value oriented propositions.
- Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided The Home Depot an opportunity to enter a new emerging market.
- Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for The Home Depot to capture new customers and increase its market share.
Threats The Home Depot Facing - External Strategic Factors
- Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.
- New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future.
- As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world.
- Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
- No regular supply of innovative products – Over the years the company has developed numerous products but those are often response to the development by other players. Secondly the supply of new products is not regular thus leading to high and low swings in the sales number over period of time.
- Intense competition – Stable profitability has increased the number of players in the industry over last two years which has put downward pressure on not only profitability but also on overall sales.
- Liability laws in different countries are different and The Home Depot may be exposed to various liability claims given change in policies in those markets.
- Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for The Home Depot in those markets.
Limitations of SWOT Analysis for The Home Depot
Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.
- Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
- SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
- The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of The Home Depot
- SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
- SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.
Weighted SWOT Analysis of The Home Depot
In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.
This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis The Home Depot managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.
Limitation of Weighted SWOT analysis of The Home Depot
This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.
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SWOT Worksheet & Template
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References / Citations & Bibliography
- M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
- A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
- O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
- L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
- R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)