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CarMax SWOT Analysis / Matrix
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SWOT analysis is a vital strategic planning tool that can be used by CarMax managers to do a situational analysis of the organization . It is a useful technique to map out the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) CarMax is facing in its current business environment.
The CarMax is one of the leading firms in its industry. CarMax maintains its dominant position in market by carefully analyzing and reviewing the SWOT analysis. SWOT analysis an immensenly interactive process and requires effective coordination among various departments within the organization 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 called SWOT Matrix.
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix enables the managers of the CarMax 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 primary purpose of SWOT matrix is to identify the strategies that a firm can utilize to exploit external opportunities, counter threats, and build on & protect CarMax strengths, and eradicate its weaknesses.
Step by Step Guide to CarMax SWOT Analysis
Strengths of CarMax – Internal Strategic Factors
As one of the leading firms in its industry, CarMax 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 CarMax are –
- Strong dealer community – It has built a culture among distributor & dealers where the dealers not only promote company’s products but also invest in training the sales team to explain to the customer how he/she can extract the maximum benefits out of the products.
- Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
- Strong distribution network – Over the years CarMax has built a reliable distribution network that can reach majority of its potential market.
- Highly successful at Go To Market strategies for its products.
- Superb Performance in New Markets – CarMax 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.
- 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.
- Good Returns on Capital Expenditure – CarMax is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
- Highly skilled workforce through successful training and learning programs. CarMax 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.
Weakness of CarMax – Internal Strategic Factors
Weakness are the areas where CarMax can improve upon. Strategy is about making choices and weakness are the areas where a firm can improve using SWOT analysis and build on its competitive advantage and strategic positioning.
- Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.
- There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.
- Investment in Research and Development is below the fastest growing players in the industry. Even though CarMax 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.
- The profitability ratio and Net Contribution % of CarMax are below the industry average.
- Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors. One of the reason why the days inventory is high compare to its competitors is that CarMax is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel.
- 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.
- Not highly successful at integrating firms with different work culture. As mentioned earlier even though CarMax is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
Opportunities for CarMax – External Strategic Factors
- New trends in the consumer behavior can open up new market for the CarMax . 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 CarMax to drive home its advantage in new technology and gain market share in the new product category.
- Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for CarMax to capture new customers and increase its market share.
- Government green drive also opens an opportunity for procurement of CarMax products by the state as well as federal government contractors.
- Organization’s core competencies can be a success in similar other products field. A comparative example could be - GE healthcare research helped it in developing better Oil drilling machines.
- Decreasing cost of transportation because of lower shipping prices can also bring down the cost of CarMax’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
- Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for CarMax in other product categories.
- The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as CarMax to increase its profitability.
Threats CarMax Facing - External Strategic Factors
- Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
- Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of CarMax
- 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.
- 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.
- 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.
- Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for CarMax in those markets.
- Increasing trend toward isolationism in the American economy can lead to similar reaction from other government thus negatively impacting the international sales.
Limitations of SWOT Analysis for CarMax
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 CarMax
- 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 CarMax
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 CarMax 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 CarMax
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)
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