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Chesapeake Energy SWOT Analysis / Matrix
Essays, Term Papers & Research Papers
SWOT analysis is a vital strategic planning tool that can be used by Chesapeake Energy managers to do a situational analysis of the company . It is a handy technique to map out the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) Chesapeake Energy is facing in its current business environment.
The Chesapeake Energy is one of the leading organizatations in its industry. Chesapeake Energy 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 enables 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 Chesapeake Energy 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 core purpose of SWOT matrix is to identify the strategies that an organization can use to exploit external opportunities, counter threats, and build on & protect Chesapeake Energy strengths, and eradicate its weaknesses.
Step by Step Guide to Chesapeake Energy SWOT Analysis
Strengths of Chesapeake Energy – Internal Strategic Factors
As one of the leading companies in its industry, Chesapeake Energy 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 Chesapeake Energy are –
- Strong Brand Portfolio – Over the years Chesapeake Energy has invested in building a strong brand portfolio. The SWOT analysis of Chesapeake Energy just underlines this fact. This brand portfolio can be extremely useful if the organization wants to expand into new product categories.
- Highly successful at Go To Market strategies for its products.
- Successful track record of integrating complimentary firms through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain.
- Good Returns on Capital Expenditure – Chesapeake Energy is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
- Superb Performance in New Markets – Chesapeake Energy 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 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.
- 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.
- Automation of activities brought consistency of quality to Chesapeake Energy products and has enabled the company to scale up and scale down based on the demand conditions in the market.
Weakness of Chesapeake Energy – Internal Strategic Factors
Weakness are the areas where Chesapeake Energy can improve upon. Strategy is about making choices and weakness are the areas where a company can improve using SWOT analysis and build on its competitive advantage and strategic positioning.
- The company has not being able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories. Chesapeake Energy has to build internal feedback mechanism directly from sales team on ground to counter these challenges.
- 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.
- Not highly successful at integrating firms with different work culture. As mentioned earlier even though Chesapeake Energy is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
- Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of Chesapeake Energy
- Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.
- 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.
- The profitability ratio and Net Contribution % of Chesapeake Energy are below the industry average.
Opportunities for Chesapeake Energy – External Strategic Factors
- Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of Chesapeake Energy.
- The new technology provides an opportunity to Chesapeake Energy 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.
- Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Chesapeake Energy’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.
- New trends in the consumer behavior can open up new market for the Chesapeake Energy . It provides a great opportunity for the organization to build new revenue streams and diversify into new product categories too.
- The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as Chesapeake Energy to increase its profitability.
- 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 Chesapeake Energy in other product categories.
- Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for Chesapeake Energy to capture new customers and increase its market share.
- Government green drive also opens an opportunity for procurement of Chesapeake Energy products by the state as well as federal government contractors.
Threats Chesapeake Energy 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.
- 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.
- Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Chesapeake Energy in those markets.
- Rising raw material can pose a threat to the Chesapeake Energy profitability.
- 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.
- Increasing trend toward isolationism in the American economy can lead to similar reaction from other government thus negatively impacting the international sales.
- 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.
- The demand of the highly profitable products is seasonal in nature and any unlikely event during the peak season may impact the profitability of the company in short to medium term.
Limitations of SWOT Analysis for Chesapeake Energy
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 Chesapeake Energy
- 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 Chesapeake Energy
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 Chesapeake Energy 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 Chesapeake Energy
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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