Occidental Petroleum SWOT Analysis / Matrix

Essays, Term Papers & Research Papers

SWOT analysis is a strategic planning tool that can be used by Occidental Petroleum managers to do a situational analysis of the firm . It is an important technique to evalauate the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) Occidental Petroleum is facing in its current business environment.

The Occidental Petroleum is one of the leading companies in its industry. Occidental Petroleum maintains its prominent position in market by carefully analyzing and reviewing the SWOT analysis.  SWOT analysis a highly interactive process and requires effective coordination among various departments within the company such as – marketing, finance, operations, management information systems and strategic planning.

The SWOT Analysis framework helps 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 Occidental Petroleum 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 use to exploit external opportunities, counter threats, and build on & protect Occidental Petroleum strengths, and eradicate its weaknesses.

Step by Step Guide to Occidental Petroleum SWOT Analysis

Strengths of Occidental Petroleum – Internal Strategic Factors

As one of the leading organizations in its industry, Occidental Petroleum has numerous strengths that enable 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 Occidental Petroleum are –

• Successful track record of developing new products – product innovation.
• Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
• Good Returns on Capital Expenditure – Occidental Petroleum 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. Occidental Petroleum 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.
• Strong Free Cash Flow – Occidental Petroleum has strong free cash flows that provide resources in the hand of the company to expand into new projects.
• Superb Performance in New Markets – Occidental Petroleum 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.
• Highly successful at Go To Market strategies for its products.

Weakness of Occidental Petroleum – Internal Strategic Factors

Weakness are the areas where Occidental Petroleum 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.

• 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.
• Not highly successful at integrating firms with different work culture. As mentioned earlier even though Occidental Petroleum is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
• High attrition rate in work force – compare to other organizations in the industry Occidental Petroleum has a higher attrition rate and have to spend a lot more compare to its competitors on training and development of its employees.
• Need more investment in new technologies. Given the scale of expansion and different geographies the company is planning to expand into, Occidental Petroleum needs to put more money in technology to integrate the processes across the board. Right now the investment in technologies is not at par with the vision of the company.
• Limited success outside core business – Even though Occidental Petroleum is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
• 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. Occidental Petroleum has to build internal feedback mechanism directly from sales team on ground to counter these challenges.
• 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 Occidental Petroleum is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel.

Opportunities for Occidental Petroleum – 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 Occidental Petroleum.
• New trends in the consumer behavior can open up new market for the Occidental Petroleum . 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 Occidental Petroleum to drive home its advantage in new technology and gain market share in the new product category.
• The new technology provides an opportunity to Occidental Petroleum 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.
• 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.
• 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 Occidental Petroleum 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 Occidental Petroleum to capture new customers and increase its market share.
• Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Occidental Petroleum’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.

Threats Occidental Petroleum Facing - External Strategic Factors

• Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Occidental Petroleum   in those markets.
• 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.
• 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.
• New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories .
• Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
• 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.
• Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.
• 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 Occidental Petroleum

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 Occidental Petroleum
• 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 Occidental Petroleum

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 Occidental Petroleum 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 Occidental Petroleum

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)