Berkshire Hathaway SWOT Analysis / Matrix

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

The Berkshire Hathaway is one of the leading firms in its industry. Berkshire Hathaway maintains its prominent 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 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 known as SWOT Matrix.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps the managers of the Berkshire Hathaway to develop four types of strategies:

  • SO (strengths-opportunities) Strategies
  • WO (weaknesses-opportunities) Strategies
  • ST (strengths-threats) Strategies
  •  WT (weaknesses-threats) Strategies
Berkshire Hathaway swot analysis / matrix

SWOT Matrix Strategies Objective

The central purpose of SWOT matrix is to identify the strategies that an organization can use to exploit external opportunities, counter threats, and build on & protect Berkshire Hathaway strengths, and eradicate its weaknesses.

Step by Step Guide to Berkshire Hathaway SWOT Analysis

Strengths of Berkshire Hathaway – Internal Strategic Factors

As one of the leading companies in its industry, Berkshire Hathaway 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 Berkshire Hathaway 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.
  • 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.
  • Highly skilled workforce through successful training and learning programs. Berkshire Hathaway 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.
  • Good Returns on Capital Expenditure – Berkshire Hathaway is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
  • Strong Free Cash Flow – Berkshire Hathaway 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 Berkshire Hathaway products and has enabled the company to scale up and scale down based on the demand conditions in the market.
  • Strong Brand Portfolio – Over the years Berkshire Hathaway has invested in building a strong brand portfolio. The SWOT analysis of Berkshire Hathaway 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.

Weakness of Berkshire Hathaway – Internal Strategic Factors

Weakness are the areas where Berkshire Hathaway 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.

  • 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 Berkshire Hathaway is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
  • Need more investment in new technologies. Given the scale of expansion and different geographies the company is planning to expand into, Berkshire Hathaway 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.
  • Investment in Research and Development is below the fastest growing players in the industry. Even though Berkshire Hathaway 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.
  • High attrition rate in work force – compare to other organizations in the industry Berkshire Hathaway has a higher attrition rate and have to spend a lot more compare to its competitors on training and development of its employees.
  • The profitability ratio and Net Contribution % of Berkshire Hathaway are below the industry average.
  • 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 Berkshire Hathaway

Opportunities for Berkshire Hathaway – External Strategic Factors

  • The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as Berkshire Hathaway to increase its profitability.
  • The market development will lead to dilution of competitor’s advantage and enable Berkshire Hathaway to increase its competitiveness compare to the other competitors.
  • 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 Berkshire Hathaway to drive home its advantage in new technology and gain market share in the new product category.
  • 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 Berkshire Hathaway in other product categories.
  • Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided Berkshire Hathaway an opportunity to enter a new emerging market.
  • Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of Berkshire Hathaway.
  • 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 Berkshire Hathaway. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.
  • Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Berkshire Hathaway’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 Berkshire Hathaway Facing - External Strategic Factors

  • Rising raw material can pose a threat to the Berkshire Hathaway profitability.
  • Increasing trend toward isolationism in the American economy can lead to similar reaction from other government thus negatively impacting the international sales.
  • Liability laws in different countries are different and Berkshire Hathaway may be exposed to various liability claims given change in policies 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.
  • Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Berkshire Hathaway   in those markets.
  • Imitation of the counterfeit and low quality product is also a threat to Berkshire Hathaway’s product especially in the emerging markets and low income markets.
  • 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.
  • The company can face lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets.

Limitations of SWOT Analysis for Berkshire Hathaway

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 Berkshire Hathaway
  • 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 Berkshire Hathaway

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 Berkshire Hathaway 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 Berkshire Hathaway

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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Example of Weighted SWOT Analysis

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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)