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Caterpillar SWOT Analysis / Matrix
Essays, Term Papers & Research Papers
SWOT analysis is a vital strategic planning tool that can be used by Caterpillar 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) Caterpillar is facing in its current business environment.
The Caterpillar is one of the leading organizatations in its industry. Caterpillar maintains its prominent 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 called SWOT Matrix.
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps the managers of the Caterpillar 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 Caterpillar strengths, and eradicate its weaknesses.
Step by Step Guide to Caterpillar SWOT Analysis
Strengths of Caterpillar – Internal Strategic Factors
As one of the leading companies in its industry, Caterpillar 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 Caterpillar are –
- Automation of activities brought consistency of quality to Caterpillar products and has enabled the company to scale up and scale down based on the demand conditions in the market.
- 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.
- Successful track record of developing new products – product innovation.
- Good Returns on Capital Expenditure – Caterpillar 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. Caterpillar 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 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.
- 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.
Weakness of Caterpillar – Internal Strategic Factors
Weakness are the areas where Caterpillar 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.
- 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 Caterpillar
- 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.
- High attrition rate in work force – compare to other organizations in the industry Caterpillar 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, Caterpillar 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 Caterpillar 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 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 Caterpillar is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
Opportunities for Caterpillar – External Strategic Factors
- The new technology provides an opportunity to Caterpillar 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.
- 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 Caterpillar 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 Caterpillar an opportunity to enter a new emerging market.
- Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Caterpillar’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.
- Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for Caterpillar to capture new customers and increase its market share.
- New trends in the consumer behavior can open up new market for the Caterpillar . 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 Caterpillar to increase its profitability.
- 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.
Threats Caterpillar Facing - External Strategic Factors
- 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 Caterpillar 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.
- Imitation of the counterfeit and low quality product is also a threat to Caterpillar’s product especially in the emerging markets and low income markets.
- Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of Caterpillar
- Increasing trend toward isolationism in the American economy can lead to similar reaction from other government thus negatively impacting the international sales.
- Rising raw material can pose a threat to the Caterpillar profitability.
- New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future.
Limitations of SWOT Analysis for Caterpillar
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 Caterpillar
- 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 Caterpillar
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 Caterpillar 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 Caterpillar
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.
Example of Weighted SWOT Analysis
You can email us to get an example document of Weighted SWOT analysis.
SWOT Worksheet & Template
If you like to do your own SWOT analysis or want to make your own Weighted SWOT SWOT matrix then feel free to download Fern Fort University SWOT Analysis Template.
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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