American Water Works SWOT Analysis / Matrix

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

The American Water Works is one of the leading organizatations in its industry. American Water Works 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 company 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 known as SWOT Matrix.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps the managers of the American Water Works 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 main purpose of SWOT matrix is to identify the strategies that a company can utilize to exploit external opportunities, counter threats, and build on & protect American Water Works strengths, and eradicate its weaknesses.

Step by Step Guide to American Water Works SWOT Analysis

Strengths of American Water Works – Internal Strategic Factors

As one of the leading organizations in its industry, American Water Works 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 American Water Works are –

• Good Returns on Capital Expenditure – American Water Works is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
• Strong Free Cash Flow – American Water Works has strong free cash flows that provide resources in the hand of the company to expand into new projects.
• Successful track record of developing new products – product innovation.
• Strong Brand Portfolio – Over the years American Water Works has invested in building a strong brand portfolio. The SWOT analysis of American Water Works 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.
• Highly skilled workforce through successful training and learning programs. American Water Works 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.
• Automation of activities brought consistency of quality to American Water Works products and has enabled the company to scale up and scale down based on the demand conditions in the market.
• 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 American Water Works – Internal Strategic Factors

Weakness are the areas where American Water Works 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.

• Limited success outside core business – Even though American Water Works is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
• Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.
• Not highly successful at integrating firms with different work culture. As mentioned earlier even though American Water Works is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
• The profitability ratio and Net Contribution % of American Water Works are below the industry average.
• Need more investment in new technologies. Given the scale of expansion and different geographies the company is planning to expand into, American Water Works 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.
• 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.
• 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. American Water Works has to build internal feedback mechanism directly from sales team on ground to counter these challenges.

Opportunities for American Water Works – External Strategic Factors

• Government green drive also opens an opportunity for procurement of American Water Works products by the state as well as federal government contractors.
• Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for American Water Works to capture new customers and increase its market share.
• The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as American Water Works to increase its profitability.
• The new technology provides an opportunity to American Water Works 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 American Water Works in other product categories.
• The market development will lead to dilution of competitor’s advantage and enable American Water Works to increase its competitiveness compare to the other competitors.
• 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.
• 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 American Water Works. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.

Threats American Water Works 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.
• Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
• Rising raw material can pose a threat to the American Water Works profitability.
• Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for American Water Works   in those markets.
• The company can face lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets.
• New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future.
• Imitation of the counterfeit and low quality product is also a threat to American Water Works’s product especially in the emerging markets and low income markets.
• 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.

Limitations of SWOT Analysis for American Water Works

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 American Water Works
• 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 American Water Works

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 American Water Works 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 American Water Works

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

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)