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A.O. Smith SWOT Analysis / Matrix
Essays, Term Papers & Research Papers
SWOT analysis is a strategic planning tool that can be used by A.O. Smith managers to do a situational analysis of the company . It is an important technique to analyze the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) A.O. Smith is facing in its current business environment.
The A.O. Smith is one of the leading firms in its industry. A.O. Smith maintains its dominant 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 firm 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 helps the managers of the A.O. Smith 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 a firm can utilize to exploit external opportunities, counter threats, and build on & protect A.O. Smith strengths, and eradicate its weaknesses.
Step by Step Guide to A.O. Smith SWOT Analysis
Strengths of A.O. Smith – Internal Strategic Factors
As one of the leading companies in its industry, A.O. Smith 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 A.O. Smith are –
- Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
- 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.
- Strong Free Cash Flow – A.O. Smith 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 A.O. Smith 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.
- Highly skilled workforce through successful training and learning programs. A.O. Smith 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 Brand Portfolio – Over the years A.O. Smith has invested in building a strong brand portfolio. The SWOT analysis of A.O. Smith just underlines this fact. This brand portfolio can be extremely useful if the organization wants to expand into new product categories.
- Good Returns on Capital Expenditure – A.O. Smith is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
Weakness of A.O. Smith – Internal Strategic Factors
Weakness are the areas where A.O. Smith 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.
- 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 A.O. Smith is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel.
- The profitability ratio and Net Contribution % of A.O. Smith 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 A.O. Smith
- Investment in Research and Development is below the fastest growing players in the industry. Even though A.O. Smith 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.
- 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.
- 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.
- High attrition rate in work force – compare to other organizations in the industry A.O. Smith has a higher attrition rate and have to spend a lot more compare to its competitors on training and development of its employees.
Opportunities for A.O. Smith – External Strategic Factors
- Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided A.O. Smith an opportunity to enter a new emerging market.
- 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 A.O. Smith in other product categories.
- The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as A.O. Smith to increase its profitability.
- The new technology provides an opportunity to A.O. Smith 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.
- Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of A.O. Smith.
- New trends in the consumer behavior can open up new market for the A.O. Smith . It provides a great opportunity for the organization to build new revenue streams and diversify into new product categories too.
- 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 A.O. Smith. 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 A.O. Smith Facing - External Strategic Factors
- Rising raw material can pose a threat to the A.O. Smith 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.
- Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.
- 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.
- New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future.
- Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of A.O. Smith
Limitations of SWOT Analysis for A.O. Smith
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 A.O. Smith
- 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 A.O. Smith
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 A.O. Smith 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 A.O. Smith
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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