Summit Distributors was in danger of violating loan covenants because of slow economic activity and forecasted losses and was faced with a choice. Changing the inventory valuation method from LIFO to FIFO would avoid default but would require higher future income taxes. Not changing could mean default on covenants, renegotiating loan terms at less favorable interest rates, or possible bankruptcy.
Authors :: William J. Bruns Jr., Amy P. Hutton, Marc H. Zablatsky
Swot Analysis of "Summit Distributors (A)" written by William J. Bruns Jr., Amy P. Hutton, Marc H. Zablatsky includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Covenants Summit facing as an external strategic factors. Some of the topics covered in Summit Distributors (A) case study are - Strategic Management Strategies, Financial analysis, Financial management, Financial markets, Operations management, Policy and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Summit Distributors (A) casestudy better are - – supply chains are disrupted by pandemic , digital marketing is dominated by two big players Facebook and Google, talent flight as more people leaving formal jobs, cloud computing is disrupting traditional business models, increasing government debt because of Covid-19 spendings, increasing inequality as vast percentage of new income is going to the top 1%, central banks are concerned over increasing inflation,
customer relationship management is fast transforming because of increasing concerns over data privacy, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of Summit Distributors (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Summit Distributors (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Covenants Summit, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Covenants Summit operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Summit Distributors (A) can be done for the following purposes –
1. Strategic planning using facts provided in Summit Distributors (A) case study
2. Improving business portfolio management of Covenants Summit
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Covenants Summit
Strengths Summit Distributors (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Covenants Summit in Summit Distributors (A) Harvard Business Review case study are -
Ability to recruit top talent
– Covenants Summit is one of the leading recruiters in the industry. Managers in the Summit Distributors (A) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Training and development
– Covenants Summit has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Summit Distributors (A) Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Diverse revenue streams
– Covenants Summit is present in almost all the verticals within the industry. This has provided firm in Summit Distributors (A) case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Low bargaining power of suppliers
– Suppliers of Covenants Summit in the sector have low bargaining power. Summit Distributors (A) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Covenants Summit to manage not only supply disruptions but also source products at highly competitive prices.
Cross disciplinary teams
– Horizontal connected teams at the Covenants Summit are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Sustainable margins compare to other players in Finance & Accounting industry
– Summit Distributors (A) firm has clearly differentiated products in the market place. This has enabled Covenants Summit to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Covenants Summit to invest into research and development (R&D) and innovation.
Organizational Resilience of Covenants Summit
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Covenants Summit does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Effective Research and Development (R&D)
– Covenants Summit has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Summit Distributors (A) - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Strong track record of project management
– Covenants Summit is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Operational resilience
– The operational resilience strategy in the Summit Distributors (A) Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Learning organization
- Covenants Summit is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Covenants Summit is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Summit Distributors (A) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Superior customer experience
– The customer experience strategy of Covenants Summit in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses Summit Distributors (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Summit Distributors (A) are -
Interest costs
– Compare to the competition, Covenants Summit has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Slow decision making process
– As mentioned earlier in the report, Covenants Summit has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Covenants Summit even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High operating costs
– Compare to the competitors, firm in the HBR case study Summit Distributors (A) has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Covenants Summit 's lucrative customers.
Capital Spending Reduction
– Even during the low interest decade, Covenants Summit has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Low market penetration in new markets
– Outside its home market of Covenants Summit, firm in the HBR case study Summit Distributors (A) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Aligning sales with marketing
– It come across in the case study Summit Distributors (A) that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Summit Distributors (A) can leverage the sales team experience to cultivate customer relationships as Covenants Summit is planning to shift buying processes online.
Increasing silos among functional specialists
– The organizational structure of Covenants Summit is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Covenants Summit needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Covenants Summit to focus more on services rather than just following the product oriented approach.
Workers concerns about automation
– As automation is fast increasing in the segment, Covenants Summit needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Need for greater diversity
– Covenants Summit has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Slow to strategic competitive environment developments
– As Summit Distributors (A) HBR case study mentions - Covenants Summit takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Lack of clear differentiation of Covenants Summit products
– To increase the profitability and margins on the products, Covenants Summit needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Summit Distributors (A) | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Summit Distributors (A) are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Covenants Summit can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Summit Distributors (A), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Covenants Summit can use these opportunities to build new business models that can help the communities that Covenants Summit operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Covenants Summit in the consumer business. Now Covenants Summit can target international markets with far fewer capital restrictions requirements than the existing system.
Buying journey improvements
– Covenants Summit can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Summit Distributors (A) suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Using analytics as competitive advantage
– Covenants Summit has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Summit Distributors (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Covenants Summit to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Loyalty marketing
– Covenants Summit has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Covenants Summit can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Covenants Summit can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Building a culture of innovation
– managers at Covenants Summit can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Covenants Summit to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Covenants Summit to hire the very best people irrespective of their geographical location.
Low interest rates
– Even though inflation is raising its head in most developed economies, Covenants Summit can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Developing new processes and practices
– Covenants Summit can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Manufacturing automation
– Covenants Summit can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Covenants Summit can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Threats Summit Distributors (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Summit Distributors (A) are -
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Covenants Summit needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Stagnating economy with rate increase
– Covenants Summit can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Covenants Summit.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Covenants Summit can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Covenants Summit business can come under increasing regulations regarding data privacy, data security, etc.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Environmental challenges
– Covenants Summit needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Covenants Summit can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Covenants Summit will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Technology acceleration in Forth Industrial Revolution
– Covenants Summit has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Covenants Summit needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Summit Distributors (A), Covenants Summit may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
High dependence on third party suppliers
– Covenants Summit high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Consumer confidence and its impact on Covenants Summit demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Covenants Summit can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Summit Distributors (A) .
Weighted SWOT Analysis of Summit Distributors (A) Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Summit Distributors (A) needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Summit Distributors (A) is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Summit Distributors (A) is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Summit Distributors (A) is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Covenants Summit needs to make to build a sustainable competitive advantage.
