Sierra On-Line, a fast growing software developer, is criticized by a Forbes journalist for excessively capitalizing software development costs. In contrast to most other software developers that typically capitalize about 20% of R&D costs, Sierra capitalizes 80%. Questions investors must address in valuing Sierra include: Does Sierra's account reflect economic reality? Is their accounting too aggressive or are their competitors too conservative? Is Sierra's business sufficiently different from its competitors to invalidate the comparison?
Swot Analysis of "Sierra On-Line (A)" written by G. Peter Wilson, Elizabeth H. McNair includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Sierra Sierra's facing as an external strategic factors. Some of the topics covered in Sierra On-Line (A) case study are - Strategic Management Strategies, Entrepreneurial finance, Financial management, IT, Product development and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Sierra On-Line (A) casestudy better are - – there is backlash against globalization, supply chains are disrupted by pandemic , increasing transportation and logistics costs, increasing commodity prices, digital marketing is dominated by two big players Facebook and Google, increasing household debt because of falling income levels, talent flight as more people leaving formal jobs,
technology disruption, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of Sierra On-Line (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Sierra On-Line (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Sierra Sierra's, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Sierra Sierra's 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 Sierra On-Line (A) can be done for the following purposes –
1. Strategic planning using facts provided in Sierra On-Line (A) case study
2. Improving business portfolio management of Sierra Sierra's
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 Sierra Sierra's
Strengths Sierra On-Line (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Sierra Sierra's in Sierra On-Line (A) Harvard Business Review case study are -
Operational resilience
– The operational resilience strategy in the Sierra On-Line (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
- Sierra Sierra's 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 Sierra Sierra's is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Sierra On-Line (A) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Ability to recruit top talent
– Sierra Sierra's is one of the leading recruiters in the industry. Managers in the Sierra On-Line (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.
Effective Research and Development (R&D)
– Sierra Sierra's 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 Sierra On-Line (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.
High brand equity
– Sierra Sierra's has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Sierra Sierra's to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Sustainable margins compare to other players in Finance & Accounting industry
– Sierra On-Line (A) firm has clearly differentiated products in the market place. This has enabled Sierra Sierra's to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Sierra Sierra's to invest into research and development (R&D) and innovation.
Innovation driven organization
– Sierra Sierra's is one of the most innovative firm in sector. Manager in Sierra On-Line (A) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High switching costs
– The high switching costs that Sierra Sierra's has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Successful track record of launching new products
– Sierra Sierra's has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Sierra Sierra's has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Superior customer experience
– The customer experience strategy of Sierra Sierra's in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Analytics focus
– Sierra Sierra's is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by G. Peter Wilson, Elizabeth H. McNair can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Cross disciplinary teams
– Horizontal connected teams at the Sierra Sierra's 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.
Weaknesses Sierra On-Line (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Sierra On-Line (A) are -
High bargaining power of channel partners
– Because of the regulatory requirements, G. Peter Wilson, Elizabeth H. McNair suggests that, Sierra Sierra's is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Increasing silos among functional specialists
– The organizational structure of Sierra Sierra's is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Sierra Sierra's needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Sierra Sierra's to focus more on services rather than just following the product oriented approach.
Slow to strategic competitive environment developments
– As Sierra On-Line (A) HBR case study mentions - Sierra Sierra's 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Sierra Sierra's 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Sierra On-Line (A) HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Sierra Sierra's has relatively successful track record of launching new products.
High operating costs
– Compare to the competitors, firm in the HBR case study Sierra On-Line (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 Sierra Sierra's 's lucrative customers.
Lack of clear differentiation of Sierra Sierra's products
– To increase the profitability and margins on the products, Sierra Sierra's needs to provide more differentiated products than what it is currently offering in the marketplace.
Interest costs
– Compare to the competition, Sierra Sierra's 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.
Capital Spending Reduction
– Even during the low interest decade, Sierra Sierra's 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Sierra On-Line (A), is just above the industry average. Sierra Sierra's needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Skills based hiring
– The stress on hiring functional specialists at Sierra Sierra's has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Opportunities Sierra On-Line (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 Sierra On-Line (A) are -
Learning at scale
– Online learning technologies has now opened space for Sierra Sierra's to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Creating value in data economy
– The success of analytics program of Sierra Sierra's has opened avenues for new revenue streams for the organization in the industry. This can help Sierra Sierra's to build a more holistic ecosystem as suggested in the Sierra On-Line (A) case study. Sierra Sierra's can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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 Sierra Sierra's in the consumer business. Now Sierra Sierra's can target international markets with far fewer capital restrictions requirements than the existing system.
Manufacturing automation
– Sierra Sierra's 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.
Leveraging digital technologies
– Sierra Sierra's can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Building a culture of innovation
– managers at Sierra Sierra's 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Sierra Sierra's 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Sierra Sierra's can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Sierra Sierra's 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 Sierra Sierra's to hire the very best people irrespective of their geographical location.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Sierra Sierra's 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, Sierra On-Line (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.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Sierra Sierra's to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
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. Sierra Sierra's can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Sierra Sierra's is facing challenges because of the dominance of functional experts in the organization. Sierra On-Line (A) case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Threats Sierra On-Line (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Sierra On-Line (A) are -
Consumer confidence and its impact on Sierra Sierra's 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.
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 Sierra Sierra's business can come under increasing regulations regarding data privacy, data security, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Sierra Sierra's in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Environmental challenges
– Sierra Sierra's 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. Sierra Sierra's can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
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.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Sierra Sierra's in the Finance & Accounting sector and impact the bottomline of the organization.
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. Sierra Sierra's can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Sierra On-Line (A), Sierra Sierra's 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 .
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. Sierra Sierra's 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.
Increasing wage structure of Sierra Sierra's
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Sierra Sierra's.
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 Sierra Sierra's.
Technology acceleration in Forth Industrial Revolution
– Sierra Sierra's has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Sierra Sierra's 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.
Weighted SWOT Analysis of Sierra On-Line (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 Sierra On-Line (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 Sierra On-Line (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 Sierra On-Line (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 Sierra On-Line (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 Sierra Sierra's needs to make to build a sustainable competitive advantage.