Corey Leibow eased his car back onto Sand Hill Road in Palo Alto, California. As president and CEO of Mercado, a company that provided the search and merchandising technology to power retail web sites, he had just met with another venture capital (VC) firm in an effort to raise a $26-million Series E round of financing. It was June 2008 and Mercado currently offered both on-premise and on-demand or "software as a service (SaaS)" versions of its applications. Despite the fact that revenue from both solutions was projected to grow in excess of 80 percent that year, Leibow found that investors generally pushed back on the company's hybrid approach to distribution. Some VCs wanted Mercado to focus solely on its traditional enterprise business based on a perpetual, on-premise licensing model. Other investors preferred to see Mercado morph into a pure play SaaS company. Leibow knew that he had to make a decision quickly in order to raise the capital the company needed, but he also wondered if it was possible to continue pursuing both angles. The choice he made would significantly affect Mercado's sales force and R&D team as well as which customers the company targeted and how it would attract and retain them.
Authors :: Bethany Coates, Mark Leslie, James Lattin
Swot Analysis of "Mercado" written by Bethany Coates, Mark Leslie, James Lattin includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Mercado Leibow facing as an external strategic factors. Some of the topics covered in Mercado case study are - Strategic Management Strategies, IT and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Mercado casestudy better are - – geopolitical disruptions, wage bills are increasing, supply chains are disrupted by pandemic , customer relationship management is fast transforming because of increasing concerns over data privacy, cloud computing is disrupting traditional business models, increasing government debt because of Covid-19 spendings, banking and financial system is disrupted by Bitcoin and other crypto currencies,
increasing inequality as vast percentage of new income is going to the top 1%, competitive advantages are harder to sustain because of technology dispersion, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Mercado case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Mercado Leibow, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Mercado Leibow 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 Mercado can be done for the following purposes –
1. Strategic planning using facts provided in Mercado case study
2. Improving business portfolio management of Mercado Leibow
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 Mercado Leibow
Strengths Mercado | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Mercado Leibow in Mercado Harvard Business Review case study are -
Diverse revenue streams
– Mercado Leibow is present in almost all the verticals within the industry. This has provided firm in Mercado 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.
Training and development
– Mercado Leibow has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Mercado 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.
Ability to recruit top talent
– Mercado Leibow is one of the leading recruiters in the industry. Managers in the Mercado 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)
– Mercado Leibow 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 Mercado - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Innovation driven organization
– Mercado Leibow is one of the most innovative firm in sector. Manager in Mercado Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Analytics focus
– Mercado Leibow 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 Bethany Coates, Mark Leslie, James Lattin 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.
High brand equity
– Mercado Leibow has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Mercado Leibow to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Cross disciplinary teams
– Horizontal connected teams at the Mercado Leibow 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.
High switching costs
– The high switching costs that Mercado Leibow 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.
Ability to lead change in Finance & Accounting field
– Mercado Leibow is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Mercado Leibow in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Low bargaining power of suppliers
– Suppliers of Mercado Leibow in the sector have low bargaining power. Mercado has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Mercado Leibow to manage not only supply disruptions but also source products at highly competitive prices.
Strong track record of project management
– Mercado Leibow is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Weaknesses Mercado | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Mercado are -
Slow decision making process
– As mentioned earlier in the report, Mercado Leibow 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. Mercado Leibow 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.
Increasing silos among functional specialists
– The organizational structure of Mercado Leibow is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Mercado Leibow needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Mercado Leibow to focus more on services rather than just following the product oriented approach.
Slow to strategic competitive environment developments
– As Mercado HBR case study mentions - Mercado Leibow 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Bethany Coates, Mark Leslie, James Lattin suggests that, Mercado Leibow 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.
Interest costs
– Compare to the competition, Mercado Leibow 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.
High cash cycle compare to competitors
Mercado Leibow has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Mercado Leibow is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Mercado can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Need for greater diversity
– Mercado Leibow 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.
Skills based hiring
– The stress on hiring functional specialists at Mercado Leibow 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Mercado, in the dynamic environment Mercado Leibow has struggled to respond to the nimble upstart competition. Mercado Leibow has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Mercado, is just above the industry average. Mercado Leibow 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.
Opportunities Mercado | 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 Mercado are -
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 Mercado Leibow in the consumer business. Now Mercado Leibow can target international markets with far fewer capital restrictions requirements than the existing system.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Mercado Leibow 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 Mercado Leibow to hire the very best people irrespective of their geographical location.
Better consumer reach
– The expansion of the 5G network will help Mercado Leibow to increase its market reach. Mercado Leibow will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Developing new processes and practices
– Mercado Leibow 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.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Mercado Leibow can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Leveraging digital technologies
– Mercado Leibow 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.
Buying journey improvements
– Mercado Leibow can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Mercado 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.
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. Mercado Leibow can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Building a culture of innovation
– managers at Mercado Leibow 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.
Manufacturing automation
– Mercado Leibow 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.
Loyalty marketing
– Mercado Leibow 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Mercado Leibow is facing challenges because of the dominance of functional experts in the organization. Mercado 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Mercado Leibow 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.
Threats Mercado External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Mercado are -
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 Mercado Leibow.
Technology acceleration in Forth Industrial Revolution
– Mercado Leibow has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Mercado Leibow 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.
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.
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 Mercado Leibow business can come under increasing regulations regarding data privacy, data security, etc.
Increasing wage structure of Mercado Leibow
– 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 Mercado Leibow.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Mercado, Mercado Leibow 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 .
Regulatory challenges
– Mercado Leibow needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
High dependence on third party suppliers
– Mercado Leibow 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.
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 Mercado Leibow in the Finance & Accounting sector and impact the bottomline of the organization.
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. Mercado Leibow 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.
Environmental challenges
– Mercado Leibow 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. Mercado Leibow can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Mercado Leibow 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 Mercado .
Weighted SWOT Analysis of Mercado 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 Mercado 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 Mercado 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 Mercado 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 Mercado 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 Mercado Leibow needs to make to build a sustainable competitive advantage.
