Covalent: Term Loan for Expansion and Modernization SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Covalent: Term Loan for Expansion and Modernization
Covalent Laboratories Private Ltd. is involved in the manufacture of active pharmaceutical ingredients and bulk drugs in Hyderabad, India. In March 2012, the company added a new manufacturing plant and was in the process of obtaining regulatory approvals for its products from the U.S. Food and Drug Administration and the European Directorate of Quality of Medicines. Anticipating good growth, the company approached the Commercial Development Bank of India in June 2014 for sanction of a term loan of INR350 million over seven years towards expansion and modernization of its existing manufacturing facilities, including the construction of a captive power plant and effluent treatment plant. As the proposed financial assistance is long term in nature and the company is a new client with average financial strength, the head of the bank's Corporate Banking Department faces a dilemma. He has asked a credit analyst to research the financial performance of the company and to assess the financial viability of and identify the risks in the proposal. Authors are affiliated with Indian Institute of Management Shillong.
Swot Analysis of "Covalent: Term Loan for Expansion and Modernization" written by Maram Srikanth, Palanisamy Saravanan includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Covalent Modernization facing as an external strategic factors. Some of the topics covered in Covalent: Term Loan for Expansion and Modernization case study are - Strategic Management Strategies, and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Covalent: Term Loan for Expansion and Modernization casestudy better are - – increasing government debt because of Covid-19 spendings, talent flight as more people leaving formal jobs, central banks are concerned over increasing inflation, there is increasing trade war between United States & China, digital marketing is dominated by two big players Facebook and Google, geopolitical disruptions, banking and financial system is disrupted by Bitcoin and other crypto currencies,
increasing transportation and logistics costs, supply chains are disrupted by pandemic , etc
Introduction to SWOT Analysis of Covalent: Term Loan for Expansion and Modernization
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Covalent: Term Loan for Expansion and Modernization case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Covalent Modernization, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Covalent Modernization 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 Covalent: Term Loan for Expansion and Modernization can be done for the following purposes –
1. Strategic planning using facts provided in Covalent: Term Loan for Expansion and Modernization case study
2. Improving business portfolio management of Covalent Modernization
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 Covalent Modernization
Strengths Covalent: Term Loan for Expansion and Modernization | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Covalent Modernization in Covalent: Term Loan for Expansion and Modernization Harvard Business Review case study are -
Operational resilience
– The operational resilience strategy in the Covalent: Term Loan for Expansion and Modernization 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.
Cross disciplinary teams
– Horizontal connected teams at the Covalent Modernization 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.
Organizational Resilience of Covalent Modernization
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Covalent Modernization does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High brand equity
– Covalent Modernization has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Covalent Modernization to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Successful track record of launching new products
– Covalent Modernization has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Covalent Modernization 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.
Ability to lead change in Finance & Accounting field
– Covalent Modernization 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 Covalent Modernization in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
High switching costs
– The high switching costs that Covalent Modernization 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.
Learning organization
- Covalent Modernization 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 Covalent Modernization is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Covalent: Term Loan for Expansion and Modernization Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Sustainable margins compare to other players in Finance & Accounting industry
– Covalent: Term Loan for Expansion and Modernization firm has clearly differentiated products in the market place. This has enabled Covalent Modernization to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Covalent Modernization to invest into research and development (R&D) and innovation.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Covalent Modernization digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Covalent Modernization has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Effective Research and Development (R&D)
– Covalent Modernization 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 Covalent: Term Loan for Expansion and Modernization - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Diverse revenue streams
– Covalent Modernization is present in almost all the verticals within the industry. This has provided firm in Covalent: Term Loan for Expansion and Modernization 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.
Weaknesses Covalent: Term Loan for Expansion and Modernization | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Covalent: Term Loan for Expansion and Modernization are -
Workers concerns about automation
– As automation is fast increasing in the segment, Covalent Modernization 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.
Capital Spending Reduction
– Even during the low interest decade, Covalent Modernization 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.
Lack of clear differentiation of Covalent Modernization products
– To increase the profitability and margins on the products, Covalent Modernization needs to provide more differentiated products than what it is currently offering in the marketplace.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Covalent: Term Loan for Expansion and Modernization 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 Covalent Modernization has relatively successful track record of launching new products.
Slow decision making process
– As mentioned earlier in the report, Covalent Modernization 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. Covalent Modernization 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 cash cycle compare to competitors
Covalent Modernization 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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Covalent: Term Loan for Expansion and Modernization, it seems that the employees of Covalent Modernization don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
No frontier risks strategy
– After analyzing the HBR case study Covalent: Term Loan for Expansion and Modernization, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
High operating costs
– Compare to the competitors, firm in the HBR case study Covalent: Term Loan for Expansion and Modernization 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 Covalent Modernization 's lucrative customers.
Low market penetration in new markets
– Outside its home market of Covalent Modernization, firm in the HBR case study Covalent: Term Loan for Expansion and Modernization needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Covalent Modernization supply chain. Even after few cautionary changes mentioned in the HBR case study - Covalent: Term Loan for Expansion and Modernization, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Covalent Modernization vulnerable to further global disruptions in South East Asia.
Opportunities Covalent: Term Loan for Expansion and Modernization | 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 Covalent: Term Loan for Expansion and Modernization are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Covalent Modernization 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, Covalent: Term Loan for Expansion and Modernization, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Covalent Modernization is facing challenges because of the dominance of functional experts in the organization. Covalent: Term Loan for Expansion and Modernization 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.
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. Covalent Modernization 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. Covalent Modernization 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.
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 Covalent Modernization in the consumer business. Now Covalent Modernization 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 Covalent Modernization 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 Covalent Modernization to hire the very best people irrespective of their geographical location.
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. Covalent Modernization can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Developing new processes and practices
– Covalent Modernization 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Covalent Modernization can use these opportunities to build new business models that can help the communities that Covalent Modernization operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Leveraging digital technologies
– Covalent Modernization 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
– Covalent Modernization can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Covalent: Term Loan for Expansion and Modernization 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.
Building a culture of innovation
– managers at Covalent Modernization 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.
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. Covalent Modernization can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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 Covalent Modernization 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.
Threats Covalent: Term Loan for Expansion and Modernization External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Covalent: Term Loan for Expansion and Modernization are -
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 Covalent Modernization business can come under increasing regulations regarding data privacy, data security, etc.
Technology acceleration in Forth Industrial Revolution
– Covalent Modernization has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Covalent Modernization 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.
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 Covalent Modernization in the Finance & Accounting sector and impact the bottomline of the organization.
Stagnating economy with rate increase
– Covalent Modernization 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.
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.
Regulatory challenges
– Covalent Modernization 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Covalent Modernization 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.
Increasing wage structure of Covalent Modernization
– 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 Covalent Modernization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Covalent Modernization 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 Covalent: Term Loan for Expansion and Modernization .
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. Covalent Modernization 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 Covalent: Term Loan for Expansion and Modernization, Covalent Modernization 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. Covalent Modernization 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.
Weighted SWOT Analysis of Covalent: Term Loan for Expansion and Modernization 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 Covalent: Term Loan for Expansion and Modernization 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 Covalent: Term Loan for Expansion and Modernization 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 Covalent: Term Loan for Expansion and Modernization 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 Covalent: Term Loan for Expansion and Modernization 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 Covalent Modernization needs to make to build a sustainable competitive advantage.
