Valero Energy Corporation and Tight Oil SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Innovation & Entrepreneurship
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Valero Energy Corporation and Tight Oil
To maximize their effectiveness, color cases should be printed in color.Valero Energy, an incredibly successful US refiner, needs to make some decisions about tight oil. As production of light tight oil increases-from Eagle Ford, Bakken and elsewhere-Valero considers whether to add topping capacity to handle it, on top of its recent investments for heavy oil. Political decisions, however, are pending on Keystone XL, on crude oil exports, and on LNG exports. Prices, therefore, are up in the air, especially as global capacity increases. Petrochemical companies and oil producers have conflicting views on the appropriate policy. Bill Klesse, the CEO, can either sit back and wait, or move to capture greater market share.
Authors :: Richard H.K. Vietor, Eric Adamson, Aaron Byrd, Ned Chiverton
Swot Analysis of "Valero Energy Corporation and Tight Oil" written by Richard H.K. Vietor, Eric Adamson, Aaron Byrd, Ned Chiverton includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Oil Valero facing as an external strategic factors. Some of the topics covered in Valero Energy Corporation and Tight Oil case study are - Strategic Management Strategies, Corporate governance, Customers, Demographics, Economy, Globalization, Strategy execution, Sustainability, Workspaces and Innovation & Entrepreneurship.
Some of the macro environment factors that can be used to understand the Valero Energy Corporation and Tight Oil casestudy better are - – geopolitical disruptions, there is increasing trade war between United States & China, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing commodity prices, talent flight as more people leaving formal jobs, increasing inequality as vast percentage of new income is going to the top 1%, banking and financial system is disrupted by Bitcoin and other crypto currencies,
digital marketing is dominated by two big players Facebook and Google, increasing household debt because of falling income levels, etc
Introduction to SWOT Analysis of Valero Energy Corporation and Tight Oil
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Valero Energy Corporation and Tight Oil case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Oil Valero, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Oil Valero 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 Valero Energy Corporation and Tight Oil can be done for the following purposes –
1. Strategic planning using facts provided in Valero Energy Corporation and Tight Oil case study
2. Improving business portfolio management of Oil Valero
3. Assessing feasibility of the new initiative in Innovation & Entrepreneurship field.
4. Making a Innovation & Entrepreneurship topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Oil Valero
Strengths Valero Energy Corporation and Tight Oil | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Oil Valero in Valero Energy Corporation and Tight Oil Harvard Business Review case study are -
High switching costs
– The high switching costs that Oil Valero 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.
Effective Research and Development (R&D)
– Oil Valero 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 Valero Energy Corporation and Tight Oil - 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
– Oil Valero has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Oil Valero to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Organizational Resilience of Oil Valero
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Oil Valero does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Successful track record of launching new products
– Oil Valero has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Oil Valero 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.
Training and development
– Oil Valero has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Valero Energy Corporation and Tight Oil 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.
Cross disciplinary teams
– Horizontal connected teams at the Oil Valero 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 Innovation & Entrepreneurship industry
– Valero Energy Corporation and Tight Oil firm has clearly differentiated products in the market place. This has enabled Oil Valero to fetch slight price premium compare to the competitors in the Innovation & Entrepreneurship industry. The sustainable margins have also helped Oil Valero to invest into research and development (R&D) and innovation.
Superior customer experience
– The customer experience strategy of Oil Valero in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Low bargaining power of suppliers
– Suppliers of Oil Valero in the sector have low bargaining power. Valero Energy Corporation and Tight Oil has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Oil Valero to manage not only supply disruptions but also source products at highly competitive prices.
Analytics focus
– Oil Valero 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 Richard H.K. Vietor, Eric Adamson, Aaron Byrd, Ned Chiverton 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.
Digital Transformation in Innovation & Entrepreneurship segment
- digital transformation varies from industry to industry. For Oil Valero digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Oil Valero 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.
Weaknesses Valero Energy Corporation and Tight Oil | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Valero Energy Corporation and Tight Oil are -
Workers concerns about automation
– As automation is fast increasing in the segment, Oil Valero 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Valero Energy Corporation and Tight Oil, is just above the industry average. Oil Valero 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.
No frontier risks strategy
– After analyzing the HBR case study Valero Energy Corporation and Tight Oil, it seems that company is thinking about the frontier risks that can impact Innovation & Entrepreneurship 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.
Products dominated business model
– Even though Oil Valero has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Valero Energy Corporation and Tight Oil should strive to include more intangible value offerings along with its core products and services.
High bargaining power of channel partners
– Because of the regulatory requirements, Richard H.K. Vietor, Eric Adamson, Aaron Byrd, Ned Chiverton suggests that, Oil Valero 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.
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 Oil Valero supply chain. Even after few cautionary changes mentioned in the HBR case study - Valero Energy Corporation and Tight Oil, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Oil Valero vulnerable to further global disruptions in South East Asia.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Valero Energy Corporation and Tight Oil 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 Oil Valero has relatively successful track record of launching new products.
High operating costs
– Compare to the competitors, firm in the HBR case study Valero Energy Corporation and Tight Oil 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 Oil Valero 's lucrative customers.
Interest costs
– Compare to the competition, Oil Valero 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.
Lack of clear differentiation of Oil Valero products
– To increase the profitability and margins on the products, Oil Valero needs to provide more differentiated products than what it is currently offering in the marketplace.
Slow to strategic competitive environment developments
– As Valero Energy Corporation and Tight Oil HBR case study mentions - Oil Valero 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.
Opportunities Valero Energy Corporation and Tight Oil | 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 Valero Energy Corporation and Tight Oil are -
Leveraging digital technologies
– Oil Valero 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Oil Valero 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, Valero Energy Corporation and Tight Oil, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Buying journey improvements
– Oil Valero can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Valero Energy Corporation and Tight Oil 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.
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 Oil Valero 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 Innovation & Entrepreneurship industry, but it has also influenced the consumer preferences. Oil Valero can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Low interest rates
– Even though inflation is raising its head in most developed economies, Oil Valero 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.
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 Oil Valero in the consumer business. Now Oil Valero can target international markets with far fewer capital restrictions requirements than the existing system.
Using analytics as competitive advantage
– Oil Valero 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 Valero Energy Corporation and Tight Oil - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Oil Valero to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Oil Valero is facing challenges because of the dominance of functional experts in the organization. Valero Energy Corporation and Tight Oil 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.
Building a culture of innovation
– managers at Oil Valero 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 Innovation & Entrepreneurship segment.
Learning at scale
– Online learning technologies has now opened space for Oil Valero 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.
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. Oil Valero can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Oil Valero can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Valero Energy Corporation and Tight Oil External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Valero Energy Corporation and Tight Oil are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Oil Valero 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 Valero Energy Corporation and Tight Oil .
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. Oil Valero 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 Oil Valero
– 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 Oil Valero.
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.
Easy access to finance
– Easy access to finance in Innovation & Entrepreneurship field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Oil Valero can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Regulatory challenges
– Oil Valero 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 Innovation & Entrepreneurship industry regulations.
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 Oil Valero in the Innovation & Entrepreneurship sector and impact the bottomline of the organization.
Consumer confidence and its impact on Oil Valero 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.
Technology acceleration in Forth Industrial Revolution
– Oil Valero has witnessed rapid integration of technology during Covid-19 in the Innovation & Entrepreneurship industry. As one of the leading players in the industry, Oil Valero needs to keep up with the evolution of technology in the Innovation & Entrepreneurship 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.
Shortening product life cycle
– it is one of the major threat that Oil Valero is facing in Innovation & Entrepreneurship sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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 Oil Valero.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Oil Valero with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Valero Energy Corporation and Tight Oil, Oil Valero may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Innovation & Entrepreneurship .
Weighted SWOT Analysis of Valero Energy Corporation and Tight Oil 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 Valero Energy Corporation and Tight Oil 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 Valero Energy Corporation and Tight Oil 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 Valero Energy Corporation and Tight Oil 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 Valero Energy Corporation and Tight Oil 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 Oil Valero needs to make to build a sustainable competitive advantage.