Telefonica (TEF) SWOT Analysis / TOWS Matrix / MBA Resources
Communications Services
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Telefonica (Italy)
Based on various researches at Oak Spring University , Telefonica is operating in a macro-environment that has been destablized by – cloud computing is disrupting traditional business models, challanges to central banks by blockchain based private currencies, banking and financial system is disrupted by Bitcoin and other crypto currencies, there is backlash against globalization, increasing commodity prices, competitive advantages are harder to sustain because of technology dispersion, digital marketing is dominated by two big players Facebook and Google,
geopolitical disruptions, wage bills are increasing, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Telefonica can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Telefonica, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Telefonica 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 Telefonica can be done for the following purposes –
1. Strategic planning of Telefonica
2. Improving business portfolio management of Telefonica
3. Assessing feasibility of the new initiative in Italy
4. Making a Communications Services sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Telefonica
Strengths of Telefonica | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Telefonica are -
Low bargaining power of suppliers
– Suppliers of Telefonica in the Services sector have low bargaining power. Telefonica has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Telefonica to manage not only supply disruptions but also source products at highly competitive prices.
Digital Transformation in Communications Services industry
- digital transformation varies from industry to industry. For Telefonica digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Telefonica 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.
Organizational Resilience of Telefonica
– The covid-19 pandemic has put organizational resilience at the centre of everthing Telefonica does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Learning organization
- Telefonica 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 Telefonica is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Telefonica emphasize – knowledge, initiative, and innovation.
Training and development
– Telefonica has one of the best training and development program in Services industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Operational resilience
– The operational resilience strategy of Telefonica comprises – understanding the underlying the factors in the Communications Services 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.
Ability to recruit top talent
– Telefonica is one of the leading players in the Communications Services industry in Italy. It is in a position to attract the best talent available in Italy. The firm has a robust talent identification program that helps in identifying the brightest.
High brand equity
– Telefonica has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Telefonica to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Effective Research and Development (R&D)
– Telefonica has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Telefonica staying ahead in the Communications Services industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Highly skilled collaborators
– Telefonica has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Communications Services industry. Secondly the value chain collaborators of Telefonica have helped the firm to develop new products and bring them quickly to the marketplace.
Sustainable margins compare to other players in Communications Services industry
– Telefonica has clearly differentiated products in the market place. This has enabled Telefonica to fetch slight price premium compare to the competitors in the Communications Services industry. The sustainable margins have also helped Telefonica to invest into research and development (R&D) and innovation.
Successful track record of launching new products
– Telefonica has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Telefonica 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.
Weaknesses of Telefonica | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Telefonica are -
No frontier risks strategy
– From the 10K / annual statement of Telefonica, it seems that company is thinking out the frontier risks that can impact Communications Services industry. 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 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 Telefonica supply chain. Even after few cautionary changes, Telefonica is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Telefonica vulnerable to further global disruptions in South East Asia.
Capital Spending Reduction
– Even during the low interest decade, Telefonica 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 Communications Services industry using digital technology.
High operating costs
– Compare to the competitors, Telefonica has high operating costs in the Communications Services industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Telefonica lucrative customers.
Slow to strategic competitive environment developments
– As Telefonica is one of the leading players in the Communications Services industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Communications Services industry in last five years.
High bargaining power of channel partners in Communications Services industry
– because of the regulatory requirements in Italy, Telefonica 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 Communications Services industry.
Low market penetration in new markets
– Outside its home market of Italy, Telefonica needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High dependence on Telefonica ‘s star products
– The top 2 products and services of Telefonica still accounts for major business revenue. This dependence on star products in Communications Services industry has resulted into insufficient focus on developing new products, even though Telefonica has relatively successful track record of launching new products.
Interest costs
– Compare to the competition, Telefonica 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.
Employees’ less understanding of Telefonica strategy
– From the outside it seems that the employees of Telefonica 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.
High cash cycle compare to competitors
Telefonica has a high cash cycle compare to other players in the Communications Services industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Telefonica Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Telefonica are -
Manufacturing automation
– Telefonica can use the latest technology developments to improve its manufacturing and designing process in Communications Services sector. 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.
Using analytics as competitive advantage
– Telefonica has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Communications Services sector. This continuous investment in analytics has enabled Telefonica to build a competitive advantage using analytics. The analytics driven competitive advantage can help Telefonica to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Buying journey improvements
– Telefonica can improve the customer journey of consumers in the Communications Services industry by using analytics and artificial intelligence. It 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.
Developing new processes and practices
– Telefonica can develop new processes and procedures in Communications Services 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Telefonica can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Telefonica 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Telefonica in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Communications Services industry, and it will provide faster access to the consumers.
Loyalty marketing
– Telefonica 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, Telefonica is facing challenges because of the dominance of functional experts in the organization. Telefonica can utilize new technology in the field of Communications Services industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, 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. Telefonica can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Telefonica 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 Telefonica to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Learning at scale
– Online learning technologies has now opened space for Telefonica 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Telefonica 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 Telefonica to hire the very best people irrespective of their geographical location.
Threats Telefonica External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Telefonica are -
Regulatory challenges
– Telefonica 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 Communications Services industry regulations.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Telefonica 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 Telefonica prominent markets.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Telefonica may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Communications Services sector.
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 Telefonica business can come under increasing regulations regarding data privacy, data security, etc.
Easy access to finance
– Easy access to finance in Communications Services industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Telefonica can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Telefonica needs to understand the core reasons impacting the Communications Services industry. This will help it in building a better workplace.
Stagnating economy with rate increase
– Telefonica 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 Communications Services industry.
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 Telefonica in the Communications Services sector and impact the bottomline of the organization.
Technology acceleration in Forth Industrial Revolution
– Telefonica has witnessed rapid integration of technology during Covid-19 in the Communications Services industry. As one of the leading players in the industry, Telefonica needs to keep up with the evolution of technology in the Communications Services 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 Telefonica is facing in Communications Services sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
High dependence on third party suppliers
– Telefonica 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.
Environmental challenges
– Telefonica 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. Telefonica can take advantage of this fund but it will also bring new competitors in the Communications Services industry.
Weighted SWOT Analysis of Telefonica Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Telefonica 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 Telefonica 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 Telefonica 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 Telefonica 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 Telefonica needs to make to build a sustainable competitive advantage.