SAP (0NW4) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for SAP (United Kingdom)

Based on various researches at Oak Spring University , SAP is operating in a macro-environment that has been destablized by – increasing inequality as vast percentage of new income is going to the top 1%, increasing household debt because of falling income levels, increasing transportation and logistics costs, competitive advantages are harder to sustain because of technology dispersion, there is backlash against globalization, cloud computing is disrupting traditional business models, increasing energy prices, there is increasing trade war between United States & China, central banks are concerned over increasing inflation, etc

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Introduction to SWOT Analysis of SAP

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that SAP can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the SAP, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which SAP 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.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of SAP can be done for the following purposes –
1. Strategic planning of SAP
2. Improving business portfolio management of SAP
3. Assessing feasibility of the new initiative in United Kingdom
4. Making a Software & Programming sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of SAP

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Strengths of SAP | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of SAP are -

Low bargaining power of suppliers

– Suppliers of SAP in the Technology sector have low bargaining power. SAP has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps SAP to manage not only supply disruptions but also source products at highly competitive prices.

Innovation driven organization

– SAP is one of the most innovative firm in Software & Programming sector.

Ability to recruit top talent

– SAP is one of the leading players in the Software & Programming industry in United Kingdom. It is in a position to attract the best talent available in United Kingdom. The firm has a robust talent identification program that helps in identifying the brightest.

Sustainable margins compare to other players in Software & Programming industry

– SAP has clearly differentiated products in the market place. This has enabled SAP to fetch slight price premium compare to the competitors in the Software & Programming industry. The sustainable margins have also helped SAP to invest into research and development (R&D) and innovation.

Training and development

– SAP has one of the best training and development program in Technology 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.

Analytics focus

– SAP 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 Software & Programming industry. The technology infrastructure of United Kingdom is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.

Diverse revenue streams

– SAP is present in almost all the verticals within the Software & Programming industry. This has provided SAP 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.

Operational resilience

– The operational resilience strategy of SAP comprises – understanding the underlying the factors in the Software & Programming 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.

Superior customer experience

– The customer experience strategy of SAP in Software & Programming industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.

Effective Research and Development (R&D)

– SAP has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – SAP staying ahead in the Software & Programming industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

Learning organization

- SAP 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 SAP is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at SAP emphasize – knowledge, initiative, and innovation.

Ability to lead change in Software & Programming

– SAP is one of the leading players in the Software & Programming industry in United Kingdom. Over the years it has not only transformed the business landscape in the Software & Programming industry in United Kingdom but also across the existing markets. The ability to lead change has enabled SAP in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

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Weaknesses of SAP | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of SAP are -

No frontier risks strategy

– From the 10K / annual statement of SAP, it seems that company is thinking out the frontier risks that can impact Software & Programming 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.

Products dominated business model

– Even though SAP has some of the most successful models in the Software & Programming industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. SAP should strive to include more intangible value offerings along with its core products and services.

Low market penetration in new markets

– Outside its home market of United Kingdom, SAP needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

Interest costs

– Compare to the competition, SAP 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.

Skills based hiring in Software & Programming industry

– The stress on hiring functional specialists at SAP 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.

High cash cycle compare to competitors

SAP has a high cash cycle compare to other players in the Software & Programming industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

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 SAP supply chain. Even after few cautionary changes, SAP is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left SAP vulnerable to further global disruptions in South East Asia.

Aligning sales with marketing

– From the outside it seems that SAP needs to have more collaboration between its sales team and marketing team. Sales professionals in the Software & Programming industry have deep experience in developing customer relationships. Marketing department at SAP can leverage the sales team experience to cultivate customer relationships as SAP is planning to shift buying processes online.

Slow decision making process

– As mentioned earlier in the report, SAP has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Software & Programming industry over the last five years. SAP 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 SAP is dominated by functional specialists. It is not different from other players in the Software & Programming industry, but SAP needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help SAP to focus more on services in the Software & Programming industry rather than just following the product oriented approach.

High bargaining power of channel partners in Software & Programming industry

– because of the regulatory requirements in United Kingdom, SAP 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 Software & Programming industry.

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SAP Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of SAP are -

Changes in consumer behavior post Covid-19

– consumer behavior has changed in the Software & Programming industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. SAP 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. SAP 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.

Building a culture of innovation

– managers at SAP 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 Software & Programming industry.

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, SAP 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 SAP to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.

Manufacturing automation

– SAP can use the latest technology developments to improve its manufacturing and designing process in Software & Programming 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.

Better consumer reach

– The expansion of the 5G network will help SAP to increase its market reach. SAP 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.

Use of Bitcoin and other crypto currencies for transactions in Software & Programming industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for SAP in the Software & Programming industry. Now SAP can target international markets with far fewer capital restrictions requirements than the existing system.

Increase in government spending

– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, SAP can use these opportunities to build new business models that can help the communities that SAP operates in. Secondly it can use opportunities from government spending in Software & Programming sector.

Learning at scale

– Online learning technologies has now opened space for SAP to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.

Creating value in data economy

– The success of analytics program of SAP has opened avenues for new revenue streams for the organization in Software & Programming industry. This can help SAP to build a more holistic ecosystem for SAP products in the Software & Programming industry by providing – data insight services, data privacy related products, data based consulting services, etc.

Buying journey improvements

– SAP can improve the customer journey of consumers in the Software & Programming 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.

Using analytics as competitive advantage

– SAP has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Software & Programming sector. This continuous investment in analytics has enabled SAP to build a competitive advantage using analytics. The analytics driven competitive advantage can help SAP to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

Leveraging digital technologies

– SAP 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.

Remote work and new talent hiring opportunities

– The widespread usage of remote working technologies during Covid-19 has opened opportunities for SAP 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 SAP to hire the very best people irrespective of their geographical location.

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Threats SAP External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of SAP are -

Regulatory challenges

– SAP 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 Software & Programming industry regulations.

Environmental challenges

– SAP 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. SAP can take advantage of this fund but it will also bring new competitors in the Software & Programming industry.

Technology acceleration in Forth Industrial Revolution

– SAP has witnessed rapid integration of technology during Covid-19 in the Software & Programming industry. As one of the leading players in the industry, SAP needs to keep up with the evolution of technology in the Software & Programming 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.

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 SAP.

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. SAP 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.

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. SAP needs to understand the core reasons impacting the Software & Programming industry. This will help it in building a better workplace.

Aging population

– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.

New competition

– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for SAP in the Software & Programming sector and impact the bottomline of the organization.

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 SAP business can come under increasing regulations regarding data privacy, data security, etc.

High dependence on third party suppliers

– SAP 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.

Stagnating economy with rate increase

– SAP 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 Software & Programming industry.

Barriers of entry lowering

– As technology is more democratized, the barriers to entry to Software & Programming industry are lowering. It can presents SAP with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Software & Programming sector.

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Weighted SWOT Analysis of SAP Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at SAP 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 SAP 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 SAP 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 SAP 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 SAP needs to make to build a sustainable competitive advantage.

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