Diageo (DGE) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Diageo (United Kingdom)

Based on various researches at Oak Spring University , Diageo is operating in a macro-environment that has been destablized by – wage bills are increasing, digital marketing is dominated by two big players Facebook and Google, increasing commodity prices, supply chains are disrupted by pandemic , talent flight as more people leaving formal jobs, increasing government debt because of Covid-19 spendings, increasing household debt because of falling income levels, there is backlash against globalization, increasing energy prices, etc

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Introduction to SWOT Analysis of Diageo

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Diageo can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Diageo, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Diageo 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 Diageo can be done for the following purposes –
1. Strategic planning of Diageo
2. Improving business portfolio management of Diageo
3. Assessing feasibility of the new initiative in United Kingdom
4. Making a Beverages (Alcoholic) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Diageo

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

The strengths of Diageo are -

Learning organization

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

Low bargaining power of suppliers

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

Operational resilience

– The operational resilience strategy of Diageo comprises – understanding the underlying the factors in the Beverages (Alcoholic) 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.

Organizational Resilience of Diageo

– The covid-19 pandemic has put organizational resilience at the centre of everthing Diageo does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Analytics focus

– Diageo 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 Beverages (Alcoholic) 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.

High switching costs

– The high switching costs that Diageo 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.

Training and development

– Diageo has one of the best training and development program in Consumer/Non-Cyclical 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.

Strong track record of project management in the Beverages (Alcoholic) industry

– Diageo is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.

Effective Research and Development (R&D)

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

Diverse revenue streams

– Diageo is present in almost all the verticals within the Beverages (Alcoholic) industry. This has provided Diageo 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.

Cross disciplinary teams

– Horizontal connected teams at the Diageo 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.

Innovation driven organization

– Diageo is one of the most innovative firm in Beverages (Alcoholic) sector.

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

The weaknesses of Diageo are -

Slow to strategic competitive environment developments

– As Diageo is one of the leading players in the Beverages (Alcoholic) industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Beverages (Alcoholic) industry in last five years.

Interest costs

– Compare to the competition, Diageo 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.

Slow decision making process

– As mentioned earlier in the report, Diageo has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Beverages (Alcoholic) industry over the last five years. Diageo 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.

Capital Spending Reduction

– Even during the low interest decade, Diageo 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 Beverages (Alcoholic) industry using digital technology.

Slow to harness new channels of communication

– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Diageo is slow explore the new channels of communication. These new channels of communication can help Diageo to provide better information regarding Beverages (Alcoholic) products and services. It can also build an online community to further reach out to potential customers.

Skills based hiring in Beverages (Alcoholic) industry

– The stress on hiring functional specialists at Diageo 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.

Low market penetration in new markets

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

Increasing silos among functional specialists

– The organizational structure of Diageo is dominated by functional specialists. It is not different from other players in the Beverages (Alcoholic) industry, but Diageo needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Diageo to focus more on services in the Beverages (Alcoholic) industry rather than just following the product oriented approach.

Compensation and incentives

– The revenue per employee of Diageo is just above the Beverages (Alcoholic) industry average. It 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.

Employees’ less understanding of Diageo strategy

– From the outside it seems that the employees of Diageo 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.

Ability to respond to the competition

– As the decision making is very deliberative at Diageo, in the dynamic environment of Beverages (Alcoholic) industry it has struggled to respond to the nimble upstart competition. Diageo has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

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

The opportunities of Diageo are -

Low interest rates

– Even though inflation is raising its head in most developed economies, Diageo 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.

Building a culture of innovation

– managers at Diageo 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 Beverages (Alcoholic) industry.

Redefining models of collaboration and team work

– As explained in the weaknesses section, Diageo is facing challenges because of the dominance of functional experts in the organization. Diageo can utilize new technology in the field of Beverages (Alcoholic) 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. Diageo can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Leveraging digital technologies

– Diageo 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

– Diageo can improve the customer journey of consumers in the Beverages (Alcoholic) 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

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

Developing new processes and practices

– Diageo can develop new processes and procedures in Beverages (Alcoholic) 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.

Loyalty marketing

– Diageo 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.

Lowering marketing communication costs

– 5G expansion will open new opportunities for Diageo in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Beverages (Alcoholic) industry, and it will provide faster access to the consumers.

Harnessing reconfiguration of the global supply chains

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

Increase in government spending

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

Creating value in data economy

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

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

The threats of Diageo are -

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. Diageo needs to understand the core reasons impacting the Beverages (Alcoholic) industry. This will help it in building a better workplace.

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 Diageo in the Beverages (Alcoholic) sector and impact the bottomline of the organization.

Instability in the European markets

– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Diageo 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.

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.

Stagnating economy with rate increase

– Diageo 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 Beverages (Alcoholic) industry.

Easy access to finance

– Easy access to finance in Beverages (Alcoholic) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Diageo can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

Aging population

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

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, Diageo may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Beverages (Alcoholic) sector.

Environmental challenges

– Diageo 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. Diageo can take advantage of this fund but it will also bring new competitors in the Beverages (Alcoholic) industry.

Technology acceleration in Forth Industrial Revolution

– Diageo has witnessed rapid integration of technology during Covid-19 in the Beverages (Alcoholic) industry. As one of the leading players in the industry, Diageo needs to keep up with the evolution of technology in the Beverages (Alcoholic) 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.

Barriers of entry lowering

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

Regulatory challenges

– Diageo 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 Beverages (Alcoholic) industry regulations.

Consumer confidence and its impact on Diageo 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 Beverages (Alcoholic) industry and other sectors.

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Weighted SWOT Analysis of Diageo Template, Example

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

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