British American Tobacco (BATS) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for British American Tobacco (United Kingdom)

Based on various researches at Oak Spring University , British American Tobacco is operating in a macro-environment that has been destablized by – technology disruption, geopolitical disruptions, customer relationship management is fast transforming because of increasing concerns over data privacy, supply chains are disrupted by pandemic , increasing government debt because of Covid-19 spendings, talent flight as more people leaving formal jobs, increasing transportation and logistics costs, increasing energy prices, banking and financial system is disrupted by Bitcoin and other crypto currencies, etc

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Introduction to SWOT Analysis of British American Tobacco

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

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Strengths of British American Tobacco | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of British American Tobacco are -

High brand equity

– British American Tobacco has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled British American Tobacco to keep acquiring new customers and building profitable relationship with both the new and loyal customers.

Cross disciplinary teams

– Horizontal connected teams at the British American Tobacco 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.

Effective Research and Development (R&D)

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

High switching costs

– The high switching costs that British American Tobacco 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.

Analytics focus

– British American Tobacco 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 Tobacco 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.

Operational resilience

– The operational resilience strategy of British American Tobacco comprises – understanding the underlying the factors in the Tobacco 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.

Diverse revenue streams

– British American Tobacco is present in almost all the verticals within the Tobacco industry. This has provided British American Tobacco 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.

Low bargaining power of suppliers

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

Sustainable margins compare to other players in Tobacco industry

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

Organizational Resilience of British American Tobacco

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

Innovation driven organization

– British American Tobacco is one of the most innovative firm in Tobacco sector.

Successful track record of launching new products

– British American Tobacco has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. British American Tobacco 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.

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Weaknesses of British American Tobacco | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of British American Tobacco are -

Lack of clear differentiation of British American Tobacco products

– To increase the profitability and margins on the products, British American Tobacco needs to provide more differentiated products than what it is currently offering in the marketplace.

No frontier risks strategy

– From the 10K / annual statement of British American Tobacco, it seems that company is thinking out the frontier risks that can impact Tobacco 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 British American Tobacco supply chain. Even after few cautionary changes, British American Tobacco is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left British American Tobacco vulnerable to further global disruptions in South East Asia.

Increasing silos among functional specialists

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

High dependence on British American Tobacco ‘s star products

– The top 2 products and services of British American Tobacco still accounts for major business revenue. This dependence on star products in Tobacco industry has resulted into insufficient focus on developing new products, even though British American Tobacco has relatively successful track record of launching new products.

High cash cycle compare to competitors

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

Slow to strategic competitive environment developments

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

Need for greater diversity

– British American Tobacco has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.

Employees’ less understanding of British American Tobacco strategy

– From the outside it seems that the employees of British American Tobacco 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 bargaining power of channel partners in Tobacco industry

– because of the regulatory requirements in United Kingdom, British American Tobacco 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 Tobacco industry.

Skills based hiring in Tobacco industry

– The stress on hiring functional specialists at British American Tobacco 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.

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British American Tobacco Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of British American Tobacco are -

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects British American Tobacco can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, British American Tobacco 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 British American Tobacco 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, British American Tobacco can use these opportunities to build new business models that can help the communities that British American Tobacco operates in. Secondly it can use opportunities from government spending in Tobacco sector.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Tobacco industry, but it has also influenced the consumer preferences. British American Tobacco can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Building a culture of innovation

– managers at British American Tobacco 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 Tobacco industry.

Learning at scale

– Online learning technologies has now opened space for British American Tobacco 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.

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 British American Tobacco 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.

Manufacturing automation

– British American Tobacco can use the latest technology developments to improve its manufacturing and designing process in Tobacco 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.

Leveraging digital technologies

– British American Tobacco 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.

Lowering marketing communication costs

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

Creating value in data economy

– The success of analytics program of British American Tobacco has opened avenues for new revenue streams for the organization in Tobacco industry. This can help British American Tobacco to build a more holistic ecosystem for British American Tobacco products in the Tobacco industry by providing – data insight services, data privacy related products, data based consulting services, 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. British American Tobacco can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Using analytics as competitive advantage

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

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Threats British American Tobacco External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of British American Tobacco are -

High dependence on third party suppliers

– British American Tobacco 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.

Barriers of entry lowering

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

Regulatory challenges

– British American Tobacco 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 Tobacco industry regulations.

Learning curve for new practices

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

Easy access to finance

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

Shortening product life cycle

– it is one of the major threat that British American Tobacco is facing in Tobacco sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.

Increasing wage structure of British American Tobacco

– 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 British American Tobacco.

Stagnating economy with rate increase

– British American Tobacco 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 Tobacco industry.

Technology acceleration in Forth Industrial Revolution

– British American Tobacco has witnessed rapid integration of technology during Covid-19 in the Tobacco industry. As one of the leading players in the industry, British American Tobacco needs to keep up with the evolution of technology in the Tobacco 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.

Environmental challenges

– British American Tobacco 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. British American Tobacco can take advantage of this fund but it will also bring new competitors in the Tobacco industry.

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 British American Tobacco.

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. British American Tobacco 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.

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for British American Tobacco in Tobacco industry. The Tobacco industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.

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Weighted SWOT Analysis of British American Tobacco Template, Example

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

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