Lukoil (LKOH) SWOT Analysis / TOWS Matrix / MBA Resources
Oil & Gas - Integrated
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Lukoil (United Kingdom)
Based on various researches at Oak Spring University , Lukoil is operating in a macro-environment that has been destablized by – increasing energy prices, supply chains are disrupted by pandemic , increasing government debt because of Covid-19 spendings, cloud computing is disrupting traditional business models, customer relationship management is fast transforming because of increasing concerns over data privacy, talent flight as more people leaving formal jobs, wage bills are increasing,
digital marketing is dominated by two big players Facebook and Google, increasing commodity prices, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Lukoil can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Lukoil, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Lukoil 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 Lukoil can be done for the following purposes –
1. Strategic planning of Lukoil
2. Improving business portfolio management of Lukoil
3. Assessing feasibility of the new initiative in United Kingdom
4. Making a Oil & Gas - Integrated sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Lukoil
Strengths of Lukoil | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Lukoil are -
Superior customer experience
– The customer experience strategy of Lukoil in Oil & Gas - Integrated industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Successful track record of launching new products
– Lukoil has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Lukoil 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.
Effective Research and Development (R&D)
– Lukoil has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Lukoil staying ahead in the Oil & Gas - Integrated industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Learning organization
- Lukoil 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 Lukoil is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Lukoil emphasize – knowledge, initiative, and innovation.
Ability to lead change in Oil & Gas - Integrated
– Lukoil is one of the leading players in the Oil & Gas - Integrated industry in United Kingdom. Over the years it has not only transformed the business landscape in the Oil & Gas - Integrated industry in United Kingdom but also across the existing markets. The ability to lead change has enabled Lukoil in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– Lukoil has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Oil & Gas - Integrated industry. Secondly the value chain collaborators of Lukoil have helped the firm to develop new products and bring them quickly to the marketplace.
High switching costs
– The high switching costs that Lukoil 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.
Low bargaining power of suppliers
– Suppliers of Lukoil in the Energy sector have low bargaining power. Lukoil has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Lukoil to manage not only supply disruptions but also source products at highly competitive prices.
Cross disciplinary teams
– Horizontal connected teams at the Lukoil 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
– Lukoil is one of the most innovative firm in Oil & Gas - Integrated sector.
Diverse revenue streams
– Lukoil is present in almost all the verticals within the Oil & Gas - Integrated industry. This has provided Lukoil 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.
Ability to recruit top talent
– Lukoil is one of the leading players in the Oil & Gas - Integrated 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.
Weaknesses of Lukoil | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Lukoil are -
Ability to respond to the competition
– As the decision making is very deliberative at Lukoil, in the dynamic environment of Oil & Gas - Integrated industry it has struggled to respond to the nimble upstart competition. Lukoil has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Need for greater diversity
– Lukoil 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.
Aligning sales with marketing
– From the outside it seems that Lukoil needs to have more collaboration between its sales team and marketing team. Sales professionals in the Oil & Gas - Integrated industry have deep experience in developing customer relationships. Marketing department at Lukoil can leverage the sales team experience to cultivate customer relationships as Lukoil is planning to shift buying processes online.
Slow to strategic competitive environment developments
– As Lukoil is one of the leading players in the Oil & Gas - Integrated industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Oil & Gas - Integrated industry in last five years.
Lack of clear differentiation of Lukoil products
– To increase the profitability and margins on the products, Lukoil needs to provide more differentiated products than what it is currently offering in the marketplace.
Increasing silos among functional specialists
– The organizational structure of Lukoil is dominated by functional specialists. It is not different from other players in the Oil & Gas - Integrated industry, but Lukoil needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Lukoil to focus more on services in the Oil & Gas - Integrated industry rather than just following the product oriented approach.
Skills based hiring in Oil & Gas - Integrated industry
– The stress on hiring functional specialists at Lukoil 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.
Interest costs
– Compare to the competition, Lukoil 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.
Compensation and incentives
– The revenue per employee of Lukoil is just above the Oil & Gas - Integrated 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.
Workers concerns about automation
– As automation is fast increasing in the Oil & Gas - Integrated industry, Lukoil 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.
Capital Spending Reduction
– Even during the low interest decade, Lukoil 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 Oil & Gas - Integrated industry using digital technology.
Lukoil Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Lukoil are -
Developing new processes and practices
– Lukoil can develop new processes and procedures in Oil & Gas - Integrated 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.
Using analytics as competitive advantage
– Lukoil has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Oil & Gas - Integrated sector. This continuous investment in analytics has enabled Lukoil to build a competitive advantage using analytics. The analytics driven competitive advantage can help Lukoil to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Leveraging digital technologies
– Lukoil 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Lukoil 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.
Creating value in data economy
– The success of analytics program of Lukoil has opened avenues for new revenue streams for the organization in Oil & Gas - Integrated industry. This can help Lukoil to build a more holistic ecosystem for Lukoil products in the Oil & Gas - Integrated industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Lukoil 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.
Manufacturing automation
– Lukoil can use the latest technology developments to improve its manufacturing and designing process in Oil & Gas - Integrated 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.
Use of Bitcoin and other crypto currencies for transactions in Oil & Gas - Integrated industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Lukoil in the Oil & Gas - Integrated industry. Now Lukoil can target international markets with far fewer capital restrictions requirements than the existing system.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Lukoil 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 Lukoil to hire the very best people irrespective of their geographical location.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Lukoil can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Buying journey improvements
– Lukoil can improve the customer journey of consumers in the Oil & Gas - Integrated 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Lukoil can use these opportunities to build new business models that can help the communities that Lukoil operates in. Secondly it can use opportunities from government spending in Oil & Gas - Integrated sector.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Lukoil 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 Lukoil to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats Lukoil External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Lukoil are -
Increasing wage structure of Lukoil
– 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 Lukoil.
High dependence on third party suppliers
– Lukoil 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.
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 Lukoil in the Oil & Gas - Integrated sector and impact the bottomline of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Lukoil may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Oil & Gas - Integrated sector.
Technology acceleration in Forth Industrial Revolution
– Lukoil has witnessed rapid integration of technology during Covid-19 in the Oil & Gas - Integrated industry. As one of the leading players in the industry, Lukoil needs to keep up with the evolution of technology in the Oil & Gas - Integrated 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.
Consumer confidence and its impact on Lukoil 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 Oil & Gas - Integrated industry and other sectors.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Lukoil in Oil & Gas - Integrated industry. The Oil & Gas - Integrated 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.
Regulatory challenges
– Lukoil 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 Oil & Gas - Integrated industry regulations.
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 Lukoil business can come under increasing regulations regarding data privacy, data security, etc.
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. Lukoil needs to understand the core reasons impacting the Oil & Gas - Integrated industry. This will help it in building a better workplace.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Oil & Gas - Integrated industry are lowering. It can presents Lukoil with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Oil & Gas - Integrated sector.
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.
Weighted SWOT Analysis of Lukoil Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Lukoil 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 Lukoil 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 Lukoil 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 Lukoil 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 Lukoil needs to make to build a sustainable competitive advantage.