Kakao (35720) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Kakao (South Korea)

Based on various researches at Oak Spring University , Kakao is operating in a macro-environment that has been destablized by – increasing transportation and logistics costs, cloud computing is disrupting traditional business models, increasing household debt because of falling income levels, supply chains are disrupted by pandemic , wage bills are increasing, increasing energy prices, there is increasing trade war between United States & China, customer relationship management is fast transforming because of increasing concerns over data privacy, technology disruption, etc

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Introduction to SWOT Analysis of Kakao

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

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

The strengths of Kakao are -

Ability to lead change in Computer Services

– Kakao is one of the leading players in the Computer Services industry in South Korea. Over the years it has not only transformed the business landscape in the Computer Services industry in South Korea but also across the existing markets. The ability to lead change has enabled Kakao in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

Superior customer experience

– The customer experience strategy of Kakao in Computer Services industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.

Innovation driven organization

– Kakao is one of the most innovative firm in Computer Services sector.

High brand equity

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

Highly skilled collaborators

– Kakao has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Computer Services industry. Secondly the value chain collaborators of Kakao have helped the firm to develop new products and bring them quickly to the marketplace.

Training and development

– Kakao 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.

Diverse revenue streams

– Kakao is present in almost all the verticals within the Computer Services industry. This has provided Kakao 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.

Organizational Resilience of Kakao

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

Sustainable margins compare to other players in Computer Services industry

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

Analytics focus

– Kakao 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 Computer Services industry. The technology infrastructure of South Korea 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.

Low bargaining power of suppliers

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

Digital Transformation in Computer Services industry

- digital transformation varies from industry to industry. For Kakao digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Kakao 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.

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

The weaknesses of Kakao are -

High cash cycle compare to competitors

Kakao has a high cash cycle compare to other players in the Computer 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.

Slow to harness new channels of communication

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

Products dominated business model

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

Skills based hiring in Computer Services industry

– The stress on hiring functional specialists at Kakao 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 operating costs

– Compare to the competitors, Kakao has high operating costs in the Computer Services industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Kakao lucrative customers.

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

Capital Spending Reduction

– Even during the low interest decade, Kakao 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 Computer Services industry using digital technology.

Increasing silos among functional specialists

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

Low market penetration in new markets

– Outside its home market of South Korea, Kakao needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

Compensation and incentives

– The revenue per employee of Kakao is just above the Computer Services 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.

High dependence on Kakao ‘s star products

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

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

The opportunities of Kakao are -

Better consumer reach

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

Manufacturing automation

– Kakao can use the latest technology developments to improve its manufacturing and designing process in Computer 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.

Use of Bitcoin and other crypto currencies for transactions in Computer Services industry

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

Low interest rates

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

Learning at scale

– Online learning technologies has now opened space for Kakao 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.

Developing new processes and practices

– Kakao can develop new processes and procedures in Computer 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.

Lowering marketing communication costs

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

Building a culture of innovation

– managers at Kakao 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 Computer Services industry.

Finding new ways to collaborate

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

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 Kakao 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.

Reforming the budgeting process

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

Leveraging digital technologies

– Kakao 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.

Using analytics as competitive advantage

– Kakao has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Computer Services sector. This continuous investment in analytics has enabled Kakao to build a competitive advantage using analytics. The analytics driven competitive advantage can help Kakao 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 Kakao External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of Kakao are -

Increasing wage structure of Kakao

– 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 Kakao.

Learning curve for new practices

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

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for Kakao in Computer Services industry. The Computer Services 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.

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. Kakao 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.

Environmental challenges

– Kakao 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. Kakao can take advantage of this fund but it will also bring new competitors in the Computer Services industry.

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.

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.

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

Stagnating economy with rate increase

– Kakao 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 Computer Services industry.

Shortening product life cycle

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

Increasing international competition and downward pressure on margins

– Apart from technology driven competitive advantage dilution, Kakao 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 Kakao prominent markets.

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 Kakao in the Computer Services sector and impact the bottomline of the organization.

Easy access to finance

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

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Weighted SWOT Analysis of Kakao Template, Example

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

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