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 – talent flight as more people leaving formal jobs, increasing transportation and logistics costs, central banks are concerned over increasing inflation, increasing inequality as vast percentage of new income is going to the top 1%, increasing energy prices, wage bills are increasing, increasing household debt because of falling income levels, supply chains are disrupted by pandemic , 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 -

Effective Research and Development (R&D)

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

Cross disciplinary teams

– Horizontal connected teams at the Kakao 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.

Learning organization

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

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.

Innovation driven organization

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

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.

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.

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.

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.

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.

Operational resilience

– The operational resilience strategy of Kakao comprises – understanding the underlying the factors in the Computer Services 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.

Ability to recruit top talent

– Kakao is one of the leading players in the Computer Services industry in South Korea. It is in a position to attract the best talent available in South Korea. The firm has a robust talent identification program that helps in identifying the brightest.

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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 -

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.

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.

Lack of clear differentiation of Kakao products

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

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.

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.

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.

Workers concerns about automation

– As automation is fast increasing in the Computer Services industry, Kakao 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.

Slow decision making process

– As mentioned earlier in the report, Kakao has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Computer Services industry over the last five years. Kakao 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.

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.

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 bargaining power of channel partners in Computer Services industry

– because of the regulatory requirements in South Korea, Kakao 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 Computer Services industry.

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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 -

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.

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.

Redefining models of collaboration and team work

– As explained in the weaknesses section, Kakao is facing challenges because of the dominance of functional experts in the organization. Kakao can utilize new technology in the field of Computer Services industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

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.

Creating value in data economy

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

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.

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.

Loyalty marketing

– Kakao 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.

Remote work and new talent hiring opportunities

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

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.

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. Kakao can explore opportunities that can attract volunteers and are consistent with its mission and vision.

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.

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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 -

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.

Barriers of entry lowering

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

Technology acceleration in Forth Industrial Revolution

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

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.

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.

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 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.

Consumer confidence and its impact on Kakao 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 Computer Services industry and other sectors.

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.

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.

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.

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. Kakao needs to understand the core reasons impacting the Computer Services industry. This will help it in building a better workplace.

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.

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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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