American Electric Power (AEP) SWOT Analysis / TOWS Matrix / MBA Resources
Electric Utilities
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for American Electric Power (United States)
Based on various researches at Oak Spring University , American Electric Power is operating in a macro-environment that has been destablized by – wage bills are increasing, increasing household debt because of falling income levels, increasing energy prices, talent flight as more people leaving formal jobs, there is increasing trade war between United States & China, cloud computing is disrupting traditional business models, increasing inequality as vast percentage of new income is going to the top 1%,
banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing government debt because of Covid-19 spendings, etc
Introduction to SWOT Analysis of American Electric Power
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that American Electric Power can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the American Electric Power, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which American Electric Power 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 American Electric Power can be done for the following purposes –
1. Strategic planning of American Electric Power
2. Improving business portfolio management of American Electric Power
3. Assessing feasibility of the new initiative in United States
4. Making a Electric Utilities sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of American Electric Power
Strengths of American Electric Power | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of American Electric Power are -
Successful track record of launching new products
– American Electric Power has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. American Electric Power 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.
Low bargaining power of suppliers
– Suppliers of American Electric Power in the Utilities sector have low bargaining power. American Electric Power has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps American Electric Power to manage not only supply disruptions but also source products at highly competitive prices.
Cross disciplinary teams
– Horizontal connected teams at the American Electric Power 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.
Ability to recruit top talent
– American Electric Power is one of the leading players in the Electric Utilities industry in United States. It is in a position to attract the best talent available in United States. The firm has a robust talent identification program that helps in identifying the brightest.
Effective Research and Development (R&D)
– American Electric Power has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – American Electric Power staying ahead in the Electric Utilities 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 American Electric Power 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.
Learning organization
- American Electric Power 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 American Electric Power is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at American Electric Power emphasize – knowledge, initiative, and innovation.
Organizational Resilience of American Electric Power
– The covid-19 pandemic has put organizational resilience at the centre of everthing American Electric Power does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Diverse revenue streams
– American Electric Power is present in almost all the verticals within the Electric Utilities industry. This has provided American Electric Power 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.
Strong track record of project management in the Electric Utilities industry
– American Electric Power is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Digital Transformation in Electric Utilities industry
- digital transformation varies from industry to industry. For American Electric Power digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. American Electric Power 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.
Analytics focus
– American Electric Power 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 Electric Utilities industry. The technology infrastructure of United States 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.
Weaknesses of American Electric Power | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of American Electric Power are -
Low market penetration in new markets
– Outside its home market of United States, American Electric Power needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Products dominated business model
– Even though American Electric Power has some of the most successful models in the Electric Utilities industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. American Electric Power should strive to include more intangible value offerings along with its core products and services.
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 American Electric Power supply chain. Even after few cautionary changes, American Electric Power is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left American Electric Power vulnerable to further global disruptions in South East Asia.
Slow to strategic competitive environment developments
– As American Electric Power is one of the leading players in the Electric Utilities industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Electric Utilities industry in last five years.
High dependence on American Electric Power ‘s star products
– The top 2 products and services of American Electric Power still accounts for major business revenue. This dependence on star products in Electric Utilities industry has resulted into insufficient focus on developing new products, even though American Electric Power has relatively successful track record of launching new products.
Ability to respond to the competition
– As the decision making is very deliberative at American Electric Power, in the dynamic environment of Electric Utilities industry it has struggled to respond to the nimble upstart competition. American Electric Power has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Lack of clear differentiation of American Electric Power products
– To increase the profitability and margins on the products, American Electric Power 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 American Electric Power, it seems that company is thinking out the frontier risks that can impact Electric Utilities 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.
Interest costs
– Compare to the competition, American Electric Power 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.
Aligning sales with marketing
– From the outside it seems that American Electric Power needs to have more collaboration between its sales team and marketing team. Sales professionals in the Electric Utilities industry have deep experience in developing customer relationships. Marketing department at American Electric Power can leverage the sales team experience to cultivate customer relationships as American Electric Power is planning to shift buying processes online.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, American Electric Power is slow explore the new channels of communication. These new channels of communication can help American Electric Power to provide better information regarding Electric Utilities products and services. It can also build an online community to further reach out to potential customers.
American Electric Power Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of American Electric Power are -
Creating value in data economy
– The success of analytics program of American Electric Power has opened avenues for new revenue streams for the organization in Electric Utilities industry. This can help American Electric Power to build a more holistic ecosystem for American Electric Power products in the Electric Utilities industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– American Electric Power 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.
Leveraging digital technologies
– American Electric Power 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, American Electric Power can use these opportunities to build new business models that can help the communities that American Electric Power operates in. Secondly it can use opportunities from government spending in Electric Utilities sector.
Redefining models of collaboration and team work
– As explained in the weaknesses section, American Electric Power is facing challenges because of the dominance of functional experts in the organization. American Electric Power can utilize new technology in the field of Electric Utilities industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Electric Utilities industry, but it has also influenced the consumer preferences. American Electric Power 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 American Electric Power 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.
Buying journey improvements
– American Electric Power can improve the customer journey of consumers in the Electric Utilities 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.
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. American Electric Power can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Using analytics as competitive advantage
– American Electric Power has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Electric Utilities sector. This continuous investment in analytics has enabled American Electric Power to build a competitive advantage using analytics. The analytics driven competitive advantage can help American Electric Power to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Use of Bitcoin and other crypto currencies for transactions in Electric Utilities industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for American Electric Power in the Electric Utilities industry. Now American Electric Power can target international markets with far fewer capital restrictions requirements than the existing system.
Better consumer reach
– The expansion of the 5G network will help American Electric Power to increase its market reach. American Electric Power 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, American Electric Power 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 American Electric Power 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 American Electric Power External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of American Electric Power are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, American Electric Power 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 American Electric Power prominent markets.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Electric Utilities industry are lowering. It can presents American Electric Power with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Electric Utilities sector.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, American Electric Power may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Electric Utilities sector.
Shortening product life cycle
– it is one of the major threat that American Electric Power is facing in Electric Utilities sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
High dependence on third party suppliers
– American Electric Power 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for American Electric Power in Electric Utilities industry. The Electric Utilities 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.
Easy access to finance
– Easy access to finance in Electric Utilities industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. American Electric Power can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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. American Electric Power 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 acceleration in Forth Industrial Revolution
– American Electric Power has witnessed rapid integration of technology during Covid-19 in the Electric Utilities industry. As one of the leading players in the industry, American Electric Power needs to keep up with the evolution of technology in the Electric Utilities 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 American Electric Power 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 Electric Utilities industry and other sectors.
Increasing wage structure of American Electric Power
– 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 American Electric Power.
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. American Electric Power needs to understand the core reasons impacting the Electric Utilities industry. This will help it in building a better workplace.
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 American Electric Power.
Weighted SWOT Analysis of American Electric Power Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at American Electric Power 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 American Electric Power 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 American Electric Power 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 American Electric Power 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 American Electric Power needs to make to build a sustainable competitive advantage.