American Electric Power (AEP) SWOT Analysis / TOWS Matrix / 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 – increasing energy prices, supply chains are disrupted by pandemic , cloud computing is disrupting traditional business models, digital marketing is dominated by two big players Facebook and Google, increasing transportation and logistics costs, increasing commodity prices, talent flight as more people leaving formal jobs, geopolitical disruptions, there is increasing trade war between United States & China, 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 -

Innovation driven organization

– American Electric Power is one of the most innovative firm in Electric Utilities sector.

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.

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.

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.

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.

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.

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.

Sustainable margins compare to other players in Electric Utilities industry

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

Highly skilled collaborators

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

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.

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.

---

---

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 -

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.

Compensation and incentives

– The revenue per employee of American Electric Power is just above the Electric Utilities 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.

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.

Employees’ less understanding of American Electric Power strategy

– From the outside it seems that the employees of American Electric Power 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 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.

Capital Spending Reduction

– Even during the low interest decade, American Electric Power 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 Electric Utilities industry using digital technology.

Increasing silos among functional specialists

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

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.

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.

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.

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.

---

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 -

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.

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.

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.

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.

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.

Low interest rates

– Even though inflation is raising its head in most developed economies, American Electric Power 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 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.

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.

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.

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.

Changes in consumer behavior post Covid-19

– consumer behavior has changed in the Electric Utilities industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. American Electric Power can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. American Electric Power can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.

Reforming the budgeting process

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

Lowering marketing communication costs

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

---

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 -

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.

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.

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.

Environmental challenges

– American Electric Power 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. American Electric Power can take advantage of this fund but it will also bring new competitors in the Electric Utilities industry.

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.

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.

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.

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.

Stagnating economy with rate increase

– American Electric Power 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 Electric Utilities 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.

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 American Electric Power in the Electric Utilities sector and impact the bottomline of the organization.

Regulatory challenges

– American Electric Power 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 Electric Utilities industry regulations.

---

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.

--- ---