AAR (AIR) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for AAR (United States)

Based on various researches at Oak Spring University , AAR is operating in a macro-environment that has been destablized by – banking and financial system is disrupted by Bitcoin and other crypto currencies, technology disruption, increasing commodity prices, challanges to central banks by blockchain based private currencies, competitive advantages are harder to sustain because of technology dispersion, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing inequality as vast percentage of new income is going to the top 1%, wage bills are increasing, geopolitical disruptions, etc

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Introduction to SWOT Analysis of AAR

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

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

The strengths of AAR are -

Learning organization

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

Diverse revenue streams

– AAR is present in almost all the verticals within the Aerospace & Defense industry. This has provided AAR 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.

Highly skilled collaborators

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

Ability to lead change in Aerospace & Defense

– AAR is one of the leading players in the Aerospace & Defense industry in United States. Over the years it has not only transformed the business landscape in the Aerospace & Defense industry in United States but also across the existing markets. The ability to lead change has enabled AAR in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

Successful track record of launching new products

– AAR has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. AAR 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.

Sustainable margins compare to other players in Aerospace & Defense industry

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

Effective Research and Development (R&D)

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

Digital Transformation in Aerospace & Defense industry

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

Ability to recruit top talent

– AAR is one of the leading players in the Aerospace & Defense 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.

High switching costs

– The high switching costs that AAR 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.

Training and development

– AAR has one of the best training and development program in Capital Goods 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.

Low bargaining power of suppliers

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

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

The weaknesses of AAR are -

Products dominated business model

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

Increasing silos among functional specialists

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

Ability to respond to the competition

– As the decision making is very deliberative at AAR, in the dynamic environment of Aerospace & Defense industry it has struggled to respond to the nimble upstart competition. AAR has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

Slow to strategic competitive environment developments

– As AAR is one of the leading players in the Aerospace & Defense industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Aerospace & Defense industry in last five years.

Compensation and incentives

– The revenue per employee of AAR is just above the Aerospace & Defense 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 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 AAR supply chain. Even after few cautionary changes, AAR is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left AAR vulnerable to further global disruptions in South East Asia.

No frontier risks strategy

– From the 10K / annual statement of AAR, it seems that company is thinking out the frontier risks that can impact Aerospace & Defense 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.

High bargaining power of channel partners in Aerospace & Defense industry

– because of the regulatory requirements in United States, AAR 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 Aerospace & Defense industry.

Need for greater diversity

– AAR 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.

Employees’ less understanding of AAR strategy

– From the outside it seems that the employees of AAR 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.

Low market penetration in new markets

– Outside its home market of United States, AAR needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

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

The opportunities of AAR are -

Redefining models of collaboration and team work

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

Creating value in data economy

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

Low interest rates

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

Increase in government spending

– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, AAR can use these opportunities to build new business models that can help the communities that AAR operates in. Secondly it can use opportunities from government spending in Aerospace & Defense sector.

Leveraging digital technologies

– AAR 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.

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 AAR 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.

Remote work and new talent hiring opportunities

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

Lowering marketing communication costs

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

Changes in consumer behavior post Covid-19

– consumer behavior has changed in the Aerospace & Defense industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. AAR 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. AAR 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 AAR can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

Developing new processes and practices

– AAR can develop new processes and procedures in Aerospace & Defense 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.

Building a culture of innovation

– managers at AAR 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 Aerospace & Defense industry.

Loyalty marketing

– AAR 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.

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Threats AAR External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of AAR are -

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for AAR in Aerospace & Defense industry. The Aerospace & Defense 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.

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. AAR needs to understand the core reasons impacting the Aerospace & Defense industry. This will help it in building a better workplace.

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.

Increasing international competition and downward pressure on margins

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

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.

Regulatory challenges

– AAR 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 Aerospace & Defense industry regulations.

Increasing wage structure of AAR

– 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 AAR.

Shortening product life cycle

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

Technology acceleration in Forth Industrial Revolution

– AAR has witnessed rapid integration of technology during Covid-19 in the Aerospace & Defense industry. As one of the leading players in the industry, AAR needs to keep up with the evolution of technology in the Aerospace & Defense 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.

Barriers of entry lowering

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

Environmental challenges

– AAR 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. AAR can take advantage of this fund but it will also bring new competitors in the Aerospace & Defense industry.

Stagnating economy with rate increase

– AAR 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 Aerospace & Defense industry.

Easy access to finance

– Easy access to finance in Aerospace & Defense industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. AAR 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 AAR Template, Example

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

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