AO Smith (AOS) SWOT Analysis / TOWS Matrix / MBA Resources
Electronic Instr. & Controls
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for AO Smith (United States)
Based on various researches at Oak Spring University , AO Smith is operating in a macro-environment that has been destablized by – central banks are concerned over increasing inflation, geopolitical disruptions, there is increasing trade war between United States & China, there is backlash against globalization, customer relationship management is fast transforming because of increasing concerns over data privacy, technology disruption, challanges to central banks by blockchain based private currencies,
cloud computing is disrupting traditional business models, competitive advantages are harder to sustain because of technology dispersion, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that AO Smith can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the AO Smith, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which AO Smith 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 AO Smith can be done for the following purposes –
1. Strategic planning of AO Smith
2. Improving business portfolio management of AO Smith
3. Assessing feasibility of the new initiative in United States
4. Making a Electronic Instr. & Controls sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of AO Smith
Strengths of AO Smith | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of AO Smith are -
Innovation driven organization
– AO Smith is one of the most innovative firm in Electronic Instr. & Controls sector.
Successful track record of launching new products
– AO Smith has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. AO Smith 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.
Analytics focus
– AO Smith 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 Electronic Instr. & Controls 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.
Low bargaining power of suppliers
– Suppliers of AO Smith in the Technology sector have low bargaining power. AO Smith has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps AO Smith to manage not only supply disruptions but also source products at highly competitive prices.
Organizational Resilience of AO Smith
– The covid-19 pandemic has put organizational resilience at the centre of everthing AO Smith does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Learning organization
- AO Smith 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 AO Smith is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at AO Smith emphasize – knowledge, initiative, and innovation.
High brand equity
– AO Smith has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled AO Smith to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Superior customer experience
– The customer experience strategy of AO Smith in Electronic Instr. & Controls industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Sustainable margins compare to other players in Electronic Instr. & Controls industry
– AO Smith has clearly differentiated products in the market place. This has enabled AO Smith to fetch slight price premium compare to the competitors in the Electronic Instr. & Controls industry. The sustainable margins have also helped AO Smith to invest into research and development (R&D) and innovation.
High switching costs
– The high switching costs that AO Smith 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.
Cross disciplinary teams
– Horizontal connected teams at the AO Smith 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.
Diverse revenue streams
– AO Smith is present in almost all the verticals within the Electronic Instr. & Controls industry. This has provided AO Smith 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.
Weaknesses of AO Smith | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of AO Smith are -
Skills based hiring in Electronic Instr. & Controls industry
– The stress on hiring functional specialists at AO Smith has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Products dominated business model
– Even though AO Smith has some of the most successful models in the Electronic Instr. & Controls industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. AO Smith should strive to include more intangible value offerings along with its core products and services.
High operating costs
– Compare to the competitors, AO Smith has high operating costs in the Electronic Instr. & Controls industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract AO Smith lucrative customers.
High dependence on AO Smith ‘s star products
– The top 2 products and services of AO Smith still accounts for major business revenue. This dependence on star products in Electronic Instr. & Controls industry has resulted into insufficient focus on developing new products, even though AO Smith has relatively successful track record of launching new products.
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 AO Smith supply chain. Even after few cautionary changes, AO Smith is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left AO Smith vulnerable to further global disruptions in South East Asia.
No frontier risks strategy
– From the 10K / annual statement of AO Smith, it seems that company is thinking out the frontier risks that can impact Electronic Instr. & Controls 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 Electronic Instr. & Controls industry
– because of the regulatory requirements in United States, AO Smith 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 Electronic Instr. & Controls industry.
Lack of clear differentiation of AO Smith products
– To increase the profitability and margins on the products, AO Smith needs to provide more differentiated products than what it is currently offering in the marketplace.
Compensation and incentives
– The revenue per employee of AO Smith is just above the Electronic Instr. & Controls 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, AO Smith is slow explore the new channels of communication. These new channels of communication can help AO Smith to provide better information regarding Electronic Instr. & Controls products and services. It can also build an online community to further reach out to potential customers.
Ability to respond to the competition
– As the decision making is very deliberative at AO Smith, in the dynamic environment of Electronic Instr. & Controls industry it has struggled to respond to the nimble upstart competition. AO Smith has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
AO Smith Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of AO Smith are -
Buying journey improvements
– AO Smith can improve the customer journey of consumers in the Electronic Instr. & Controls 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.
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 AO Smith 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, AO Smith is facing challenges because of the dominance of functional experts in the organization. AO Smith can utilize new technology in the field of Electronic Instr. & Controls industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Learning at scale
– Online learning technologies has now opened space for AO Smith to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
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. AO Smith can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Leveraging digital technologies
– AO Smith 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for AO Smith in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Electronic Instr. & Controls industry, and it will provide faster access to the consumers.
Use of Bitcoin and other crypto currencies for transactions in Electronic Instr. & Controls industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for AO Smith in the Electronic Instr. & Controls industry. Now AO Smith can target international markets with far fewer capital restrictions requirements than the existing system.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for AO Smith 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 AO Smith to hire the very best people irrespective of their geographical location.
Creating value in data economy
– The success of analytics program of AO Smith has opened avenues for new revenue streams for the organization in Electronic Instr. & Controls industry. This can help AO Smith to build a more holistic ecosystem for AO Smith products in the Electronic Instr. & Controls industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Building a culture of innovation
– managers at AO Smith 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 Electronic Instr. & Controls industry.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, AO Smith 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 AO Smith to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, AO Smith can use these opportunities to build new business models that can help the communities that AO Smith operates in. Secondly it can use opportunities from government spending in Electronic Instr. & Controls sector.
Threats AO Smith External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of AO Smith are -
Regulatory challenges
– AO Smith 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 Electronic Instr. & Controls industry regulations.
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.
Easy access to finance
– Easy access to finance in Electronic Instr. & Controls industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. AO Smith can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Stagnating economy with rate increase
– AO Smith 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 Electronic Instr. & Controls industry.
Consumer confidence and its impact on AO Smith 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 Electronic Instr. & Controls industry and other sectors.
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, AO Smith 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 AO Smith prominent markets.
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 AO Smith.
Increasing wage structure of AO Smith
– 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 AO Smith.
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. AO Smith needs to understand the core reasons impacting the Electronic Instr. & Controls 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, AO Smith may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Electronic Instr. & Controls sector.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Electronic Instr. & Controls industry are lowering. It can presents AO Smith with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Electronic Instr. & Controls sector.
High dependence on third party suppliers
– AO Smith 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.
Weighted SWOT Analysis of AO Smith Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at AO Smith 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 AO Smith 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 AO Smith 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 AO Smith 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 AO Smith needs to make to build a sustainable competitive advantage.