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 – cloud computing is disrupting traditional business models, central banks are concerned over increasing inflation, increasing inequality as vast percentage of new income is going to the top 1%, geopolitical disruptions, increasing energy prices, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing household debt because of falling income levels,
customer relationship management is fast transforming because of increasing concerns over data privacy, increasing commodity prices, 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 -
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.
Innovation driven organization
– AO Smith is one of the most innovative firm in Electronic Instr. & Controls sector.
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.
Highly skilled collaborators
– AO Smith has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Electronic Instr. & Controls industry. Secondly the value chain collaborators of AO Smith have helped the firm to develop new products and bring them quickly to the marketplace.
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.
Ability to lead change in Electronic Instr. & Controls
– AO Smith is one of the leading players in the Electronic Instr. & Controls industry in United States. Over the years it has not only transformed the business landscape in the Electronic Instr. & Controls industry in United States but also across the existing markets. The ability to lead change has enabled AO Smith in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
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.
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.
Operational resilience
– The operational resilience strategy of AO Smith comprises – understanding the underlying the factors in the Electronic Instr. & Controls industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Digital Transformation in Electronic Instr. & Controls industry
- digital transformation varies from industry to industry. For AO Smith digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. AO Smith 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.
Training and development
– AO Smith has one of the best training and development program in Technology 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.
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.
Weaknesses of AO Smith | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of AO Smith are -
Workers concerns about automation
– As automation is fast increasing in the Electronic Instr. & Controls industry, AO Smith needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
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.
Increasing silos among functional specialists
– The organizational structure of AO Smith is dominated by functional specialists. It is not different from other players in the Electronic Instr. & Controls industry, but AO Smith needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help AO Smith to focus more on services in the Electronic Instr. & Controls industry rather than just following the product oriented approach.
Slow decision making process
– As mentioned earlier in the report, AO Smith has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Electronic Instr. & Controls industry over the last five years. AO Smith even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
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.
Employees’ less understanding of AO Smith strategy
– From the outside it seems that the employees of AO Smith 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 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.
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.
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 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.
Need for greater diversity
– AO Smith 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.
AO Smith Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of AO Smith are -
Loyalty marketing
– AO Smith 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.
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.
Manufacturing automation
– AO Smith can use the latest technology developments to improve its manufacturing and designing process in Electronic Instr. & Controls sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Using analytics as competitive advantage
– AO Smith has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Electronic Instr. & Controls sector. This continuous investment in analytics has enabled AO Smith to build a competitive advantage using analytics. The analytics driven competitive advantage can help AO Smith to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
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.
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.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Electronic Instr. & Controls industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. AO Smith 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. AO Smith 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 AO Smith 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
– AO Smith can develop new processes and procedures in Electronic Instr. & Controls 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.
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.
Better consumer reach
– The expansion of the 5G network will help AO Smith to increase its market reach. AO Smith 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, 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 -
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.
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
– 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.
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.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for AO Smith in Electronic Instr. & Controls industry. The Electronic Instr. & Controls 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.
Environmental challenges
– AO Smith 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. AO Smith can take advantage of this fund but it will also bring new competitors in the Electronic Instr. & Controls industry.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of AO Smith business can come under increasing regulations regarding data privacy, data security, etc.
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.
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.
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.
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 AO Smith in the Electronic Instr. & Controls sector and impact the bottomline of the organization.
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.
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.
