SWOT Analysis / TOWS Matrix for Berkshire Hathaway (United States)
Based on various researches at Oak Spring University , Berkshire Hathaway is operating in a macro-environment that has been destablized by – central banks are concerned over increasing inflation, increasing household debt because of falling income levels, technology disruption, increasing transportation and logistics costs, challanges to central banks by blockchain based private currencies, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies,
increasing energy prices, there is increasing trade war between United States & China, etc
Introduction to SWOT Analysis of Berkshire Hathaway
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Berkshire Hathaway can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Berkshire Hathaway, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Berkshire Hathaway 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 Berkshire Hathaway can be done for the following purposes –
1. Strategic planning of Berkshire Hathaway
2. Improving business portfolio management of Berkshire Hathaway
3. Assessing feasibility of the new initiative in United States
4. Making a Insurance (Prop. & Casualty) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Berkshire Hathaway
Strengths of Berkshire Hathaway | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Berkshire Hathaway are -
Low bargaining power of suppliers
– Suppliers of Berkshire Hathaway in the Financial sector have low bargaining power. Berkshire Hathaway has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Berkshire Hathaway to manage not only supply disruptions but also source products at highly competitive prices.
Organizational Resilience of Berkshire Hathaway
– The covid-19 pandemic has put organizational resilience at the centre of everthing Berkshire Hathaway does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Sustainable margins compare to other players in Insurance (Prop. & Casualty) industry
– Berkshire Hathaway has clearly differentiated products in the market place. This has enabled Berkshire Hathaway to fetch slight price premium compare to the competitors in the Insurance (Prop. & Casualty) industry. The sustainable margins have also helped Berkshire Hathaway to invest into research and development (R&D) and innovation.
Successful track record of launching new products
– Berkshire Hathaway has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Berkshire Hathaway 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.
Operational resilience
– The operational resilience strategy of Berkshire Hathaway comprises – understanding the underlying the factors in the Insurance (Prop. & Casualty) 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.
Innovation driven organization
– Berkshire Hathaway is one of the most innovative firm in Insurance (Prop. & Casualty) sector.
Highly skilled collaborators
– Berkshire Hathaway has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Insurance (Prop. & Casualty) industry. Secondly the value chain collaborators of Berkshire Hathaway have helped the firm to develop new products and bring them quickly to the marketplace.
Strong track record of project management in the Insurance (Prop. & Casualty) industry
– Berkshire Hathaway is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Learning organization
- Berkshire Hathaway 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 Berkshire Hathaway is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Berkshire Hathaway emphasize – knowledge, initiative, and innovation.
Cross disciplinary teams
– Horizontal connected teams at the Berkshire Hathaway 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.
High brand equity
– Berkshire Hathaway has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Berkshire Hathaway to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Superior customer experience
– The customer experience strategy of Berkshire Hathaway in Insurance (Prop. & Casualty) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses of Berkshire Hathaway | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Berkshire Hathaway are -
High cash cycle compare to competitors
Berkshire Hathaway has a high cash cycle compare to other players in the Insurance (Prop. & Casualty) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Lack of clear differentiation of Berkshire Hathaway products
– To increase the profitability and margins on the products, Berkshire Hathaway needs to provide more differentiated products than what it is currently offering in the marketplace.
Ability to respond to the competition
– As the decision making is very deliberative at Berkshire Hathaway, in the dynamic environment of Insurance (Prop. & Casualty) industry it has struggled to respond to the nimble upstart competition. Berkshire Hathaway has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Skills based hiring in Insurance (Prop. & Casualty) industry
– The stress on hiring functional specialists at Berkshire Hathaway 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Berkshire Hathaway is slow explore the new channels of communication. These new channels of communication can help Berkshire Hathaway to provide better information regarding Insurance (Prop. & Casualty) products and services. It can also build an online community to further reach out to potential customers.
High operating costs
– Compare to the competitors, Berkshire Hathaway has high operating costs in the Insurance (Prop. & Casualty) industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Berkshire Hathaway lucrative customers.
Slow to strategic competitive environment developments
– As Berkshire Hathaway is one of the leading players in the Insurance (Prop. & Casualty) industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Insurance (Prop. & Casualty) industry in last five years.
Employees’ less understanding of Berkshire Hathaway strategy
– From the outside it seems that the employees of Berkshire Hathaway 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, Berkshire Hathaway needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
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 Berkshire Hathaway supply chain. Even after few cautionary changes, Berkshire Hathaway is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Berkshire Hathaway vulnerable to further global disruptions in South East Asia.
Aligning sales with marketing
– From the outside it seems that Berkshire Hathaway needs to have more collaboration between its sales team and marketing team. Sales professionals in the Insurance (Prop. & Casualty) industry have deep experience in developing customer relationships. Marketing department at Berkshire Hathaway can leverage the sales team experience to cultivate customer relationships as Berkshire Hathaway is planning to shift buying processes online.
Berkshire Hathaway Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Berkshire Hathaway are -
Learning at scale
– Online learning technologies has now opened space for Berkshire Hathaway 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Berkshire Hathaway 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 Berkshire Hathaway to hire the very best people irrespective of their geographical location.
Better consumer reach
– The expansion of the 5G network will help Berkshire Hathaway to increase its market reach. Berkshire Hathaway 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Berkshire Hathaway can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Berkshire Hathaway 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 Berkshire Hathaway to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Building a culture of innovation
– managers at Berkshire Hathaway 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 Insurance (Prop. & Casualty) industry.
Low interest rates
– Even though inflation is raising its head in most developed economies, Berkshire Hathaway 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Berkshire Hathaway in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Insurance (Prop. & Casualty) industry, and it will provide faster access to the consumers.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Berkshire Hathaway can use these opportunities to build new business models that can help the communities that Berkshire Hathaway operates in. Secondly it can use opportunities from government spending in Insurance (Prop. & Casualty) sector.
Creating value in data economy
– The success of analytics program of Berkshire Hathaway has opened avenues for new revenue streams for the organization in Insurance (Prop. & Casualty) industry. This can help Berkshire Hathaway to build a more holistic ecosystem for Berkshire Hathaway products in the Insurance (Prop. & Casualty) 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 Insurance (Prop. & Casualty) industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Berkshire Hathaway in the Insurance (Prop. & Casualty) industry. Now Berkshire Hathaway can target international markets with far fewer capital restrictions requirements than the existing system.
Loyalty marketing
– Berkshire Hathaway 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.
Developing new processes and practices
– Berkshire Hathaway can develop new processes and procedures in Insurance (Prop. & Casualty) 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.
Threats Berkshire Hathaway External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Berkshire Hathaway are -
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 Berkshire Hathaway in the Insurance (Prop. & Casualty) sector and impact the bottomline of the organization.
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 Insurance (Prop. & Casualty) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Berkshire Hathaway 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. Berkshire Hathaway 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.
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 Berkshire Hathaway 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 Insurance (Prop. & Casualty) industry are lowering. It can presents Berkshire Hathaway with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Insurance (Prop. & Casualty) sector.
Regulatory challenges
– Berkshire Hathaway 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 Insurance (Prop. & Casualty) industry regulations.
Shortening product life cycle
– it is one of the major threat that Berkshire Hathaway is facing in Insurance (Prop. & Casualty) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Environmental challenges
– Berkshire Hathaway 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. Berkshire Hathaway can take advantage of this fund but it will also bring new competitors in the Insurance (Prop. & Casualty) industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Berkshire Hathaway may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Insurance (Prop. & Casualty) sector.
High dependence on third party suppliers
– Berkshire Hathaway 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.
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 Berkshire Hathaway.
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. Berkshire Hathaway needs to understand the core reasons impacting the Insurance (Prop. & Casualty) industry. This will help it in building a better workplace.
Weighted SWOT Analysis of Berkshire Hathaway Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway needs to make to build a sustainable competitive advantage.