Fortum (FOJCF) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Fortum (United States)

Based on various researches at Oak Spring University , Fortum is operating in a macro-environment that has been destablized by – there is increasing trade war between United States & China, increasing household debt because of falling income levels, supply chains are disrupted by pandemic , there is backlash against globalization, increasing commodity prices, talent flight as more people leaving formal jobs, increasing energy prices, technology disruption, competitive advantages are harder to sustain because of technology dispersion, etc

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Introduction to SWOT Analysis of Fortum

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Fortum can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Fortum, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Fortum 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 Fortum can be done for the following purposes –
1. Strategic planning of Fortum
2. Improving business portfolio management of Fortum
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 Fortum

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

The strengths of Fortum are -

Effective Research and Development (R&D)

– Fortum has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Fortum 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.

Superior customer experience

– The customer experience strategy of Fortum in Electric Utilities industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.

Sustainable margins compare to other players in Electric Utilities industry

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

Highly skilled collaborators

– Fortum 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 Fortum have helped the firm to develop new products and bring them quickly to the marketplace.

Training and development

– Fortum has one of the best training and development program in Utilities 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.

Strong track record of project management in the Electric Utilities industry

– Fortum is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.

Low bargaining power of suppliers

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

Operational resilience

– The operational resilience strategy of Fortum comprises – understanding the underlying the factors in the Electric Utilities 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.

High switching costs

– The high switching costs that Fortum 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.

Diverse revenue streams

– Fortum is present in almost all the verticals within the Electric Utilities industry. This has provided Fortum 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.

Successful track record of launching new products

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

Cross disciplinary teams

– Horizontal connected teams at the Fortum 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.

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

The weaknesses of Fortum are -

Capital Spending Reduction

– Even during the low interest decade, Fortum 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.

Skills based hiring in Electric Utilities industry

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

Slow to strategic competitive environment developments

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

Slow decision making process

– As mentioned earlier in the report, Fortum has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Electric Utilities industry over the last five years. Fortum 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.

High operating costs

– Compare to the competitors, Fortum has high operating costs in the Electric Utilities industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Fortum lucrative customers.

Compensation and incentives

– The revenue per employee of Fortum 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.

Interest costs

– Compare to the competition, Fortum 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.

Lack of clear differentiation of Fortum products

– To increase the profitability and margins on the products, Fortum needs to provide more differentiated products than what it is currently offering in the marketplace.

Aligning sales with marketing

– From the outside it seems that Fortum 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 Fortum can leverage the sales team experience to cultivate customer relationships as Fortum is planning to shift buying processes online.

Need for greater diversity

– Fortum 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.

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

The opportunities of Fortum are -

Reforming the budgeting process

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

Creating value in data economy

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

Increase in government spending

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

Remote work and new talent hiring opportunities

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

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, Fortum 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 Fortum to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.

Leveraging digital technologies

– Fortum 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.

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. Fortum 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. Fortum 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.

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. Fortum can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Better consumer reach

– The expansion of the 5G network will help Fortum to increase its market reach. Fortum 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.

Loyalty marketing

– Fortum 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.

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 Fortum 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.

Using analytics as competitive advantage

– Fortum 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 Fortum to build a competitive advantage using analytics. The analytics driven competitive advantage can help Fortum to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

Lowering marketing communication costs

– 5G expansion will open new opportunities for Fortum 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.

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

The threats of Fortum are -

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. Fortum can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

Environmental challenges

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

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 Fortum in the Electric Utilities sector and impact the bottomline of the organization.

Technology acceleration in Forth Industrial Revolution

– Fortum has witnessed rapid integration of technology during Covid-19 in the Electric Utilities industry. As one of the leading players in the industry, Fortum needs to keep up with the evolution of technology in the Electric Utilities 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.

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. Fortum 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 Fortum business can come under increasing regulations regarding data privacy, data security, etc.

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, Fortum 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.

Consumer confidence and its impact on Fortum 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 Electric Utilities industry and other sectors.

Barriers of entry lowering

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

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.

Stagnating economy with rate increase

– Fortum 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.

Regulatory challenges

– Fortum 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.

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 Fortum.

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Weighted SWOT Analysis of Fortum Template, Example

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

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