SWOT Analysis / TOWS Matrix for Fairfax Financial (United States)
Based on various researches at Oak Spring University , Fairfax Financial is operating in a macro-environment that has been destablized by – there is backlash against globalization, increasing transportation and logistics costs, talent flight as more people leaving formal jobs, increasing inequality as vast percentage of new income is going to the top 1%, customer relationship management is fast transforming because of increasing concerns over data privacy, cloud computing is disrupting traditional business models, increasing energy prices,
supply chains are disrupted by pandemic , banking and financial system is disrupted by Bitcoin and other crypto currencies, etc
Introduction to SWOT Analysis of Fairfax Financial
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Fairfax Financial can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Fairfax Financial, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Fairfax Financial 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 Fairfax Financial can be done for the following purposes –
1. Strategic planning of Fairfax Financial
2. Improving business portfolio management of Fairfax Financial
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 Fairfax Financial
Strengths of Fairfax Financial | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Fairfax Financial are -
Innovation driven organization
– Fairfax Financial is one of the most innovative firm in Insurance (Prop. & Casualty) sector.
Ability to recruit top talent
– Fairfax Financial is one of the leading players in the Insurance (Prop. & Casualty) 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 brand equity
– Fairfax Financial has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Fairfax Financial to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Organizational Resilience of Fairfax Financial
– The covid-19 pandemic has put organizational resilience at the centre of everthing Fairfax Financial 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
– Fairfax Financial has clearly differentiated products in the market place. This has enabled Fairfax Financial to fetch slight price premium compare to the competitors in the Insurance (Prop. & Casualty) industry. The sustainable margins have also helped Fairfax Financial to invest into research and development (R&D) and innovation.
Superior customer experience
– The customer experience strategy of Fairfax Financial in Insurance (Prop. & Casualty) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Low bargaining power of suppliers
– Suppliers of Fairfax Financial in the Financial sector have low bargaining power. Fairfax Financial has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Fairfax Financial to manage not only supply disruptions but also source products at highly competitive prices.
Diverse revenue streams
– Fairfax Financial is present in almost all the verticals within the Insurance (Prop. & Casualty) industry. This has provided Fairfax Financial 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.
Effective Research and Development (R&D)
– Fairfax Financial has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Fairfax Financial staying ahead in the Insurance (Prop. & Casualty) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Learning organization
- Fairfax Financial 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 Fairfax Financial is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Fairfax Financial emphasize – knowledge, initiative, and innovation.
Successful track record of launching new products
– Fairfax Financial has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Fairfax Financial 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 Fairfax Financial 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.
Weaknesses of Fairfax Financial | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Fairfax Financial are -
Ability to respond to the competition
– As the decision making is very deliberative at Fairfax Financial, in the dynamic environment of Insurance (Prop. & Casualty) industry it has struggled to respond to the nimble upstart competition. Fairfax Financial has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Need for greater diversity
– Fairfax Financial 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.
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 Fairfax Financial supply chain. Even after few cautionary changes, Fairfax Financial is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Fairfax Financial vulnerable to further global disruptions in South East Asia.
Increasing silos among functional specialists
– The organizational structure of Fairfax Financial is dominated by functional specialists. It is not different from other players in the Insurance (Prop. & Casualty) industry, but Fairfax Financial needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Fairfax Financial to focus more on services in the Insurance (Prop. & Casualty) industry rather than just following the product oriented approach.
Workers concerns about automation
– As automation is fast increasing in the Insurance (Prop. & Casualty) industry, Fairfax Financial 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.
Compensation and incentives
– The revenue per employee of Fairfax Financial is just above the Insurance (Prop. & Casualty) 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.
Capital Spending Reduction
– Even during the low interest decade, Fairfax Financial 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 Insurance (Prop. & Casualty) industry using digital technology.
Low market penetration in new markets
– Outside its home market of United States, Fairfax Financial needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Lack of clear differentiation of Fairfax Financial products
– To increase the profitability and margins on the products, Fairfax Financial needs to provide more differentiated products than what it is currently offering in the marketplace.
Employees’ less understanding of Fairfax Financial strategy
– From the outside it seems that the employees of Fairfax Financial 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.
Interest costs
– Compare to the competition, Fairfax Financial 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.
Fairfax Financial Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Fairfax Financial are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Fairfax Financial is facing challenges because of the dominance of functional experts in the organization. Fairfax Financial can utilize new technology in the field of Insurance (Prop. & Casualty) industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, 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 Fairfax Financial in the Insurance (Prop. & Casualty) industry. Now Fairfax Financial can target international markets with far fewer capital restrictions requirements than the existing system.
Better consumer reach
– The expansion of the 5G network will help Fairfax Financial to increase its market reach. Fairfax Financial 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 Fairfax Financial can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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. Fairfax Financial can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Insurance (Prop. & Casualty) industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Fairfax Financial 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. Fairfax Financial 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Fairfax Financial 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 Fairfax Financial to hire the very best people irrespective of their geographical location.
Manufacturing automation
– Fairfax Financial can use the latest technology developments to improve its manufacturing and designing process in Insurance (Prop. & Casualty) 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.
Building a culture of innovation
– managers at Fairfax Financial 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, Fairfax Financial 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 Fairfax Financial 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.
Learning at scale
– Online learning technologies has now opened space for Fairfax Financial 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Fairfax Financial can use these opportunities to build new business models that can help the communities that Fairfax Financial operates in. Secondly it can use opportunities from government spending in Insurance (Prop. & Casualty) sector.
Threats Fairfax Financial External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Fairfax Financial are -
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. Fairfax Financial 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.
Consumer confidence and its impact on Fairfax Financial 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 Insurance (Prop. & Casualty) industry and other sectors.
Stagnating economy with rate increase
– Fairfax Financial 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 Insurance (Prop. & Casualty) industry.
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. Fairfax Financial can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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 Fairfax Financial.
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. Fairfax Financial needs to understand the core reasons impacting the Insurance (Prop. & Casualty) industry. This will help it in building a better workplace.
Regulatory challenges
– Fairfax Financial 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Insurance (Prop. & Casualty) industry are lowering. It can presents Fairfax Financial 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.
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 Fairfax Financial in the Insurance (Prop. & Casualty) sector and impact the bottomline of the organization.
Environmental challenges
– Fairfax Financial 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. Fairfax Financial can take advantage of this fund but it will also bring new competitors in the Insurance (Prop. & Casualty) industry.
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.
Shortening product life cycle
– it is one of the major threat that Fairfax Financial is facing in Insurance (Prop. & Casualty) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
Weighted SWOT Analysis of Fairfax Financial Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Fairfax Financial 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 Fairfax Financial 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 Fairfax Financial 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 Fairfax Financial 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 Fairfax Financial needs to make to build a sustainable competitive advantage.
