SWOT Analysis / TOWS Matrix for Interactive Brokers (United States)
Based on various researches at Oak Spring University , Interactive Brokers is operating in a macro-environment that has been destablized by – increasing commodity prices, increasing inequality as vast percentage of new income is going to the top 1%, cloud computing is disrupting traditional business models, digital marketing is dominated by two big players Facebook and Google, geopolitical disruptions, technology disruption, central banks are concerned over increasing inflation,
increasing government debt because of Covid-19 spendings, there is increasing trade war between United States & China, etc
Introduction to SWOT Analysis of Interactive Brokers
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Interactive Brokers can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Interactive Brokers, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Interactive Brokers 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 Interactive Brokers can be done for the following purposes –
1. Strategic planning of Interactive Brokers
2. Improving business portfolio management of Interactive Brokers
3. Assessing feasibility of the new initiative in United States
4. Making a Investment Services sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Interactive Brokers
Strengths of Interactive Brokers | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Interactive Brokers are -
Highly skilled collaborators
– Interactive Brokers has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Investment Services industry. Secondly the value chain collaborators of Interactive Brokers have helped the firm to develop new products and bring them quickly to the marketplace.
Ability to lead change in Investment Services
– Interactive Brokers is one of the leading players in the Investment Services industry in United States. Over the years it has not only transformed the business landscape in the Investment Services industry in United States but also across the existing markets. The ability to lead change has enabled Interactive Brokers in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Operational resilience
– The operational resilience strategy of Interactive Brokers comprises – understanding the underlying the factors in the Investment Services 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
– Interactive Brokers is one of the most innovative firm in Investment Services sector.
Learning organization
- Interactive Brokers 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 Interactive Brokers is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Interactive Brokers emphasize – knowledge, initiative, and innovation.
Diverse revenue streams
– Interactive Brokers is present in almost all the verticals within the Investment Services industry. This has provided Interactive Brokers 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.
High brand equity
– Interactive Brokers has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Interactive Brokers to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Strong track record of project management in the Investment Services industry
– Interactive Brokers is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Cross disciplinary teams
– Horizontal connected teams at the Interactive Brokers 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.
Analytics focus
– Interactive Brokers 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 Investment Services 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.
Successful track record of launching new products
– Interactive Brokers has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Interactive Brokers 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.
Effective Research and Development (R&D)
– Interactive Brokers has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Interactive Brokers staying ahead in the Investment Services industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses of Interactive Brokers | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Interactive Brokers are -
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Interactive Brokers is slow explore the new channels of communication. These new channels of communication can help Interactive Brokers to provide better information regarding Investment Services products and services. It can also build an online community to further reach out to potential customers.
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 Interactive Brokers supply chain. Even after few cautionary changes, Interactive Brokers is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Interactive Brokers vulnerable to further global disruptions in South East Asia.
No frontier risks strategy
– From the 10K / annual statement of Interactive Brokers, it seems that company is thinking out the frontier risks that can impact Investment Services 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.
Employees’ less understanding of Interactive Brokers strategy
– From the outside it seems that the employees of Interactive Brokers 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.
Products dominated business model
– Even though Interactive Brokers has some of the most successful models in the Investment Services industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Interactive Brokers should strive to include more intangible value offerings along with its core products and services.
Skills based hiring in Investment Services industry
– The stress on hiring functional specialists at Interactive Brokers 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.
High bargaining power of channel partners in Investment Services industry
– because of the regulatory requirements in United States, Interactive Brokers 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 Investment Services industry.
Compensation and incentives
– The revenue per employee of Interactive Brokers is just above the Investment Services 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.
Aligning sales with marketing
– From the outside it seems that Interactive Brokers needs to have more collaboration between its sales team and marketing team. Sales professionals in the Investment Services industry have deep experience in developing customer relationships. Marketing department at Interactive Brokers can leverage the sales team experience to cultivate customer relationships as Interactive Brokers is planning to shift buying processes online.
Increasing silos among functional specialists
– The organizational structure of Interactive Brokers is dominated by functional specialists. It is not different from other players in the Investment Services industry, but Interactive Brokers needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Interactive Brokers to focus more on services in the Investment Services industry rather than just following the product oriented approach.
Ability to respond to the competition
– As the decision making is very deliberative at Interactive Brokers, in the dynamic environment of Investment Services industry it has struggled to respond to the nimble upstart competition. Interactive Brokers has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interactive Brokers Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Interactive Brokers are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Interactive Brokers 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 Interactive Brokers to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Use of Bitcoin and other crypto currencies for transactions in Investment Services industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Interactive Brokers in the Investment Services industry. Now Interactive Brokers can target international markets with far fewer capital restrictions requirements than the existing system.
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 Interactive Brokers 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Interactive Brokers 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 Interactive Brokers to hire the very best people irrespective of their geographical location.
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. Interactive Brokers can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Interactive Brokers can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Using analytics as competitive advantage
– Interactive Brokers has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Investment Services sector. This continuous investment in analytics has enabled Interactive Brokers to build a competitive advantage using analytics. The analytics driven competitive advantage can help Interactive Brokers to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Building a culture of innovation
– managers at Interactive Brokers 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 Investment Services industry.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Interactive Brokers is facing challenges because of the dominance of functional experts in the organization. Interactive Brokers can utilize new technology in the field of Investment Services industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Interactive Brokers in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Investment Services industry, and it will provide faster access to the consumers.
Learning at scale
– Online learning technologies has now opened space for Interactive Brokers 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.
Developing new processes and practices
– Interactive Brokers can develop new processes and procedures in Investment Services 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Interactive Brokers 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.
Threats Interactive Brokers External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Interactive Brokers are -
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, Interactive Brokers 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 Interactive Brokers prominent markets.
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 Interactive Brokers in the Investment Services 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.
Increasing wage structure of Interactive Brokers
– 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 Interactive Brokers.
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 Interactive Brokers business can come under increasing regulations regarding data privacy, data security, etc.
Stagnating economy with rate increase
– Interactive Brokers 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 Investment Services industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Interactive Brokers may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Investment Services sector.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Interactive Brokers in Investment Services industry. The Investment Services 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.
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. Interactive Brokers 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.
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 Interactive Brokers.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Investment Services industry are lowering. It can presents Interactive Brokers with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Investment Services sector.
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. Interactive Brokers needs to understand the core reasons impacting the Investment Services industry. This will help it in building a better workplace.
Weighted SWOT Analysis of Interactive Brokers Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Interactive Brokers 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 Interactive Brokers 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 Interactive Brokers 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 Interactive Brokers 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 Interactive Brokers needs to make to build a sustainable competitive advantage.