LKQ (LKQ) SWOT Analysis / TOWS Matrix / MBA Resources
Auto & Truck Parts
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for LKQ (United States)
Based on various researches at Oak Spring University , LKQ is operating in a macro-environment that has been destablized by – talent flight as more people leaving formal jobs, increasing inequality as vast percentage of new income is going to the top 1%, competitive advantages are harder to sustain because of technology dispersion, increasing government debt because of Covid-19 spendings, increasing commodity prices, increasing household debt because of falling income levels, technology disruption,
wage bills are increasing, increasing energy prices, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that LKQ can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the LKQ, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which LKQ 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 LKQ can be done for the following purposes –
1. Strategic planning of LKQ
2. Improving business portfolio management of LKQ
3. Assessing feasibility of the new initiative in United States
4. Making a Auto & Truck Parts sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of LKQ
Strengths of LKQ | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of LKQ are -
Training and development
– LKQ has one of the best training and development program in Consumer Cyclical 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.
Low bargaining power of suppliers
– Suppliers of LKQ in the Consumer Cyclical sector have low bargaining power. LKQ has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps LKQ to manage not only supply disruptions but also source products at highly competitive prices.
Organizational Resilience of LKQ
– The covid-19 pandemic has put organizational resilience at the centre of everthing LKQ does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Successful track record of launching new products
– LKQ has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. LKQ 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.
High switching costs
– The high switching costs that LKQ 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.
Analytics focus
– LKQ 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 Auto & Truck Parts 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.
Learning organization
- LKQ 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 LKQ is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at LKQ emphasize – knowledge, initiative, and innovation.
Ability to recruit top talent
– LKQ is one of the leading players in the Auto & Truck Parts 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.
Ability to lead change in Auto & Truck Parts
– LKQ is one of the leading players in the Auto & Truck Parts industry in United States. Over the years it has not only transformed the business landscape in the Auto & Truck Parts industry in United States but also across the existing markets. The ability to lead change has enabled LKQ 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 LKQ comprises – understanding the underlying the factors in the Auto & Truck Parts 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 brand equity
– LKQ has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled LKQ to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Sustainable margins compare to other players in Auto & Truck Parts industry
– LKQ has clearly differentiated products in the market place. This has enabled LKQ to fetch slight price premium compare to the competitors in the Auto & Truck Parts industry. The sustainable margins have also helped LKQ to invest into research and development (R&D) and innovation.
Weaknesses of LKQ | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of LKQ are -
Interest costs
– Compare to the competition, LKQ 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 LKQ products
– To increase the profitability and margins on the products, LKQ needs to provide more differentiated products than what it is currently offering in the marketplace.
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 LKQ supply chain. Even after few cautionary changes, LKQ is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left LKQ vulnerable to further global disruptions in South East Asia.
Need for greater diversity
– LKQ 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.
Workers concerns about automation
– As automation is fast increasing in the Auto & Truck Parts industry, LKQ 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.
High operating costs
– Compare to the competitors, LKQ has high operating costs in the Auto & Truck Parts industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract LKQ lucrative customers.
Skills based hiring in Auto & Truck Parts industry
– The stress on hiring functional specialists at LKQ 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 cash cycle compare to competitors
LKQ has a high cash cycle compare to other players in the Auto & Truck Parts industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High bargaining power of channel partners in Auto & Truck Parts industry
– because of the regulatory requirements in United States, LKQ 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 Auto & Truck Parts industry.
Aligning sales with marketing
– From the outside it seems that LKQ needs to have more collaboration between its sales team and marketing team. Sales professionals in the Auto & Truck Parts industry have deep experience in developing customer relationships. Marketing department at LKQ can leverage the sales team experience to cultivate customer relationships as LKQ is planning to shift buying processes online.
High dependence on LKQ ‘s star products
– The top 2 products and services of LKQ still accounts for major business revenue. This dependence on star products in Auto & Truck Parts industry has resulted into insufficient focus on developing new products, even though LKQ has relatively successful track record of launching new products.
LKQ Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of LKQ are -
Developing new processes and practices
– LKQ can develop new processes and procedures in Auto & Truck Parts 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.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Auto & Truck Parts industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. LKQ 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. LKQ 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.
Learning at scale
– Online learning technologies has now opened space for LKQ 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.
Using analytics as competitive advantage
– LKQ has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Auto & Truck Parts sector. This continuous investment in analytics has enabled LKQ to build a competitive advantage using analytics. The analytics driven competitive advantage can help LKQ 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 LKQ has opened avenues for new revenue streams for the organization in Auto & Truck Parts industry. This can help LKQ to build a more holistic ecosystem for LKQ products in the Auto & Truck Parts industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, LKQ is facing challenges because of the dominance of functional experts in the organization. LKQ can utilize new technology in the field of Auto & Truck Parts 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 LKQ to increase its market reach. LKQ 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, LKQ 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.
Manufacturing automation
– LKQ can use the latest technology developments to improve its manufacturing and designing process in Auto & Truck Parts 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.
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. LKQ can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for LKQ 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 LKQ to hire the very best people irrespective of their geographical location.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Auto & Truck Parts industry, but it has also influenced the consumer preferences. LKQ can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects LKQ can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats LKQ External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of LKQ are -
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 LKQ business can come under increasing regulations regarding data privacy, data security, etc.
Technology acceleration in Forth Industrial Revolution
– LKQ has witnessed rapid integration of technology during Covid-19 in the Auto & Truck Parts industry. As one of the leading players in the industry, LKQ needs to keep up with the evolution of technology in the Auto & Truck Parts 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.
Shortening product life cycle
– it is one of the major threat that LKQ is facing in Auto & Truck Parts sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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 LKQ.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, LKQ 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 LKQ prominent markets.
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.
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. LKQ needs to understand the core reasons impacting the Auto & Truck Parts industry. This will help it in building a better workplace.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for LKQ in Auto & Truck Parts industry. The Auto & Truck Parts 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.
Stagnating economy with rate increase
– LKQ 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 Auto & Truck Parts industry.
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. LKQ 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 LKQ 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 Auto & Truck Parts industry and other sectors.
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 LKQ in the Auto & Truck Parts 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.
Weighted SWOT Analysis of LKQ Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at LKQ 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 LKQ 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 LKQ 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 LKQ 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 LKQ needs to make to build a sustainable competitive advantage.