SWOT Analysis / TOWS Matrix for PennyMac Financial (United States)
Based on various researches at Oak Spring University , PennyMac Financial is operating in a macro-environment that has been destablized by – increasing government debt because of Covid-19 spendings, customer relationship management is fast transforming because of increasing concerns over data privacy, challanges to central banks by blockchain based private currencies, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing energy prices, talent flight as more people leaving formal jobs, supply chains are disrupted by pandemic ,
there is increasing trade war between United States & China, geopolitical disruptions, etc
Introduction to SWOT Analysis of PennyMac Financial
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that PennyMac Financial can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the PennyMac Financial, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which PennyMac 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 PennyMac Financial can be done for the following purposes –
1. Strategic planning of PennyMac Financial
2. Improving business portfolio management of PennyMac Financial
3. Assessing feasibility of the new initiative in United States
4. Making a Consumer Financial Services sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of PennyMac Financial
Strengths of PennyMac Financial | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of PennyMac Financial are -
Sustainable margins compare to other players in Consumer Financial Services industry
– PennyMac Financial has clearly differentiated products in the market place. This has enabled PennyMac Financial to fetch slight price premium compare to the competitors in the Consumer Financial Services industry. The sustainable margins have also helped PennyMac Financial to invest into research and development (R&D) and innovation.
Strong track record of project management in the Consumer Financial Services industry
– PennyMac Financial is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Ability to lead change in Consumer Financial Services
– PennyMac Financial is one of the leading players in the Consumer Financial Services industry in United States. Over the years it has not only transformed the business landscape in the Consumer Financial Services industry in United States but also across the existing markets. The ability to lead change has enabled PennyMac Financial in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Organizational Resilience of PennyMac Financial
– The covid-19 pandemic has put organizational resilience at the centre of everthing PennyMac Financial does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Highly skilled collaborators
– PennyMac Financial has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Consumer Financial Services industry. Secondly the value chain collaborators of PennyMac Financial have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– PennyMac Financial has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – PennyMac Financial staying ahead in the Consumer Financial Services industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Operational resilience
– The operational resilience strategy of PennyMac Financial comprises – understanding the underlying the factors in the Consumer Financial 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.
Diverse revenue streams
– PennyMac Financial is present in almost all the verticals within the Consumer Financial Services industry. This has provided PennyMac 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.
Digital Transformation in Consumer Financial Services industry
- digital transformation varies from industry to industry. For PennyMac Financial digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. PennyMac Financial has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Ability to recruit top talent
– PennyMac Financial is one of the leading players in the Consumer Financial Services 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.
Successful track record of launching new products
– PennyMac Financial has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. PennyMac 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.
Low bargaining power of suppliers
– Suppliers of PennyMac Financial in the Financial sector have low bargaining power. PennyMac Financial has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps PennyMac Financial to manage not only supply disruptions but also source products at highly competitive prices.
Weaknesses of PennyMac Financial | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of PennyMac Financial are -
Lack of clear differentiation of PennyMac Financial products
– To increase the profitability and margins on the products, PennyMac Financial needs to provide more differentiated products than what it is currently offering in the marketplace.
Slow decision making process
– As mentioned earlier in the report, PennyMac Financial has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Consumer Financial Services industry over the last five years. PennyMac Financial 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, PennyMac Financial is slow explore the new channels of communication. These new channels of communication can help PennyMac Financial to provide better information regarding Consumer Financial Services products and services. It can also build an online community to further reach out to potential customers.
Low market penetration in new markets
– Outside its home market of United States, PennyMac Financial needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Ability to respond to the competition
– As the decision making is very deliberative at PennyMac Financial, in the dynamic environment of Consumer Financial Services industry it has struggled to respond to the nimble upstart competition. PennyMac Financial has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Compensation and incentives
– The revenue per employee of PennyMac Financial is just above the Consumer Financial 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.
Capital Spending Reduction
– Even during the low interest decade, PennyMac 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 Consumer Financial Services industry using digital technology.
No frontier risks strategy
– From the 10K / annual statement of PennyMac Financial, it seems that company is thinking out the frontier risks that can impact Consumer Financial 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.
High bargaining power of channel partners in Consumer Financial Services industry
– because of the regulatory requirements in United States, PennyMac Financial 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 Consumer Financial Services industry.
High operating costs
– Compare to the competitors, PennyMac Financial has high operating costs in the Consumer Financial Services industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract PennyMac Financial lucrative customers.
Aligning sales with marketing
– From the outside it seems that PennyMac Financial needs to have more collaboration between its sales team and marketing team. Sales professionals in the Consumer Financial Services industry have deep experience in developing customer relationships. Marketing department at PennyMac Financial can leverage the sales team experience to cultivate customer relationships as PennyMac Financial is planning to shift buying processes online.
PennyMac Financial Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of PennyMac Financial are -
Learning at scale
– Online learning technologies has now opened space for PennyMac 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.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Consumer Financial Services industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. PennyMac 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. PennyMac 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.
Creating value in data economy
– The success of analytics program of PennyMac Financial has opened avenues for new revenue streams for the organization in Consumer Financial Services industry. This can help PennyMac Financial to build a more holistic ecosystem for PennyMac Financial products in the Consumer Financial Services industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– PennyMac Financial 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.
Buying journey improvements
– PennyMac Financial can improve the customer journey of consumers in the Consumer Financial Services industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Redefining models of collaboration and team work
– As explained in the weaknesses section, PennyMac Financial is facing challenges because of the dominance of functional experts in the organization. PennyMac Financial can utilize new technology in the field of Consumer Financial Services 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 PennyMac Financial to increase its market reach. PennyMac 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.
Using analytics as competitive advantage
– PennyMac Financial has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Consumer Financial Services sector. This continuous investment in analytics has enabled PennyMac Financial to build a competitive advantage using analytics. The analytics driven competitive advantage can help PennyMac Financial to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects PennyMac Financial can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, PennyMac Financial can use these opportunities to build new business models that can help the communities that PennyMac Financial operates in. Secondly it can use opportunities from government spending in Consumer Financial Services sector.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, PennyMac Financial 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 PennyMac Financial to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Manufacturing automation
– PennyMac Financial can use the latest technology developments to improve its manufacturing and designing process in Consumer Financial Services 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for PennyMac 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 Consumer Financial Services industry, and it will provide faster access to the consumers.
Threats PennyMac Financial External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of PennyMac 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. PennyMac 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.
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 PennyMac Financial.
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.
Environmental challenges
– PennyMac 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. PennyMac Financial can take advantage of this fund but it will also bring new competitors in the Consumer Financial Services industry.
Consumer confidence and its impact on PennyMac 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 Consumer Financial Services industry and other sectors.
Regulatory challenges
– PennyMac 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 Consumer Financial Services industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, PennyMac Financial may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Consumer Financial Services sector.
High dependence on third party suppliers
– PennyMac Financial 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.
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 PennyMac Financial business can come under increasing regulations regarding data privacy, data security, etc.
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. PennyMac Financial needs to understand the core reasons impacting the Consumer Financial Services industry. This will help it in building a better workplace.
Technology acceleration in Forth Industrial Revolution
– PennyMac Financial has witnessed rapid integration of technology during Covid-19 in the Consumer Financial Services industry. As one of the leading players in the industry, PennyMac Financial needs to keep up with the evolution of technology in the Consumer Financial Services 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.
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 wage structure of PennyMac Financial
– 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 PennyMac Financial.
Weighted SWOT Analysis of PennyMac Financial Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at PennyMac 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 PennyMac 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 PennyMac 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 PennyMac 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 PennyMac Financial needs to make to build a sustainable competitive advantage.