Based on various researches at Oak Spring University , Rolls Royce Holdings plc is operating in a macro-environment that has been destablized by – banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing transportation and logistics costs, supply chains are disrupted by pandemic , there is backlash against globalization, increasing government debt because of Covid-19 spendings, cloud computing is disrupting traditional business models, increasing inequality as vast percentage of new income is going to the top 1%,
technology disruption, increasing household debt because of falling income levels, etc
Introduction to SWOT Analysis of Rolls Royce Holdings plc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Rolls Royce Holdings plc can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Rolls Royce Holdings plc, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Rolls Royce Holdings plc 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 Rolls Royce Holdings plc can be done for the following purposes –
1. Strategic planning of Rolls Royce Holdings plc
2. Improving business portfolio management of Rolls Royce Holdings plc
3. Assessing feasibility of the new initiative in United States
4. Making a Aerospace & Defense sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Rolls Royce Holdings plc
Strengths of Rolls Royce Holdings plc | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Rolls Royce Holdings plc are -
Effective Research and Development (R&D)
– Rolls Royce Holdings plc has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Rolls Royce Holdings plc staying ahead in the Aerospace & Defense industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Diverse revenue streams
– Rolls Royce Holdings plc is present in almost all the verticals within the Aerospace & Defense industry. This has provided Rolls Royce Holdings plc 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
– Rolls Royce Holdings plc has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Rolls Royce Holdings plc to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Organizational Resilience of Rolls Royce Holdings plc
– The covid-19 pandemic has put organizational resilience at the centre of everthing Rolls Royce Holdings plc does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Operational resilience
– The operational resilience strategy of Rolls Royce Holdings plc comprises – understanding the underlying the factors in the Aerospace & Defense 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
– Rolls Royce Holdings plc is one of the most innovative firm in Aerospace & Defense sector.
Cross disciplinary teams
– Horizontal connected teams at the Rolls Royce Holdings plc 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.
Low bargaining power of suppliers
– Suppliers of Rolls Royce Holdings plc in the Capital Goods sector have low bargaining power. Rolls Royce Holdings plc has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Rolls Royce Holdings plc to manage not only supply disruptions but also source products at highly competitive prices.
Ability to recruit top talent
– Rolls Royce Holdings plc is one of the leading players in the Aerospace & Defense 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 Aerospace & Defense
– Rolls Royce Holdings plc is one of the leading players in the Aerospace & Defense industry in United States. Over the years it has not only transformed the business landscape in the Aerospace & Defense industry in United States but also across the existing markets. The ability to lead change has enabled Rolls Royce Holdings plc in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Strong track record of project management in the Aerospace & Defense industry
– Rolls Royce Holdings plc is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Sustainable margins compare to other players in Aerospace & Defense industry
– Rolls Royce Holdings plc has clearly differentiated products in the market place. This has enabled Rolls Royce Holdings plc to fetch slight price premium compare to the competitors in the Aerospace & Defense industry. The sustainable margins have also helped Rolls Royce Holdings plc to invest into research and development (R&D) and innovation.
Weaknesses of Rolls Royce Holdings plc | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Rolls Royce Holdings plc are -
Employees’ less understanding of Rolls Royce Holdings plc strategy
– From the outside it seems that the employees of Rolls Royce Holdings plc 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.
Low market penetration in new markets
– Outside its home market of United States, Rolls Royce Holdings plc needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Compensation and incentives
– The revenue per employee of Rolls Royce Holdings plc is just above the Aerospace & Defense 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.
Slow to strategic competitive environment developments
– As Rolls Royce Holdings plc is one of the leading players in the Aerospace & Defense industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Aerospace & Defense industry in last five years.
No frontier risks strategy
– From the 10K / annual statement of Rolls Royce Holdings plc, it seems that company is thinking out the frontier risks that can impact Aerospace & Defense 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 cash cycle compare to competitors
Rolls Royce Holdings plc has a high cash cycle compare to other players in the Aerospace & Defense industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Skills based hiring in Aerospace & Defense industry
– The stress on hiring functional specialists at Rolls Royce Holdings plc 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.
Products dominated business model
– Even though Rolls Royce Holdings plc has some of the most successful models in the Aerospace & Defense industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Rolls Royce Holdings plc should strive to include more intangible value offerings along with its core products and services.
Need for greater diversity
– Rolls Royce Holdings plc 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 Rolls Royce Holdings plc ‘s star products
– The top 2 products and services of Rolls Royce Holdings plc still accounts for major business revenue. This dependence on star products in Aerospace & Defense industry has resulted into insufficient focus on developing new products, even though Rolls Royce Holdings plc has relatively successful track record of launching new products.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Rolls Royce Holdings plc is slow explore the new channels of communication. These new channels of communication can help Rolls Royce Holdings plc to provide better information regarding Aerospace & Defense products and services. It can also build an online community to further reach out to potential customers.
Rolls Royce Holdings plc Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Rolls Royce Holdings plc are -
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Rolls Royce Holdings plc can use these opportunities to build new business models that can help the communities that Rolls Royce Holdings plc operates in. Secondly it can use opportunities from government spending in Aerospace & Defense sector.
Use of Bitcoin and other crypto currencies for transactions in Aerospace & Defense industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Rolls Royce Holdings plc in the Aerospace & Defense industry. Now Rolls Royce Holdings plc can target international markets with far fewer capital restrictions requirements than the existing system.
Learning at scale
– Online learning technologies has now opened space for Rolls Royce Holdings plc 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.
Creating value in data economy
– The success of analytics program of Rolls Royce Holdings plc has opened avenues for new revenue streams for the organization in Aerospace & Defense industry. This can help Rolls Royce Holdings plc to build a more holistic ecosystem for Rolls Royce Holdings plc products in the Aerospace & Defense industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Aerospace & Defense industry, but it has also influenced the consumer preferences. Rolls Royce Holdings plc can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Leveraging digital technologies
– Rolls Royce Holdings plc 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Rolls Royce Holdings plc 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.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Aerospace & Defense industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Rolls Royce Holdings plc 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. Rolls Royce Holdings plc 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Rolls Royce Holdings plc in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Aerospace & Defense industry, and it will provide faster access to the consumers.
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. Rolls Royce Holdings plc can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Buying journey improvements
– Rolls Royce Holdings plc can improve the customer journey of consumers in the Aerospace & Defense 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.
Developing new processes and practices
– Rolls Royce Holdings plc can develop new processes and procedures in Aerospace & Defense 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.
Using analytics as competitive advantage
– Rolls Royce Holdings plc has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Aerospace & Defense sector. This continuous investment in analytics has enabled Rolls Royce Holdings plc to build a competitive advantage using analytics. The analytics driven competitive advantage can help Rolls Royce Holdings plc to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats Rolls Royce Holdings plc External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Rolls Royce Holdings plc are -
Consumer confidence and its impact on Rolls Royce Holdings plc 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 Aerospace & Defense industry and other sectors.
Increasing wage structure of Rolls Royce Holdings plc
– 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 Rolls Royce Holdings plc.
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. Rolls Royce Holdings plc 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 Rolls Royce Holdings plc.
Stagnating economy with rate increase
– Rolls Royce Holdings plc 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 Aerospace & Defense industry.
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. Rolls Royce Holdings plc needs to understand the core reasons impacting the Aerospace & Defense 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 Rolls Royce Holdings plc in Aerospace & Defense industry. The Aerospace & Defense 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.
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 Rolls Royce Holdings plc business can come under increasing regulations regarding data privacy, data security, etc.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Rolls Royce Holdings plc 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 Rolls Royce Holdings plc prominent markets.
Shortening product life cycle
– it is one of the major threat that Rolls Royce Holdings plc is facing in Aerospace & Defense sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Easy access to finance
– Easy access to finance in Aerospace & Defense industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Rolls Royce Holdings plc can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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
– Rolls Royce Holdings plc 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. Rolls Royce Holdings plc can take advantage of this fund but it will also bring new competitors in the Aerospace & Defense industry.
Weighted SWOT Analysis of Rolls Royce Holdings plc Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Rolls Royce Holdings plc 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 Rolls Royce Holdings plc 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 Rolls Royce Holdings plc 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 Rolls Royce Holdings plc 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 Rolls Royce Holdings plc needs to make to build a sustainable competitive advantage.