Based on various researches at Oak Spring University , Rolls Royce Holdings plc is operating in a macro-environment that has been destablized by – technology disruption, increasing transportation and logistics costs, competitive advantages are harder to sustain because of technology dispersion, increasing household debt because of falling income levels, digital marketing is dominated by two big players Facebook and Google, challanges to central banks by blockchain based private currencies, increasing government debt because of Covid-19 spendings,
geopolitical disruptions, talent flight as more people leaving formal jobs, 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 -
Learning organization
- Rolls Royce Holdings plc 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 Rolls Royce Holdings plc is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Rolls Royce Holdings plc emphasize – knowledge, initiative, and innovation.
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.
Analytics focus
– Rolls Royce Holdings plc 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 Aerospace & Defense 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.
Training and development
– Rolls Royce Holdings plc has one of the best training and development program in Capital Goods 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.
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.
Highly skilled collaborators
– Rolls Royce Holdings plc has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Aerospace & Defense industry. Secondly the value chain collaborators of Rolls Royce Holdings plc have helped the firm to develop new products and bring them quickly to the marketplace.
Digital Transformation in Aerospace & Defense industry
- digital transformation varies from industry to industry. For Rolls Royce Holdings plc digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Rolls Royce Holdings plc 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.
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.
Innovation driven organization
– Rolls Royce Holdings plc is one of the most innovative firm in Aerospace & Defense sector.
High switching costs
– The high switching costs that Rolls Royce Holdings plc 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.
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.
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 -
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.
Slow decision making process
– As mentioned earlier in the report, Rolls Royce Holdings plc has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Aerospace & Defense industry over the last five years. Rolls Royce Holdings plc 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.
High bargaining power of channel partners in Aerospace & Defense industry
– because of the regulatory requirements in United States, Rolls Royce Holdings plc 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 Aerospace & Defense industry.
Increasing silos among functional specialists
– The organizational structure of Rolls Royce Holdings plc is dominated by functional specialists. It is not different from other players in the Aerospace & Defense industry, but Rolls Royce Holdings plc needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Rolls Royce Holdings plc to focus more on services in the Aerospace & Defense industry rather than just following the product oriented approach.
Lack of clear differentiation of Rolls Royce Holdings plc products
– To increase the profitability and margins on the products, Rolls Royce Holdings plc needs to provide more differentiated products than what it is currently offering in the marketplace.
Ability to respond to the competition
– As the decision making is very deliberative at Rolls Royce Holdings plc, in the dynamic environment of Aerospace & Defense industry it has struggled to respond to the nimble upstart competition. Rolls Royce Holdings plc has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
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.
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.
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.
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.
Workers concerns about automation
– As automation is fast increasing in the Aerospace & Defense industry, Rolls Royce Holdings plc 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.
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 -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Rolls Royce Holdings plc is facing challenges because of the dominance of functional experts in the organization. Rolls Royce Holdings plc can utilize new technology in the field of Aerospace & Defense industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, 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.
Manufacturing automation
– Rolls Royce Holdings plc can use the latest technology developments to improve its manufacturing and designing process in Aerospace & Defense 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.
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.
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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Rolls Royce Holdings plc 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 Rolls Royce Holdings plc to hire the very best people irrespective of their geographical location.
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.
Loyalty marketing
– Rolls Royce Holdings plc 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.
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.
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.
Better consumer reach
– The expansion of the 5G network will help Rolls Royce Holdings plc to increase its market reach. Rolls Royce Holdings plc 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.
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.
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.
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 -
High dependence on third party suppliers
– Rolls Royce Holdings plc 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.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Rolls Royce Holdings plc may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Aerospace & Defense sector.
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.
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 Rolls Royce Holdings plc in the Aerospace & Defense sector and impact the bottomline of the organization.
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.
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.
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.
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.
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.
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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Aerospace & Defense industry are lowering. It can presents Rolls Royce Holdings plc with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Aerospace & Defense sector.
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.