SWOT Analysis / TOWS Matrix for Steel Dynamics (United States)
Based on various researches at Oak Spring University , Steel Dynamics is operating in a macro-environment that has been destablized by – increasing transportation and logistics costs, supply chains are disrupted by pandemic , geopolitical disruptions, increasing inequality as vast percentage of new income is going to the top 1%, customer relationship management is fast transforming because of increasing concerns over data privacy, talent flight as more people leaving formal jobs, technology disruption,
competitive advantages are harder to sustain because of technology dispersion, increasing commodity prices, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Steel Dynamics can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Steel Dynamics, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Steel Dynamics 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 Steel Dynamics can be done for the following purposes –
1. Strategic planning of Steel Dynamics
2. Improving business portfolio management of Steel Dynamics
3. Assessing feasibility of the new initiative in United States
4. Making a Iron & Steel sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Steel Dynamics
Strengths of Steel Dynamics | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Steel Dynamics are -
Digital Transformation in Iron & Steel industry
- digital transformation varies from industry to industry. For Steel Dynamics digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Steel Dynamics 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.
Training and development
– Steel Dynamics has one of the best training and development program in Basic Materials 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.
High brand equity
– Steel Dynamics has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Steel Dynamics to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Diverse revenue streams
– Steel Dynamics is present in almost all the verticals within the Iron & Steel industry. This has provided Steel Dynamics 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.
Organizational Resilience of Steel Dynamics
– The covid-19 pandemic has put organizational resilience at the centre of everthing Steel Dynamics does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to lead change in Iron & Steel
– Steel Dynamics is one of the leading players in the Iron & Steel industry in United States. Over the years it has not only transformed the business landscape in the Iron & Steel industry in United States but also across the existing markets. The ability to lead change has enabled Steel Dynamics in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
High switching costs
– The high switching costs that Steel Dynamics 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.
Learning organization
- Steel Dynamics 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 Steel Dynamics is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Steel Dynamics emphasize – knowledge, initiative, and innovation.
Operational resilience
– The operational resilience strategy of Steel Dynamics comprises – understanding the underlying the factors in the Iron & Steel 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.
Effective Research and Development (R&D)
– Steel Dynamics has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Steel Dynamics staying ahead in the Iron & Steel industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Highly skilled collaborators
– Steel Dynamics has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Iron & Steel industry. Secondly the value chain collaborators of Steel Dynamics have helped the firm to develop new products and bring them quickly to the marketplace.
Low bargaining power of suppliers
– Suppliers of Steel Dynamics in the Basic Materials sector have low bargaining power. Steel Dynamics has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Steel Dynamics to manage not only supply disruptions but also source products at highly competitive prices.
Weaknesses of Steel Dynamics | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Steel Dynamics are -
Ability to respond to the competition
– As the decision making is very deliberative at Steel Dynamics, in the dynamic environment of Iron & Steel industry it has struggled to respond to the nimble upstart competition. Steel Dynamics has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Capital Spending Reduction
– Even during the low interest decade, Steel Dynamics 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 Iron & Steel industry using digital technology.
Interest costs
– Compare to the competition, Steel Dynamics 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.
Products dominated business model
– Even though Steel Dynamics has some of the most successful models in the Iron & Steel industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Steel Dynamics should strive to include more intangible value offerings along with its core products and services.
Employees’ less understanding of Steel Dynamics strategy
– From the outside it seems that the employees of Steel Dynamics 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.
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 Steel Dynamics supply chain. Even after few cautionary changes, Steel Dynamics is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Steel Dynamics vulnerable to further global disruptions in South East Asia.
High bargaining power of channel partners in Iron & Steel industry
– because of the regulatory requirements in United States, Steel Dynamics 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 Iron & Steel industry.
Compensation and incentives
– The revenue per employee of Steel Dynamics is just above the Iron & Steel 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.
Increasing silos among functional specialists
– The organizational structure of Steel Dynamics is dominated by functional specialists. It is not different from other players in the Iron & Steel industry, but Steel Dynamics needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Steel Dynamics to focus more on services in the Iron & Steel industry rather than just following the product oriented approach.
High cash cycle compare to competitors
Steel Dynamics has a high cash cycle compare to other players in the Iron & Steel industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Workers concerns about automation
– As automation is fast increasing in the Iron & Steel industry, Steel Dynamics 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.
Steel Dynamics Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Steel Dynamics are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Steel Dynamics 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.
Using analytics as competitive advantage
– Steel Dynamics has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Iron & Steel sector. This continuous investment in analytics has enabled Steel Dynamics to build a competitive advantage using analytics. The analytics driven competitive advantage can help Steel Dynamics to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Steel Dynamics 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 Steel Dynamics to hire the very best people irrespective of their geographical location.
Building a culture of innovation
– managers at Steel Dynamics can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Iron & Steel industry.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Steel Dynamics can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Steel Dynamics 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 Steel Dynamics to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Buying journey improvements
– Steel Dynamics can improve the customer journey of consumers in the Iron & Steel 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.
Learning at scale
– Online learning technologies has now opened space for Steel Dynamics 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 Iron & Steel industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Steel Dynamics 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. Steel Dynamics 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.
Manufacturing automation
– Steel Dynamics can use the latest technology developments to improve its manufacturing and designing process in Iron & Steel 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.
Loyalty marketing
– Steel Dynamics 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.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Iron & Steel industry, but it has also influenced the consumer preferences. Steel Dynamics can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Steel Dynamics in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Iron & Steel industry, and it will provide faster access to the consumers.
Threats Steel Dynamics External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Steel Dynamics are -
Increasing wage structure of Steel Dynamics
– 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 Steel Dynamics.
High dependence on third party suppliers
– Steel Dynamics 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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Steel Dynamics may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Iron & Steel sector.
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 Steel Dynamics.
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.
Consumer confidence and its impact on Steel Dynamics 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 Iron & Steel industry and other sectors.
Regulatory challenges
– Steel Dynamics 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 Iron & Steel industry regulations.
Stagnating economy with rate increase
– Steel Dynamics 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 Iron & Steel industry.
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 Steel Dynamics business can come under increasing regulations regarding data privacy, data security, etc.
Technology acceleration in Forth Industrial Revolution
– Steel Dynamics has witnessed rapid integration of technology during Covid-19 in the Iron & Steel industry. As one of the leading players in the industry, Steel Dynamics needs to keep up with the evolution of technology in the Iron & Steel 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.
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 Steel Dynamics in the Iron & Steel sector and impact the bottomline of the organization.
Shortening product life cycle
– it is one of the major threat that Steel Dynamics is facing in Iron & Steel sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Environmental challenges
– Steel Dynamics 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. Steel Dynamics can take advantage of this fund but it will also bring new competitors in the Iron & Steel industry.
Weighted SWOT Analysis of Steel Dynamics Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics needs to make to build a sustainable competitive advantage.