SAP (SAPG) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for SAP (Germany)

Based on various researches at Oak Spring University , SAP 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, there is backlash against globalization, technology disruption, increasing inequality as vast percentage of new income is going to the top 1%, increasing household debt because of falling income levels, increasing government debt because of Covid-19 spendings, wage bills are increasing, central banks are concerned over increasing inflation, etc

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Introduction to SWOT Analysis of SAP

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that SAP can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the SAP, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which SAP 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.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of SAP can be done for the following purposes –
1. Strategic planning of SAP
2. Improving business portfolio management of SAP
3. Assessing feasibility of the new initiative in Germany
4. Making a Software & Programming sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of SAP

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Strengths of SAP | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of SAP are -

Organizational Resilience of SAP

– The covid-19 pandemic has put organizational resilience at the centre of everthing SAP does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Training and development

– SAP has one of the best training and development program in Technology 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.

Learning organization

- SAP 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 SAP is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at SAP emphasize – knowledge, initiative, and innovation.

Innovation driven organization

– SAP is one of the most innovative firm in Software & Programming sector.

Superior customer experience

– The customer experience strategy of SAP in Software & Programming industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.

Ability to recruit top talent

– SAP is one of the leading players in the Software & Programming industry in Germany. It is in a position to attract the best talent available in Germany. The firm has a robust talent identification program that helps in identifying the brightest.

Ability to lead change in Software & Programming

– SAP is one of the leading players in the Software & Programming industry in Germany. Over the years it has not only transformed the business landscape in the Software & Programming industry in Germany but also across the existing markets. The ability to lead change has enabled SAP in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

Cross disciplinary teams

– Horizontal connected teams at the SAP 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.

Digital Transformation in Software & Programming industry

- digital transformation varies from industry to industry. For SAP digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. SAP 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.

Effective Research and Development (R&D)

– SAP has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – SAP staying ahead in the Software & Programming industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

High switching costs

– The high switching costs that SAP 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.

Successful track record of launching new products

– SAP has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. SAP 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.

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Weaknesses of SAP | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of SAP are -

Employees’ less understanding of SAP strategy

– From the outside it seems that the employees of SAP 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.

Slow to strategic competitive environment developments

– As SAP is one of the leading players in the Software & Programming industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Software & Programming industry in last five years.

High bargaining power of channel partners in Software & Programming industry

– because of the regulatory requirements in Germany, SAP 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 Software & Programming industry.

Increasing silos among functional specialists

– The organizational structure of SAP is dominated by functional specialists. It is not different from other players in the Software & Programming industry, but SAP needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help SAP to focus more on services in the Software & Programming industry rather than just following the product oriented approach.

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 SAP supply chain. Even after few cautionary changes, SAP is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left SAP vulnerable to further global disruptions in South East Asia.

Ability to respond to the competition

– As the decision making is very deliberative at SAP, in the dynamic environment of Software & Programming industry it has struggled to respond to the nimble upstart competition. SAP has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

No frontier risks strategy

– From the 10K / annual statement of SAP, it seems that company is thinking out the frontier risks that can impact Software & Programming 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.

Slow to harness new channels of communication

– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, SAP is slow explore the new channels of communication. These new channels of communication can help SAP to provide better information regarding Software & Programming products and services. It can also build an online community to further reach out to potential customers.

Lack of clear differentiation of SAP products

– To increase the profitability and margins on the products, SAP needs to provide more differentiated products than what it is currently offering in the marketplace.

High dependence on SAP ‘s star products

– The top 2 products and services of SAP still accounts for major business revenue. This dependence on star products in Software & Programming industry has resulted into insufficient focus on developing new products, even though SAP has relatively successful track record of launching new products.

Low market penetration in new markets

– Outside its home market of Germany, SAP needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

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SAP Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of SAP are -

Loyalty marketing

– SAP 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

– SAP 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.

Remote work and new talent hiring opportunities

– The widespread usage of remote working technologies during Covid-19 has opened opportunities for SAP 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 SAP to hire the very best people irrespective of their geographical location.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects SAP can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

Low interest rates

– Even though inflation is raising its head in most developed economies, SAP 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

– SAP can use the latest technology developments to improve its manufacturing and designing process in Software & Programming 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.

Use of Bitcoin and other crypto currencies for transactions in Software & Programming industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for SAP in the Software & Programming industry. Now SAP can target international markets with far fewer capital restrictions requirements than the existing system.

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, SAP 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 SAP to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.

Increase in government spending

– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, SAP can use these opportunities to build new business models that can help the communities that SAP operates in. Secondly it can use opportunities from government spending in Software & Programming sector.

Better consumer reach

– The expansion of the 5G network will help SAP to increase its market reach. SAP 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.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Software & Programming industry, but it has also influenced the consumer preferences. SAP can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

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. SAP can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Lowering marketing communication costs

– 5G expansion will open new opportunities for SAP in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Software & Programming industry, and it will provide faster access to the consumers.

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Threats SAP External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of SAP are -

Regulatory challenges

– SAP 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 Software & Programming industry regulations.

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 SAP

– 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 SAP.

Technology acceleration in Forth Industrial Revolution

– SAP has witnessed rapid integration of technology during Covid-19 in the Software & Programming industry. As one of the leading players in the industry, SAP needs to keep up with the evolution of technology in the Software & Programming 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.

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.

Increasing international competition and downward pressure on margins

– Apart from technology driven competitive advantage dilution, SAP 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 SAP prominent markets.

Environmental challenges

– SAP 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. SAP can take advantage of this fund but it will also bring new competitors in the Software & Programming industry.

Easy access to finance

– Easy access to finance in Software & Programming industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. SAP can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

Consumer confidence and its impact on SAP 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 Software & Programming industry and other sectors.

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. SAP 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.

Shortening product life cycle

– it is one of the major threat that SAP is facing in Software & Programming sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.

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 SAP business can come under increasing regulations regarding data privacy, data security, etc.

Stagnating economy with rate increase

– SAP 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 Software & Programming industry.

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Weighted SWOT Analysis of SAP Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at SAP 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 SAP 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 SAP 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 SAP 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 SAP needs to make to build a sustainable competitive advantage.

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