Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Diageo (Germany)
Based on various researches at Oak Spring University , Diageo is operating in a macro-environment that has been destablized by – increasing inequality as vast percentage of new income is going to the top 1%, challanges to central banks by blockchain based private currencies, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, central banks are concerned over increasing inflation, increasing household debt because of falling income levels, increasing commodity prices,
digital marketing is dominated by two big players Facebook and Google, cloud computing is disrupting traditional business models, etc
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Introduction to SWOT Analysis of Diageo
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Diageo can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Diageo, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Diageo 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 Diageo can be done for the following purposes –
1. Strategic planning of Diageo
2. Improving business portfolio management of Diageo
3. Assessing feasibility of the new initiative in Germany
4. Making a Beverages (Alcoholic) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Diageo
Strengths of Diageo | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Diageo are -
High brand equity
– Diageo has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Diageo to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Sustainable margins compare to other players in Beverages (Alcoholic) industry
– Diageo has clearly differentiated products in the market place. This has enabled Diageo to fetch slight price premium compare to the competitors in the Beverages (Alcoholic) industry. The sustainable margins have also helped Diageo to invest into research and development (R&D) and innovation.
Effective Research and Development (R&D)
– Diageo has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Diageo staying ahead in the Beverages (Alcoholic) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Low bargaining power of suppliers
– Suppliers of Diageo in the Consumer/Non-Cyclical sector have low bargaining power. Diageo has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Diageo to manage not only supply disruptions but also source products at highly competitive prices.
Superior customer experience
– The customer experience strategy of Diageo in Beverages (Alcoholic) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
– The operational resilience strategy of Diageo comprises – understanding the underlying the factors in the Beverages (Alcoholic) 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
– Diageo is present in almost all the verticals within the Beverages (Alcoholic) industry. This has provided Diageo 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.
Training and development
– Diageo has one of the best training and development program in Consumer/Non-Cyclical 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 switching costs
– The high switching costs that Diageo 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.
Ability to recruit top talent
– Diageo is one of the leading players in the Beverages (Alcoholic) 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.
- Diageo 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 Diageo is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Diageo emphasize – knowledge, initiative, and innovation.
Cross disciplinary teams
– Horizontal connected teams at the Diageo 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.
Weaknesses of Diageo | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Diageo are -
Lack of clear differentiation of Diageo products
– To increase the profitability and margins on the products, Diageo needs to provide more differentiated products than what it is currently offering in the marketplace.
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 Diageo supply chain. Even after few cautionary changes, Diageo is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Diageo vulnerable to further global disruptions in South East Asia.
Skills based hiring in Beverages (Alcoholic) industry
– The stress on hiring functional specialists at Diageo 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 to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Diageo is slow explore the new channels of communication. These new channels of communication can help Diageo to provide better information regarding Beverages (Alcoholic) products and services. It can also build an online community to further reach out to potential customers.
High operating costs
– Compare to the competitors, Diageo has high operating costs in the Beverages (Alcoholic) industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Diageo lucrative customers.
Employees’ less understanding of Diageo strategy
– From the outside it seems that the employees of Diageo 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 Diageo is one of the leading players in the Beverages (Alcoholic) industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Beverages (Alcoholic) industry in last five years.
Need for greater diversity
– Diageo 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.
Increasing silos among functional specialists
– The organizational structure of Diageo is dominated by functional specialists. It is not different from other players in the Beverages (Alcoholic) industry, but Diageo needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Diageo to focus more on services in the Beverages (Alcoholic) industry rather than just following the product oriented approach.
Slow decision making process
– As mentioned earlier in the report, Diageo has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Beverages (Alcoholic) industry over the last five years. Diageo 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 Beverages (Alcoholic) industry
– because of the regulatory requirements in Germany, Diageo 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 Beverages (Alcoholic) industry.
Diageo Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Diageo are -
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Diageo to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Diageo 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 Diageo to hire the very best people irrespective of their geographical location.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Beverages (Alcoholic) industry, but it has also influenced the consumer preferences. Diageo 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
– Diageo 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.
Learning at scale
– Online learning technologies has now opened space for Diageo 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.
Better consumer reach
– The expansion of the 5G network will help Diageo to increase its market reach. Diageo 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Diageo can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Use of Bitcoin and other crypto currencies for transactions in Beverages (Alcoholic) industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Diageo in the Beverages (Alcoholic) industry. Now Diageo can target international markets with far fewer capital restrictions requirements than the existing system.
Developing new processes and practices
– Diageo can develop new processes and procedures in Beverages (Alcoholic) 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.
– Diageo can use the latest technology developments to improve its manufacturing and designing process in Beverages (Alcoholic) 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.
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. Diageo can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Low interest rates
– Even though inflation is raising its head in most developed economies, Diageo 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Diageo 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 Diageo to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats Diageo External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Diageo are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Diageo 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 Diageo prominent markets.
– 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 Diageo in the Beverages (Alcoholic) sector and impact the bottomline of the organization.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Beverages (Alcoholic) industry are lowering. It can presents Diageo with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Beverages (Alcoholic) sector.
Stagnating economy with rate increase
– Diageo 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 Beverages (Alcoholic) 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. Diageo needs to understand the core reasons impacting the Beverages (Alcoholic) industry. This will help it in building a better workplace.
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.
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 Diageo business can come under increasing regulations regarding data privacy, data security, etc.
Shortening product life cycle
– it is one of the major threat that Diageo is facing in Beverages (Alcoholic) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
– Diageo 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. Diageo can take advantage of this fund but it will also bring new competitors in the Beverages (Alcoholic) industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Diageo may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Beverages (Alcoholic) sector.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Diageo in Beverages (Alcoholic) industry. The Beverages (Alcoholic) 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.
Technology acceleration in Forth Industrial Revolution
– Diageo has witnessed rapid integration of technology during Covid-19 in the Beverages (Alcoholic) industry. As one of the leading players in the industry, Diageo needs to keep up with the evolution of technology in the Beverages (Alcoholic) 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.
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. Diageo 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.
Weighted SWOT Analysis of Diageo Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Diageo 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 Diageo 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 Diageo 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 Diageo 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 Diageo needs to make to build a sustainable competitive advantage.