British American Tobacco (BATS) SWOT Analysis / TOWS Matrix / MBA Resources
Tobacco
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for British American Tobacco (Germany)
Based on various researches at Oak Spring University , British American Tobacco is operating in a macro-environment that has been destablized by – customer relationship management is fast transforming because of increasing concerns over data privacy, increasing inequality as vast percentage of new income is going to the top 1%, increasing transportation and logistics costs, digital marketing is dominated by two big players Facebook and Google, central banks are concerned over increasing inflation, there is backlash against globalization, challanges to central banks by blockchain based private currencies,
technology disruption, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of British American Tobacco
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that British American Tobacco can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the British American Tobacco, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which British American Tobacco 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 British American Tobacco can be done for the following purposes –
1. Strategic planning of British American Tobacco
2. Improving business portfolio management of British American Tobacco
3. Assessing feasibility of the new initiative in Germany
4. Making a Tobacco sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of British American Tobacco
Strengths of British American Tobacco | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of British American Tobacco are -
Operational resilience
– The operational resilience strategy of British American Tobacco comprises – understanding the underlying the factors in the Tobacco 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.
Digital Transformation in Tobacco industry
- digital transformation varies from industry to industry. For British American Tobacco digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. British American Tobacco 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
– British American Tobacco 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.
Learning organization
- British American Tobacco 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 British American Tobacco is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at British American Tobacco emphasize – knowledge, initiative, and innovation.
High switching costs
– The high switching costs that British American Tobacco 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.
Highly skilled collaborators
– British American Tobacco has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Tobacco industry. Secondly the value chain collaborators of British American Tobacco have helped the firm to develop new products and bring them quickly to the marketplace.
Analytics focus
– British American Tobacco 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 Tobacco industry. The technology infrastructure of Germany 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.
Effective Research and Development (R&D)
– British American Tobacco has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – British American Tobacco staying ahead in the Tobacco 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 British American Tobacco in the Consumer/Non-Cyclical sector have low bargaining power. British American Tobacco has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps British American Tobacco to manage not only supply disruptions but also source products at highly competitive prices.
Strong track record of project management in the Tobacco industry
– British American Tobacco is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Innovation driven organization
– British American Tobacco is one of the most innovative firm in Tobacco sector.
Diverse revenue streams
– British American Tobacco is present in almost all the verticals within the Tobacco industry. This has provided British American Tobacco 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.
Weaknesses of British American Tobacco | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of British American Tobacco are -
High operating costs
– Compare to the competitors, British American Tobacco has high operating costs in the Tobacco industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract British American Tobacco lucrative customers.
Skills based hiring in Tobacco industry
– The stress on hiring functional specialists at British American Tobacco 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.
Interest costs
– Compare to the competition, British American Tobacco 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.
Aligning sales with marketing
– From the outside it seems that British American Tobacco needs to have more collaboration between its sales team and marketing team. Sales professionals in the Tobacco industry have deep experience in developing customer relationships. Marketing department at British American Tobacco can leverage the sales team experience to cultivate customer relationships as British American Tobacco is planning to shift buying processes online.
Employees’ less understanding of British American Tobacco strategy
– From the outside it seems that the employees of British American Tobacco 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 cash cycle compare to competitors
British American Tobacco has a high cash cycle compare to other players in the Tobacco industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Slow to strategic competitive environment developments
– As British American Tobacco is one of the leading players in the Tobacco industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Tobacco industry in last five years.
Low market penetration in new markets
– Outside its home market of Germany, British American Tobacco needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High bargaining power of channel partners in Tobacco industry
– because of the regulatory requirements in Germany, British American Tobacco 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 Tobacco industry.
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 British American Tobacco supply chain. Even after few cautionary changes, British American Tobacco is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left British American Tobacco vulnerable to further global disruptions in South East Asia.
No frontier risks strategy
– From the 10K / annual statement of British American Tobacco, it seems that company is thinking out the frontier risks that can impact Tobacco 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.
British American Tobacco Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of British American Tobacco are -
Using analytics as competitive advantage
– British American Tobacco has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Tobacco sector. This continuous investment in analytics has enabled British American Tobacco to build a competitive advantage using analytics. The analytics driven competitive advantage can help British American Tobacco to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Creating value in data economy
– The success of analytics program of British American Tobacco has opened avenues for new revenue streams for the organization in Tobacco industry. This can help British American Tobacco to build a more holistic ecosystem for British American Tobacco products in the Tobacco industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects British American Tobacco can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Buying journey improvements
– British American Tobacco can improve the customer journey of consumers in the Tobacco 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.
Better consumer reach
– The expansion of the 5G network will help British American Tobacco to increase its market reach. British American Tobacco 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.
Loyalty marketing
– British American Tobacco 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.
Use of Bitcoin and other crypto currencies for transactions in Tobacco industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for British American Tobacco in the Tobacco industry. Now British American Tobacco can target international markets with far fewer capital restrictions requirements than the existing system.
Lowering marketing communication costs
– 5G expansion will open new opportunities for British American Tobacco in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Tobacco industry, and it will provide faster access to the consumers.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Tobacco industry, but it has also influenced the consumer preferences. British American Tobacco can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Low interest rates
– Even though inflation is raising its head in most developed economies, British American Tobacco 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.
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. British American Tobacco can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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 British American Tobacco 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.
Manufacturing automation
– British American Tobacco can use the latest technology developments to improve its manufacturing and designing process in Tobacco 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.
Threats British American Tobacco External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of British American Tobacco are -
Environmental challenges
– British American Tobacco 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. British American Tobacco can take advantage of this fund but it will also bring new competitors in the Tobacco 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. British American Tobacco needs to understand the core reasons impacting the Tobacco 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 British American Tobacco in Tobacco industry. The Tobacco 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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, British American Tobacco may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Tobacco sector.
Easy access to finance
– Easy access to finance in Tobacco industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. British American Tobacco can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Stagnating economy with rate increase
– British American Tobacco 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 Tobacco 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 British American Tobacco in the Tobacco sector and impact the bottomline of the organization.
Technology acceleration in Forth Industrial Revolution
– British American Tobacco has witnessed rapid integration of technology during Covid-19 in the Tobacco industry. As one of the leading players in the industry, British American Tobacco needs to keep up with the evolution of technology in the Tobacco 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.
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.
High dependence on third party suppliers
– British American Tobacco 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.
Consumer confidence and its impact on British American Tobacco 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 Tobacco industry and other sectors.
Regulatory challenges
– British American Tobacco 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 Tobacco industry regulations.
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 British American Tobacco business can come under increasing regulations regarding data privacy, data security, etc.
Weighted SWOT Analysis of British American Tobacco Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at British American Tobacco 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 British American Tobacco 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 British American Tobacco 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 British American Tobacco 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 British American Tobacco needs to make to build a sustainable competitive advantage.
