BASF (BASFn) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for BASF (Germany)

Based on various researches at Oak Spring University , BASF is operating in a macro-environment that has been destablized by – technology disruption, central banks are concerned over increasing inflation, wage bills are increasing, increasing commodity prices, cloud computing is disrupting traditional business models, geopolitical disruptions, increasing government debt because of Covid-19 spendings, customer relationship management is fast transforming because of increasing concerns over data privacy, banking and financial system is disrupted by Bitcoin and other crypto currencies, etc

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Introduction to SWOT Analysis of BASF

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that BASF can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the BASF, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which BASF 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 BASF can be done for the following purposes –
1. Strategic planning of BASF
2. Improving business portfolio management of BASF
3. Assessing feasibility of the new initiative in Germany
4. Making a Chemical Manufacturing sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of BASF

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

The strengths of BASF are -

Cross disciplinary teams

– Horizontal connected teams at the BASF 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.

Innovation driven organization

– BASF is one of the most innovative firm in Chemical Manufacturing sector.

Analytics focus

– BASF 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 Chemical Manufacturing 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.

Organizational Resilience of BASF

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

High switching costs

– The high switching costs that BASF 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.

Operational resilience

– The operational resilience strategy of BASF comprises – understanding the underlying the factors in the Chemical Manufacturing 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.

High brand equity

– BASF has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled BASF to keep acquiring new customers and building profitable relationship with both the new and loyal customers.

Low bargaining power of suppliers

– Suppliers of BASF in the Basic Materials sector have low bargaining power. BASF has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps BASF to manage not only supply disruptions but also source products at highly competitive prices.

Effective Research and Development (R&D)

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

Highly skilled collaborators

– BASF has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Chemical Manufacturing industry. Secondly the value chain collaborators of BASF have helped the firm to develop new products and bring them quickly to the marketplace.

Learning organization

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

Sustainable margins compare to other players in Chemical Manufacturing industry

– BASF has clearly differentiated products in the market place. This has enabled BASF to fetch slight price premium compare to the competitors in the Chemical Manufacturing industry. The sustainable margins have also helped BASF to invest into research and development (R&D) and innovation.

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

The weaknesses of BASF are -

Products dominated business model

– Even though BASF has some of the most successful models in the Chemical Manufacturing industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. BASF should strive to include more intangible value offerings along with its core products and services.

Compensation and incentives

– The revenue per employee of BASF is just above the Chemical Manufacturing 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.

Need for greater diversity

– BASF 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.

Ability to respond to the competition

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

High cash cycle compare to competitors

BASF has a high cash cycle compare to other players in the Chemical Manufacturing industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

Skills based hiring in Chemical Manufacturing industry

– The stress on hiring functional specialists at BASF 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.

Employees’ less understanding of BASF strategy

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

Increasing silos among functional specialists

– The organizational structure of BASF is dominated by functional specialists. It is not different from other players in the Chemical Manufacturing industry, but BASF needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help BASF to focus more on services in the Chemical Manufacturing 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 BASF supply chain. Even after few cautionary changes, BASF is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left BASF vulnerable to further global disruptions in South East Asia.

High operating costs

– Compare to the competitors, BASF has high operating costs in the Chemical Manufacturing industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract BASF lucrative customers.

Lack of clear differentiation of BASF products

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

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

The opportunities of BASF are -

Buying journey improvements

– BASF can improve the customer journey of consumers in the Chemical Manufacturing 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.

Reforming the budgeting process

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

Learning at scale

– Online learning technologies has now opened space for BASF 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.

Lowering marketing communication costs

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

Manufacturing automation

– BASF can use the latest technology developments to improve its manufacturing and designing process in Chemical Manufacturing 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.

Developing new processes and practices

– BASF can develop new processes and procedures in Chemical Manufacturing 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.

Building a culture of innovation

– managers at BASF 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 Chemical Manufacturing industry.

Low interest rates

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

Increase in government spending

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

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 BASF 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.

Redefining models of collaboration and team work

– As explained in the weaknesses section, BASF is facing challenges because of the dominance of functional experts in the organization. BASF can utilize new technology in the field of Chemical Manufacturing industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

Using analytics as competitive advantage

– BASF has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Chemical Manufacturing sector. This continuous investment in analytics has enabled BASF to build a competitive advantage using analytics. The analytics driven competitive advantage can help BASF to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

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

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

The threats of BASF are -

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 BASF.

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. BASF needs to understand the core reasons impacting the Chemical Manufacturing industry. This will help it in building a better workplace.

Barriers of entry lowering

– As technology is more democratized, the barriers to entry to Chemical Manufacturing industry are lowering. It can presents BASF with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Chemical Manufacturing sector.

Environmental challenges

– BASF 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. BASF can take advantage of this fund but it will also bring new competitors in the Chemical Manufacturing industry.

Increasing wage structure of BASF

– 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 BASF.

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. BASF 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.

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

Consumer confidence and its impact on BASF 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 Chemical Manufacturing industry and other sectors.

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 BASF in the Chemical Manufacturing sector and impact the bottomline of the organization.

Shortening product life cycle

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

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, BASF 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 BASF prominent markets.

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for BASF in Chemical Manufacturing industry. The Chemical Manufacturing 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.

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Weighted SWOT Analysis of BASF Template, Example

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

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