Telefonica (TEF) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Telefonica (Germany)

Based on various researches at Oak Spring University , Telefonica 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%, competitive advantages are harder to sustain because of technology dispersion, increasing energy prices, increasing transportation and logistics costs, banking and financial system is disrupted by Bitcoin and other crypto currencies, digital marketing is dominated by two big players Facebook and Google, cloud computing is disrupting traditional business models, challanges to central banks by blockchain based private currencies, increasing household debt because of falling income levels, etc

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Introduction to SWOT Analysis of Telefonica

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

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

The strengths of Telefonica are -

Superior customer experience

– The customer experience strategy of Telefonica in Communications Services industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.

Analytics focus

– Telefonica 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 Communications Services 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.

Highly skilled collaborators

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

Strong track record of project management in the Communications Services industry

– Telefonica is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.

Ability to lead change in Communications Services

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

Ability to recruit top talent

– Telefonica is one of the leading players in the Communications Services 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.

Cross disciplinary teams

– Horizontal connected teams at the Telefonica 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.

Successful track record of launching new products

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

Learning organization

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

Organizational Resilience of Telefonica

– The covid-19 pandemic has put organizational resilience at the centre of everthing Telefonica 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 Telefonica 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.

High brand equity

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

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

The weaknesses of Telefonica are -

Employees’ less understanding of Telefonica strategy

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

Low market penetration in new markets

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

Slow decision making process

– As mentioned earlier in the report, Telefonica has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Communications Services industry over the last five years. Telefonica 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.

Products dominated business model

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

Need for greater diversity

– Telefonica 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.

Compensation and incentives

– The revenue per employee of Telefonica is just above the Communications Services 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.

Capital Spending Reduction

– Even during the low interest decade, Telefonica 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 Communications Services industry using digital technology.

High dependence on Telefonica ‘s star products

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

Slow to strategic competitive environment developments

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

High operating costs

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

Increasing silos among functional specialists

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

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

The opportunities of Telefonica are -

Changes in consumer behavior post Covid-19

– consumer behavior has changed in the Communications Services industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Telefonica 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. Telefonica 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.

Finding new ways to collaborate

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

Remote work and new talent hiring opportunities

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

Leveraging digital technologies

– Telefonica 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.

Increase in government spending

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

Manufacturing automation

– Telefonica can use the latest technology developments to improve its manufacturing and designing process in Communications Services 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.

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 Telefonica 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.

Using analytics as competitive advantage

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

Better consumer reach

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

Developing new processes and practices

– Telefonica can develop new processes and procedures in Communications Services 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 Telefonica 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 Communications Services industry.

Use of Bitcoin and other crypto currencies for transactions in Communications Services industry

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

Buying journey improvements

– Telefonica can improve the customer journey of consumers in the Communications Services 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.

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

The threats of Telefonica are -

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. Telefonica needs to understand the core reasons impacting the Communications Services industry. This will help it in building a better workplace.

Consumer confidence and its impact on Telefonica 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 Communications Services industry and other sectors.

Shortening product life cycle

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

Regulatory challenges

– Telefonica 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 Communications Services industry regulations.

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 Telefonica in the Communications Services sector and impact the bottomline of the organization.

Barriers of entry lowering

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

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, Telefonica may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Communications Services sector.

Easy access to finance

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

Environmental challenges

– Telefonica 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. Telefonica can take advantage of this fund but it will also bring new competitors in the Communications Services industry.

High dependence on third party suppliers

– Telefonica 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.

Stagnating economy with rate increase

– Telefonica 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 Communications Services industry.

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for Telefonica in Communications Services industry. The Communications Services 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.

Increasing international competition and downward pressure on margins

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

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Weighted SWOT Analysis of Telefonica Template, Example

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

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