Fortum (FUM1V) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Fortum (Germany)

Based on various researches at Oak Spring University , Fortum is operating in a macro-environment that has been destablized by – banking and financial system is disrupted by Bitcoin and other crypto currencies, challanges to central banks by blockchain based private currencies, increasing energy prices, there is increasing trade war between United States & China, increasing household debt because of falling income levels, geopolitical disruptions, 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 commodity prices, etc

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Introduction to SWOT Analysis of Fortum

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

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

The strengths of Fortum are -

Strong track record of project management in the Electric Utilities industry

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

Digital Transformation in Electric Utilities industry

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

Highly skilled collaborators

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

Cross disciplinary teams

– Horizontal connected teams at the Fortum 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.

Learning organization

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

Organizational Resilience of Fortum

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

Analytics focus

– Fortum 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 Electric Utilities 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.

Training and development

– Fortum has one of the best training and development program in Utilities 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.

Innovation driven organization

– Fortum is one of the most innovative firm in Electric Utilities sector.

Effective Research and Development (R&D)

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

High brand equity

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

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

The weaknesses of Fortum are -

High dependence on Fortum ‘s star products

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

Lack of clear differentiation of Fortum products

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

Workers concerns about automation

– As automation is fast increasing in the Electric Utilities industry, Fortum needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.

Low market penetration in new markets

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

Aligning sales with marketing

– From the outside it seems that Fortum needs to have more collaboration between its sales team and marketing team. Sales professionals in the Electric Utilities industry have deep experience in developing customer relationships. Marketing department at Fortum can leverage the sales team experience to cultivate customer relationships as Fortum is planning to shift buying processes online.

Need for greater diversity

– Fortum 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.

Skills based hiring in Electric Utilities industry

– The stress on hiring functional specialists at Fortum 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.

Compensation and incentives

– The revenue per employee of Fortum is just above the Electric Utilities 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.

High operating costs

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

Products dominated business model

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

Slow to strategic competitive environment developments

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

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

The opportunities of Fortum are -

Redefining models of collaboration and team work

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

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. Fortum 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 Fortum in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Electric Utilities industry, and it will provide faster access to the consumers.

Increase in government spending

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

Harnessing reconfiguration of the global supply chains

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

Low interest rates

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

Changes in consumer behavior post Covid-19

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

Learning at scale

– Online learning technologies has now opened space for Fortum 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.

Use of Bitcoin and other crypto currencies for transactions in Electric Utilities industry

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

Developing new processes and practices

– Fortum can develop new processes and procedures in Electric Utilities 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.

Buying journey improvements

– Fortum can improve the customer journey of consumers in the Electric Utilities 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.

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 Fortum 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.

Creating value in data economy

– The success of analytics program of Fortum has opened avenues for new revenue streams for the organization in Electric Utilities industry. This can help Fortum to build a more holistic ecosystem for Fortum products in the Electric Utilities industry by providing – data insight services, data privacy related products, data based consulting services, etc.

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

The threats of Fortum are -

Learning curve for new practices

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

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

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. Fortum needs to understand the core reasons impacting the Electric Utilities industry. This will help it in building a better workplace.

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 Fortum in the Electric Utilities sector and impact the bottomline of the organization.

Regulatory challenges

– Fortum 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 Electric Utilities industry regulations.

Consumer confidence and its impact on Fortum 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 Electric Utilities industry and other sectors.

Shortening product life cycle

– it is one of the major threat that Fortum is facing in Electric Utilities 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.

Environmental challenges

– Fortum 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. Fortum can take advantage of this fund but it will also bring new competitors in the Electric Utilities industry.

Technology acceleration in Forth Industrial Revolution

– Fortum has witnessed rapid integration of technology during Covid-19 in the Electric Utilities industry. As one of the leading players in the industry, Fortum needs to keep up with the evolution of technology in the Electric Utilities 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.

Barriers of entry lowering

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

Increasing wage structure of Fortum

– 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 Fortum.

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Weighted SWOT Analysis of Fortum Template, Example

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

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