Covestro (1COV) SWOT Analysis / TOWS Matrix / MBA Resources
Containers & Packaging
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Covestro (Germany)
Based on various researches at Oak Spring University , Covestro is operating in a macro-environment that has been destablized by – there is backlash against globalization, geopolitical disruptions, supply chains are disrupted by pandemic , 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%, talent flight as more people leaving formal jobs, technology disruption,
competitive advantages are harder to sustain because of technology dispersion, increasing government debt because of Covid-19 spendings, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Covestro can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Covestro, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Covestro 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 Covestro can be done for the following purposes –
1. Strategic planning of Covestro
2. Improving business portfolio management of Covestro
3. Assessing feasibility of the new initiative in Germany
4. Making a Containers & Packaging sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Covestro
Strengths of Covestro | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Covestro are -
Digital Transformation in Containers & Packaging industry
- digital transformation varies from industry to industry. For Covestro digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Covestro 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.
Cross disciplinary teams
– Horizontal connected teams at the Covestro 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.
High switching costs
– The high switching costs that Covestro 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.
Superior customer experience
– The customer experience strategy of Covestro in Containers & Packaging industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High brand equity
– Covestro has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Covestro to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Operational resilience
– The operational resilience strategy of Covestro comprises – understanding the underlying the factors in the Containers & Packaging 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.
Ability to lead change in Containers & Packaging
– Covestro is one of the leading players in the Containers & Packaging industry in Germany. Over the years it has not only transformed the business landscape in the Containers & Packaging industry in Germany but also across the existing markets. The ability to lead change has enabled Covestro in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– Covestro has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Containers & Packaging industry. Secondly the value chain collaborators of Covestro have helped the firm to develop new products and bring them quickly to the marketplace.
Innovation driven organization
– Covestro is one of the most innovative firm in Containers & Packaging sector.
Effective Research and Development (R&D)
– Covestro has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Covestro staying ahead in the Containers & Packaging industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Sustainable margins compare to other players in Containers & Packaging industry
– Covestro has clearly differentiated products in the market place. This has enabled Covestro to fetch slight price premium compare to the competitors in the Containers & Packaging industry. The sustainable margins have also helped Covestro to invest into research and development (R&D) and innovation.
Low bargaining power of suppliers
– Suppliers of Covestro in the Basic Materials sector have low bargaining power. Covestro has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Covestro to manage not only supply disruptions but also source products at highly competitive prices.
Weaknesses of Covestro | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Covestro are -
Aligning sales with marketing
– From the outside it seems that Covestro needs to have more collaboration between its sales team and marketing team. Sales professionals in the Containers & Packaging industry have deep experience in developing customer relationships. Marketing department at Covestro can leverage the sales team experience to cultivate customer relationships as Covestro is planning to shift buying processes online.
Low market penetration in new markets
– Outside its home market of Germany, Covestro needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Skills based hiring in Containers & Packaging industry
– The stress on hiring functional specialists at Covestro 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.
Capital Spending Reduction
– Even during the low interest decade, Covestro 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 Containers & Packaging industry using digital technology.
Products dominated business model
– Even though Covestro has some of the most successful models in the Containers & Packaging industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Covestro should strive to include more intangible value offerings along with its core products and services.
Workers concerns about automation
– As automation is fast increasing in the Containers & Packaging industry, Covestro 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.
No frontier risks strategy
– From the 10K / annual statement of Covestro, it seems that company is thinking out the frontier risks that can impact Containers & Packaging 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.
High dependence on Covestro ‘s star products
– The top 2 products and services of Covestro still accounts for major business revenue. This dependence on star products in Containers & Packaging industry has resulted into insufficient focus on developing new products, even though Covestro has relatively successful track record of launching new products.
Interest costs
– Compare to the competition, Covestro 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.
Increasing silos among functional specialists
– The organizational structure of Covestro is dominated by functional specialists. It is not different from other players in the Containers & Packaging industry, but Covestro needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Covestro to focus more on services in the Containers & Packaging industry rather than just following the product oriented approach.
High cash cycle compare to competitors
Covestro has a high cash cycle compare to other players in the Containers & Packaging industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Covestro Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Covestro are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Covestro 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Covestro is facing challenges because of the dominance of functional experts in the organization. Covestro can utilize new technology in the field of Containers & Packaging industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Creating value in data economy
– The success of analytics program of Covestro has opened avenues for new revenue streams for the organization in Containers & Packaging industry. This can help Covestro to build a more holistic ecosystem for Covestro products in the Containers & Packaging industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Leveraging digital technologies
– Covestro 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.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Containers & Packaging industry, but it has also influenced the consumer preferences. Covestro can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Use of Bitcoin and other crypto currencies for transactions in Containers & Packaging industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Covestro in the Containers & Packaging industry. Now Covestro 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 Covestro in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Containers & Packaging industry, and it will provide faster access to the consumers.
Better consumer reach
– The expansion of the 5G network will help Covestro to increase its market reach. Covestro 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Covestro 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 Covestro to hire the very best people irrespective of their geographical location.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Covestro can use these opportunities to build new business models that can help the communities that Covestro operates in. Secondly it can use opportunities from government spending in Containers & Packaging sector.
Using analytics as competitive advantage
– Covestro has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Containers & Packaging sector. This continuous investment in analytics has enabled Covestro to build a competitive advantage using analytics. The analytics driven competitive advantage can help Covestro to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Developing new processes and practices
– Covestro can develop new processes and procedures in Containers & Packaging 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.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Containers & Packaging industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Covestro 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. Covestro 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.
Threats Covestro External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Covestro are -
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Covestro may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Containers & Packaging sector.
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 Covestro.
High dependence on third party suppliers
– Covestro 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
– Covestro 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 Containers & Packaging industry.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Containers & Packaging industry are lowering. It can presents Covestro with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Containers & Packaging sector.
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. Covestro needs to understand the core reasons impacting the Containers & Packaging industry. This will help it in building a better workplace.
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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Covestro 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 Covestro prominent markets.
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. Covestro 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.
Easy access to finance
– Easy access to finance in Containers & Packaging industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Covestro can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Covestro in Containers & Packaging industry. The Containers & Packaging 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.
Regulatory challenges
– Covestro 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 Containers & Packaging 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 Covestro business can come under increasing regulations regarding data privacy, data security, etc.
Weighted SWOT Analysis of Covestro Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Covestro 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 Covestro 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 Covestro 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 Covestro 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 Covestro needs to make to build a sustainable competitive advantage.
