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 – increasing household debt because of falling income levels, cloud computing is disrupting traditional business models, supply chains are disrupted by pandemic , wage bills are increasing, central banks are concerned over increasing inflation, increasing inequality as vast percentage of new income is going to the top 1%, competitive advantages are harder to sustain because of technology dispersion,
there is increasing trade war between United States & China, banking and financial system is disrupted by Bitcoin and other crypto currencies, 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 -
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.
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.
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.
Analytics focus
– Covestro 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 Containers & Packaging 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 Covestro
– The covid-19 pandemic has put organizational resilience at the centre of everthing Covestro does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Diverse revenue streams
– Covestro is present in almost all the verticals within the Containers & Packaging industry. This has provided Covestro 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.
Successful track record of launching new products
– Covestro has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Covestro 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.
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.
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.
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.
Ability to recruit top talent
– Covestro is one of the leading players in the Containers & Packaging 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.
Training and development
– Covestro has one of the best training and development program in Basic Materials 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.
Weaknesses of Covestro | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Covestro are -
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 Covestro supply chain. Even after few cautionary changes, Covestro is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Covestro vulnerable to further global disruptions in South East Asia.
Need for greater diversity
– Covestro 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.
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.
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.
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.
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.
Lack of clear differentiation of Covestro products
– To increase the profitability and margins on the products, Covestro needs to provide more differentiated products than what it is currently offering in the marketplace.
High operating costs
– Compare to the competitors, Covestro has high operating costs in the Containers & Packaging industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Covestro lucrative customers.
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.
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.
Covestro Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Covestro are -
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Covestro 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 Covestro to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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.
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.
Manufacturing automation
– Covestro can use the latest technology developments to improve its manufacturing and designing process in Containers & Packaging 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.
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.
Building a culture of innovation
– managers at Covestro 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 Containers & Packaging industry.
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.
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.
Learning at scale
– Online learning technologies has now opened space for Covestro 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.
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.
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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Covestro can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Covestro External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Covestro are -
Environmental challenges
– Covestro 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. Covestro can take advantage of this fund but it will also bring new competitors in the Containers & Packaging industry.
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.
Shortening product life cycle
– it is one of the major threat that Covestro is facing in Containers & Packaging sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
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.
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.
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.
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 Covestro in the Containers & Packaging sector and impact the bottomline of the organization.
Increasing wage structure of Covestro
– 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 Covestro.
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.
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.
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.
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.