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 – competitive advantages are harder to sustain because of technology dispersion, central banks are concerned over increasing inflation, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing commodity prices, increasing inequality as vast percentage of new income is going to the top 1%, digital marketing is dominated by two big players Facebook and Google, increasing energy prices,
technology disruption, increasing transportation and logistics costs, 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 -
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.
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.
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.
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.
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.
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.
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.
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.
Learning organization
- Covestro 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 Covestro is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Covestro emphasize – knowledge, initiative, and innovation.
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.
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.
Weaknesses of Covestro | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Covestro are -
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.
Slow decision making process
– As mentioned earlier in the report, Covestro has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Containers & Packaging industry over the last five years. Covestro 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.
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.
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.
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.
Slow to strategic competitive environment developments
– As Covestro is one of the leading players in the Containers & Packaging industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Containers & Packaging industry in last five years.
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.
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.
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.
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.
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.
Covestro Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Covestro are -
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.
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.
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.
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. Covestro can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Threats Covestro External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Covestro are -
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Technology acceleration in Forth Industrial Revolution
– Covestro has witnessed rapid integration of technology during Covid-19 in the Containers & Packaging industry. As one of the leading players in the industry, Covestro needs to keep up with the evolution of technology in the Containers & Packaging 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.
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.