Xero (XRO) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Xero (Australia)

Based on various researches at Oak Spring University , Xero is operating in a macro-environment that has been destablized by – technology disruption, central banks are concerned over increasing inflation, digital marketing is dominated by two big players Facebook and Google, increasing government debt because of Covid-19 spendings, talent flight as more people leaving formal jobs, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, 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%, etc

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Introduction to SWOT Analysis of Xero

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

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

The strengths of Xero are -

High brand equity

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

Learning organization

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

Successful track record of launching new products

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

Organizational Resilience of Xero

– The covid-19 pandemic has put organizational resilience at the centre of everthing Xero does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Diverse revenue streams

– Xero is present in almost all the verticals within the Software & Programming industry. This has provided Xero 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.

Training and development

– Xero has one of the best training and development program in Technology 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.

Digital Transformation in Software & Programming industry

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

Effective Research and Development (R&D)

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

Low bargaining power of suppliers

– Suppliers of Xero in the Technology sector have low bargaining power. Xero has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Xero to manage not only supply disruptions but also source products at highly competitive prices.

Superior customer experience

– The customer experience strategy of Xero in Software & Programming industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.

Strong track record of project management in the Software & Programming industry

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

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

The weaknesses of Xero are -

Compensation and incentives

– The revenue per employee of Xero is just above the Software & Programming 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.

Increasing silos among functional specialists

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

High bargaining power of channel partners in Software & Programming industry

– because of the regulatory requirements in Australia, Xero is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Software & Programming industry.

Skills based hiring in Software & Programming industry

– The stress on hiring functional specialists at Xero 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.

Slow to harness new channels of communication

– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Xero is slow explore the new channels of communication. These new channels of communication can help Xero to provide better information regarding Software & Programming products and services. It can also build an online community to further reach out to potential customers.

Employees’ less understanding of Xero strategy

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

Ability to respond to the competition

– As the decision making is very deliberative at Xero, in the dynamic environment of Software & Programming industry it has struggled to respond to the nimble upstart competition. Xero has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

No frontier risks strategy

– From the 10K / annual statement of Xero, it seems that company is thinking out the frontier risks that can impact Software & Programming 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.

Need for greater diversity

– Xero 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.

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 Xero supply chain. Even after few cautionary changes, Xero is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Xero vulnerable to further global disruptions in South East Asia.

High dependence on Xero ‘s star products

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

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

The opportunities of Xero are -

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. Xero can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Manufacturing automation

– Xero can use the latest technology developments to improve its manufacturing and designing process in Software & Programming 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.

Learning at scale

– Online learning technologies has now opened space for Xero 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.

Leveraging digital technologies

– Xero 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.

Harnessing reconfiguration of the global supply chains

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

Use of Bitcoin and other crypto currencies for transactions in Software & Programming industry

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

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 Xero 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.

Better consumer reach

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

Finding new ways to collaborate

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

Using analytics as competitive advantage

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

Redefining models of collaboration and team work

– As explained in the weaknesses section, Xero is facing challenges because of the dominance of functional experts in the organization. Xero can utilize new technology in the field of Software & Programming 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 Xero in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Software & Programming industry, and it will provide faster access to the consumers.

Developing new processes and practices

– Xero can develop new processes and procedures in Software & Programming 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.

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

The threats of Xero are -

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.

Increasing international competition and downward pressure on margins

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

High dependence on third party suppliers

– Xero 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.

Shortening product life cycle

– it is one of the major threat that Xero is facing in Software & Programming 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 Xero.

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, Xero may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Software & Programming 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. Xero needs to understand the core reasons impacting the Software & Programming industry. This will help it in building a better workplace.

Increasing wage structure of Xero

– 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 Xero.

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 Xero in the Software & Programming sector and impact the bottomline of the organization.

Consumer confidence and its impact on Xero 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 Software & Programming industry and other sectors.

Easy access to finance

– Easy access to finance in Software & Programming industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Xero 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

– Xero 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 Software & Programming industry regulations.

Stagnating economy with rate increase

– Xero 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 Software & Programming industry.

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Weighted SWOT Analysis of Xero Template, Example

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

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