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 – increasing government debt because of Covid-19 spendings, increasing inequality as vast percentage of new income is going to the top 1%, increasing transportation and logistics costs, increasing commodity prices, challanges to central banks by blockchain based private currencies, supply chains are disrupted by pandemic , there is increasing trade war between United States & China, digital marketing is dominated by two big players Facebook and Google, customer relationship management is fast transforming because of increasing concerns over data privacy, etc

---

---

---

---

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.

---

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

---

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

The strengths of Xero are -

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.

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.

Highly skilled collaborators

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

High switching costs

– The high switching costs that Xero 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.

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.

Ability to lead change in Software & Programming

– Xero is one of the leading players in the Software & Programming industry in Australia. Over the years it has not only transformed the business landscape in the Software & Programming industry in Australia but also across the existing markets. The ability to lead change has enabled Xero in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

Innovation driven organization

– Xero is one of the most innovative firm in Software & Programming sector.

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.

Analytics focus

– Xero 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 Software & Programming industry. The technology infrastructure of Australia 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.

Operational resilience

– The operational resilience strategy of Xero comprises – understanding the underlying the factors in the Software & Programming 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.

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.

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.

---

---

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

The weaknesses of Xero are -

Aligning sales with marketing

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

Lack of clear differentiation of Xero products

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

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.

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.

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.

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.

Products dominated business model

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

Capital Spending Reduction

– Even during the low interest decade, Xero 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 Software & Programming industry using digital technology.

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.

Slow decision making process

– As mentioned earlier in the report, Xero has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Software & Programming industry over the last five years. Xero 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 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.

---

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

The opportunities of Xero are -

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.

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.

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.

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.

Loyalty marketing

– Xero has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.

Low interest rates

– Even though inflation is raising its head in most developed economies, Xero 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 Software & Programming industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Xero 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. Xero 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.

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.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects Xero can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

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.

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.

Creating value in data economy

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

---

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

The threats of Xero are -

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.

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.

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.

Technology acceleration in Forth Industrial Revolution

– Xero has witnessed rapid integration of technology during Covid-19 in the Software & Programming industry. As one of the leading players in the industry, Xero needs to keep up with the evolution of technology in the Software & Programming 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.

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 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.

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.

Environmental challenges

– Xero 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. Xero can take advantage of this fund but it will also bring new competitors in the Software & Programming industry.

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.

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

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.

---

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.

--- ---