National Oilwell Varco SWOT Analysis / SWOT Matrix
Posted by David Williamson on Dec-05-2018
A SWOT analysis is a framework that is used to analyze a company’s competitive positioning in its business environment. This can be used by National Oilwell Varco, and will involve the identification of its internal Strengths (S) and Weaknesses (W) followed by the identification of the Opportunities (O) and Threats (T) it faces in its extensivelyrnal business environment.
National Oilwell Varco is among the leading firms within its industry, and it needs to retain this position. National Oilwell Varco is carefully reviewing its SWOT analysis and using it to make strategic decisions. For a SWOT analysis to be conducted of the firm, an interactive process needs to be undertaken by coordinating among all the departments of the firm such as finance, marketing, operations, human resource, logistics, strategic planning, management information systems etc.
A SWOT matrix is a 2x2 matrix that has the internal strategic factors listed in the first row; Strengths and Weaknesses. It has the external strategic factors listed in the second row; Opportunities and Threats. This SWOT strategic framework allows company managers to easily view all of the company’s strengths, weaknesses, opportunities and threats in one matrix.
Internal | Strengths | Weaknesses |
---|---|---|
External | Opportunities | Threats |
The SWOT analysis matrix helps in the development of 4 types of strategies by managers. These are:
- Strengths-Opportunities Strategies (SO): This involves using internal strengths to take advantage of opportunities.
- Weaknesses-Opportunities Strategies (WO): This involves improving on the company’s weaknesses by making use of the opportunities.
- Strengths-Threats Strategies (ST): This involves the using of strengths to minimize the weaknesses.
- Weaknesses-Threats Strategies (WT): This involves the elimination of weaknesses to combat the threats.
The main objective of the SWOT analysis is to help in identifying the strategies that can be used by the company to build on its strengths, eliminate its weaknesses while making the most of opportunities and countering threats.
SWOT Analysis of National Oilwell Varco
Strengths of National Oilwell Varco
- Distribution and Reach: National Oilwell Varco has a large number of outlets in almost every state, supported by a strong distribution network that makes sure that its products are available easily to a large number of customers in a timely manner.
- Cost Structure: National Oilwell Varco’s low cost structure helps it produce at a low cost and sell its products at a low price, making it affordable for its customers.
- Dealer Community: National Oilwell Varco has a strong relationship with its dealers that not only provide them with supplies but also focus on promoting the company's products and training.
- Financial Position: National Oilwell Varco has a strong financial position with consecutive profits in the past 5 years, along with accumulated profit reserves that can be used to finance future capital expenditures.
- National Oilwell Varco has a large asset base, which provides it with better solvency.
- Return on Capital Expenditure: National Oilwell Varco has been successfully able to generate positive returns on the capital expenditure it has incurred on various projects in the past.
- Automation: of various stages of production has allowed the more efficient use of resources and reducing costs. It also allows for consistency in quality of its products and provides the ability to scale up and scale down production as per the demand in the market.
- Skilled Labor force: National Oilwell Varco has invested extensively in the training of its employees that has resulted in it employing a large number of skilled and motivated employees.
- National Oilwell Varco has a diversified workforce, with people of many geographical, racial, cultural and educational backgrounds that help the company by bringing in diverse ideas and methodologies of doing things.
- National Oilwell Varco has qualified and accredited professionals working under in its team.
- Entering new markets: National Oilwell Varco’s innovative teams have allowed it to come up with new products and enter new markets. It has been successful in past, in most of the initiatives it has taken in new markets.
- Social Media: National Oilwell Varco has a strong presence on social media with more than millions of followers on the three most famous social media platforms: Facebook, Twitter and Instagram. It has high levels of customer engagement on these platforms with low customer response time.
- Website: National Oilwell Varco has a well-functioning and interactive website that draws a large number of internet traffic and sales.
- Product Portfolio: National Oilwell Varco has a large product portfolio where it provides products in a large range of categories. It has a number of unique product offerings that are not provided by competitors.
- The geography and location of National Oilwell Varco provide it with a cost advantage in serving its customers, when compared to that with the competition.
- National Oilwell Varco has a well-established IT system that ensures efficiency in its internal and external operations.
- National Oilwell Varco owns a number of intellectual property rights that include trademarks and patents. These allow it exclusivity over its products and competitors cannot copy or reverse engineer them.
- National Oilwell Varco is a brand that has been in the market for years, and people are aware of it. This makes its brand awareness high.
- Its products have maintained quality over the years and are still valued by customers, who find it as good value for the amount of money that they pay.
- Partnerships: Strategic partnerships are established by National Oilwell Varco with its suppliers, dealers, retailers and other stakeholders. This allows it to leverage them if need be in the future.
Weaknesses of National Oilwell Varco
- Research and Development: Even though National Oilwell Varco is spending more than the average research and development expenditure within the industry, it is spending way less than a few players within the industry that have had a significant advantage as a result of their innovative products.
- High Day Sales Inventory: The time it takes for products to be purchased and sold are higher than the industry average, meaning that National Oilwell Varco builds up on inventory adding unnecessary costs to the business.
- Rented Property: A significant proportion of the property that National Oilwell Varco owns is rented rather than purchased. It has to pay large amounts of rent on these adding to its costs.
- Low current ratio: The current ratio that shows the company’s ability to meet its short term financial obligations, is lower than the industry average. This could mean that the company could have liquidity problems in the future.
- The company has low levels of current assets compared to current liabilities, and this can create liquidity problems for it in operations.
- Cash flow problems: There is a lack of proper financial planning at National Oilwell Varco regarding cash flows, leading to certain circumstances where there isn’t enough cash flow as required leading to unnecessary unplanned borrowing.
- Integration: National Oilwell Varco's current structure and culture have resulted in the failure of various mergers aimed at vertical integration.
- Diversification in the workforce: The workforce at National Oilwell Varco is concentrated with mostly local workers, and low amounts of workers from other racial backgrounds. Lack of diversification makes it difficult for employees from different racial background to adjust at the workplace, leading to loss of talent.
- Market Research: National Oilwell Varco has not conducted market research within the market that is serves since the past 2 years. As a result, it is making decisions based on 2 years old data, while customer needs may have evolved over time.
- High employee turnover rates: National Oilwell Varco has a higher employee turnover rate compared to competitors. This means that it has more people leaving the job, and as a result, it is spending more on training and development as employees keep leaving and joining.
- Quality Control: National Oilwell Varco has a lower budget for its quality control department than competitors. This leads to lack of consistency and the possibility of damage to quality across its various outlets.
- Lack of legal experience and legal department employees are not highly qualified.
- A few products have a high market share, while most of the products have a low market share. This reliance on a few products makes National Oilwell Varco vulnerable to external threats if these few products suffer for any reason.
- The workload is a high per worker as there are fewer workers than the actual work required. This puts workers under psychological stress and is likely to be less productive.
- Worker morale is low due to company culture and politics that have grown in recent years.
- Competition and qualified employees have been leaving the organisation in recent years, which could mean a shortage of good talent for the company in the upcoming years.
- The decision making is highly centralized, and decisions by teams need to be approved by certain officials. This reduces efficiency in operations by making them more time consuming. It also leads to reduced innovation.
- The performance appraisal is not in a systematic manner. People are often not appraised for their performance. This leads to lower work morale and lack of promotion opportunities for employees.
Opportunities of National Oilwell Varco
- Internet: there has been an increase in the number of internet users all over the world. This means that there is an opportunity for National Oilwell Varco to expand their presence online; by using the internet to interact with its customers.
- E-commerce: There has been a new trend and a growth in sales of the e-commerce industry. This means that a lot of people are now making purchases online. National Oilwell Varco can earn revenue by opening online stores and making sales through these.
- Social Media: there has been an increase in the number of social media users worldwide. The three social media platforms; Facebook, Twitter and Instagram, have shown the greatest number of increase in monthly active users. National Oilwell Varco can use social media to promote its products, interact with customers and collect feedback from them.
- Technological developments: technology comes with numerous benefits among many departments. Operations can be automated to reduce costs. Technology enables better data to be collected on customers and improves on marketing efforts.
- There has been an increase in average household income along with an increase in consumer spending following the recession. This will result in growth in National Oilwell Varco’s target market with new customers that can be attracted towards the business.
- Population: the population has been growing and is expected to grow at a positive rate for the upcoming years. This is beneficial for National Oilwell Varco as there will be an increase in the number of potential customers that it can target.
- Inflation: The inflation rate has been low and is expected to remain low in the next two years. This is an opportunity for National Oilwell Varco as its cost of inputs would remain low for the next two years.
- Interest rate: Lower interest rates than compared to previous years provides an opportunity for National Oilwell Varco to undergo expansion projects that are financed with loans at a cheaper interest rate.
- Green government drive: this provides an opportunity for National Oilwell Varco for the sale of National Oilwell Varco's products to federal and state government contractors.
- Transport Industry: the transport industry has been flourishing in the past few years, and shows growth potential in the future. This has reduced the costs of transportation, which is beneficial for National Oilwell Varco as it will lower its overall costs.
- Tax policy: the governments’ reduction in tax rate is beneficial for National Oilwell Varco as a lower amount would be expensed out as a tax.
- The government has also announced a subsidy on the sale of environmentally friendly goods in this sector. National Oilwell Varco can focus on these environmentally friendly products and make use of this opportunity.
- Tourism: growth in tourism is beneficial for National Oilwell Varco as it will provide new potential customers that it can target in order to gain market share.
- Skilled workers: increase in education and training by numerous institutes has increased the amount of skilled labor available within the country. This means that if National Oilwell Varco is able to hire skilled labor, it would have to spend less on training and development, therefore, saving costs.
- The growth in consumer spending in the economy is likely to increase consumption for National Oilwell Varco's products.
- A number of new niche markets have opened up that are growing. National Oilwell Varco can sell products in these markets and take advantage.
- Globalisation: Increased globalisation does not restrict National Oilwell Varco to its own country. It can extend its operations to other countries, entering into these markets and making use of the opportunities that lie in these markets.
- Consumers within the industry are becoming more conscious of health, and this is a segment that is growing. National Oilwell Varco can take advantage by manufacturing products that are beneficial to customer's health.
- Trade barriers have been reduced on the import of goods. This will reduce the costs incurred on inputs for production.
- Regulations have loosened in recent years making it easier for businesses to carry out their operations.
Threats of National Oilwell Varco
- Technological developments by competitors; New technological developments by a few competitors within the industry pose a threat to National Oilwell Varco as customer attracted to this new technology can be lost to competitors, decreasing National Oilwell Varco’s overall market share.
- Suppliers: The bargaining power of suppliers has increased over the years with the decrease in the number of suppliers. This means that the costs of inputs could increase for National Oilwell Varco.
- New entrants: there have been numerous players that have entered the market and are gaining market share by gaining existing companies’ market share. This is a threat to National Oilwell Varco as it can lose its customers to these new entrants.
- Increasing competition: there has been an increase in competition within the industry putting downward pressure on prices. This could lead to reduced revenue for National Oilwell Varco if it adjusts to the price changes, or loss of market share if it doesn’t.
- Exchange Rate: the exchange rate keeps fluctuating and this affects a company like National Oilwell Varco that has sales internationally, while its suppliers are local.
- Political uncertainties in the country prove to be a barrier in business, hindering performance at times and making the business incur unnecessary costs.
- The fluctuating interest rates in the country do not provide a stable financial and economic environment.
- Consumer tastes are changing, and this puts pressure on companies to constantly change their products to meet the needs of these customers.
- Regulations on international trade keep changing, and this requires compliance by companies if they are to operate globally.
- Substitute products available are also increasing, which is threat collectively for the whole industry as consumption of current products decrease.
- The rise in prices of fuel has increased in the input costs for National Oilwell Varco. These costs have also increased as other industries that provide inputs for this company also have suffered from increasing fuel prices, thereby charging more.
- Increased promotions by competitors have been a threat for National Oilwell Varco. On most media, there is more clutter than ever, and customers are bombarded with multiple messages. This reduces the effectiveness of promotional messages by National Oilwell Varco.
- Constant technological developments require the workforce to be trained accordingly as the inability to keep up with these changes can lead to loss of business for National Oilwell Varco.
Limitations of the SWOT Analysis of National Oilwell Varco
Even though the SWOT analysis is an effective tool, it has certain limitations as well.
- Its major limitation is the fact that there can be an overlap of strengths and weakness, with a single factor being both a strength and a weakness. For example, a large number of outlets can be a strength in a growing economy or a weakness if the economy is going through a recession.
- The matrix is not an end as it does not show how to achieve the objectives. It should be used as a starting point to make strategic decisions.
- The assessment done through a SWOT analysis is a static one and does not take into consideration the changes that take place in the competitive environment.
- The factors listed down in a SWOT analysis may be overemphasized by the company.
- There are certain interrelationships between the internal and external factors that the SWOT Matrix overlooks.
Weighted SWOT analysis of National Oilwell Varco
In response to the above mentioned limitations, a weighted SWOT analysis can be conducted for National Oilwell Varco that involves assigning weightage to each of the strengths and weaknesses mentioned in the SWOT analysis for National Oilwell Varco. It also involves estimating the probability of an event occurring in the external environment. This allows managers to focus on the important factors, and give less consideration to the less important ones.
The limitation of the weighted SWOT analysis is that it does not look at how holistically different factors affect the business when combined.
Example of weighted SWOT analysis
For National Oilwell Varco, the strength for strong distribution can be given a higher weight than the strength for the skilled labor force.
Advanced SWOT analysis/SWOT Matrix
National Oilwell Varco SWOT analysis lists down the strengths, weaknesses, opportunities and threats to any organisation, but does not tell management what can be done by these. To overcome this limitation and help develop strategies that are appropriate, an advanced SWOT analysis or TOWS matrix is used. This lists down the Strengths-Opportunities (SO) strategies that involve using strengths to take advantage of opportunities. It lists the Strengths-Threats (ST) strategies that involve using strengths to fight of threats. It involves the Weaknesses-Opportunities strategies that involve converting weaknesses to strengths by using opportunities. Lastly, Weakness-Threats (WT) strategies involve overcoming weaknesses to avoid threats.
Strengths
|
Weaknesses
|
|
Opportunities
|
SO Strategies
|
WO Strategies
|
Threats
|
ST Strategies
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WT Strategies
|
References
Andrews, K. (1980). The concept of corporate strategy, 2nd edition. Irwin Homewood, IL.
Baker, M. J. (2014). Marketing strategy and management. Macmillan International Higher Education.
Bartol. K, & Martin, D. (1998). Management, 3rd edition. Boston: Irwin McGraw-Hill.
Dyson, R. G. (2004). Strategic development and SWOT analysis at the University of Warwick. European journal of operational research, 152(3), 631-640.
Graham, H. (2008). Marketing strategy and competitive positioning. India: Pearson Education India.
Kotler, P. (1991). Marketing Management, 7th edition. Englewood Cliffs, NJ: Prentice-Hall.
Leonard-Barton, D. (1992). Core capabilities and core rigidities: A paradox in managing new product development. Strategic Management Journal, 13(S1), 111-125.
Mercer, D. (1992). Marketing. Blackwell: Oxford.
Nixon, J., & Helms, M. M. (2010). Exploring SWOT analysis – where are we now?: A review of academic research from the last decade. Journal of Strategy and Management, 3(3), 215-251.
Panagiotou, G. (2003). Bringing SWOT into Focus. Business Strategy Review, 14(2), 8-10.
Pickton, D. W., & Wright, S. (1998). What's swot in the strategic analysis? Strategic Change, 7(2), 101-109.
Rauch, P. (2007). SWOT analyses and SWOT strategy formulation for forest owner cooperations in Austria. European Journal of Forest Research, 126(3), 413-420.
Weihrich, H. (1982). The TOWS matrix—A tool for situational analysis. Long Range Planning, 15(2), 54-66.
Weihrich, H. (1999). Analyzing the competitive advantages and disadvantages of Germany with the TOWS Matrix-an alternative to Porter’s Model. European Business Review, 99(1), 9-22.
Wilson, R., Gilligan, C., & Pearson, D. (1992). Strategic Marketing Management. Butterworth-Heinemann: Oxford.
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