SWOT Analysis — State Farm
- Describe the process you used to conduct the SWOT analysis.
- Synthesize the data gathered from your environmental scans and how they relate to your SWOT findings.(see attached. I wrote both internal & external environmental analysis)
- Explain the internal strengths and weaknesses that were identified as a result of your research and interviews.
- Explain the external opportunities and threats that were identified as a result of your research and interviews.
- Be sure to make it clear how you will use the information from the SWOT and environmental scans to evaluate viability of your firm’s existing strategies. (you can follow this link to write: http://fernfortuniversity.com/term-papers/swot/1433/35-state-farm-insurance-cos-.php)
5 pages with 5 references, APA format (important!)
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Internal Environment Analysis
Jingyan Liang
Center for Leadership Studies, Northwest University
LDRS 7073: Strategic Thinking and Planning
Dr. Rowlanda Cawthon
November 10, 2020
Internal Environment Analysis
Leadership could either be an asset that helps expand a business or a weakness that keeps a business from being successful. This internal analysis considers our company’s practices of leadership, culture, business structure, value chain, and financial performance to explore the organizational core competencies and existing competitive advantages (Grice, 2018).
State Farm Mutual Automobile Insurance Company (State Farm Mutual or the company) is a mutual insurance company that provides various types of insurance, banking products, and mutual funds. It is unlike any other insurance organization (Market Line, 2016). By identifying my organization’s internal environment, I applied the PRIMEFACT checklist (Parish, 2016) to interview participants to determine the five internal causes that were deemed critical for understanding the organizational dynamics.
Management
Strength
Strength
According to the vision and mission statement of State Farm (State Farm Blogspot, 2010), State Farm endeavors to sell its goods through the business strategy of differentiation (“like a good neighbor”). Toby’s office, is a State Farm independent agency located in Washington state that has an effective process to reach desired objectives by dividing clear and no cross-section departments to take on tasks to avoid passing the buck and to get positive reviews. According to the conversation with all participants, every position’s full-fledged responsibilities determine who does what and who reports to whom.
If State Farm is considered as a factory, our process is operational and efficient. We normally have one sale to ‘open the door’ to customers, [and] sell insurance to them. Then, we do not ‘close the door’ until they leave, since we have our service person to take care of them. You know, I also always ‘track’ my clients to see if they are satisfied with our service and what are their further needs on money investment and personal concerns. (T. Stevens, personal communication, October 31, 2020).
Leaders today need to build influence instead of control (David & David, 2017). Toby, a leader of one of the State Farm agencies, encourages employees to (a) discuss their innovational ideas, (b) reveal problems, (c) provide recommendations, and (d) give suggestions that created an open and flexible workplace for everyone. Regarding Toby’s leadership, Lean Miller, who was executing her primary tasks of working at the service department and making phone calls to clients, said that she was “so happy to work with Toby, because he really cares about us, and we do have a monthly goal to get the extra bonus, like keep insurance termination rates by 2%, then we’ll get one-day paid-off.” Therefore, measuring individual performance was often apparent with numbers on paper and with consistent communication to make a rating scale.
Weakness
State Farm organizational structure is rigid (J. Ittner, personal communication, October 31, 2020). Each department is responsible for only its own affairs. There are no overlapping matters, which makes the management plain but aggravates the employees’ complaints. “Every time I need to settle my bill, the representative always keeps me waiting because he needs to call the appropriate department to ask for the results”, said one of client Garett (G. Garett, personal communication, October 31, 2020 ). It’s not worth to keep the consistent service to clients towards not being able to communicate directly and wasting time. Service manager Jennifer indicated that she speeded at least three hours a day on the phone to State Farm underwriting because her function did not allow direct access to information that clients requested (J. Ittner, personal communication, October 31, 2020). “I am overwhelming and annoyed”, because “I can not give direct answers to customers, and these conversations take up a lot of my work time” (J. Ittner, personal communication, October 31, 2020).
Marketing
Strength
As Kantar Media (2019) showed, State Farm dominates the market of property/casualty insurance with a market share slightly over 10%, which is almost double that of other competitors in the market. “The market for personal insurance consists of all adult individuals. All products available… are appropriate for every type of person from the moment they leave their parents’ home to the day they die,” (T. Stevens, personal communication, October 31, 2020). As Christ (Molinari, 2020) wrote in the RHAWA newspaper, the median list price for homes in Washington is $524,970, and the average wage is $51,182 this year. So this was an opportunity to gain fire insurance sales in King County this year for Toby’s office. Furthermore, creating a multi-language market platform online was intelligent and unique in Toby’s office compared to rivals. Toby’s office has a trilingual marketing manager and has adequate experience and training to expand their market and reputation. One of the people in Toby’s office said, “we posted advertisements regularly on Facebook, Instagram, Wechat and Lines, and we have a great client base who speaks different languages,” (J. Ittner, personal communication, October 31, 2020). It was wise to spend 3% of sales income to guarantee 25% earnings growth by presenting those channels.
Weakness
The marketing of the products left a lot to be desired. Even though the product is a success in terms of sale but its positioning and unique selling proposition is not clearly defined which can lead to the attacks in this segment from the competitors. Clients are shopping around to get the cheapest cost most time, “but low price is not our competitive proposition that most people can not accept it” , said Lean from State Farm sales department (L. Miller, personal communication, October 31, 2020).
Finance
Weakness
State Farm applied lofty sums for underwriting expenses, and total expenses outweigh the revenue collected. Examples of expenses include the costs of advertising, agent commissions, and employee salaries. As shown in
Table 1
, State Farm had a loss ratio of over 60% ((J. Ittner, personal communication, October 31, 2020), which could indicate immense underwriting discipline and risk mitigation.
Table 1
Financial Ratio Numbers of 4 Insurance Industries
Insurer
Loss Ratio
Loss Adjustment Expenses Ratio
Expense Ratio
Combined Ratio
State Farm
64.1%
16.8%
26.0%
106.9%
Geico
67.8%
10.6%
15.3%
93.7%
Allstate
57.5%
13.3%
27.7%
98.4%
Progressive
62.9%
10.6%
21.0%
94.6%
Note: This table demonstrated the four financial dimensions of a prototypical table. Adapted by Morris, P. (2018). Insurance Industry Basics: Combined Ratio. SNL Financial. (Retrieved from https://www.fool.com/investing/general/2015/02/23/insurance-industry-basics-combined-ratio.aspx).
Strength
The insurance market was saturated, and it was difficult for new organizations to enter the market to compete with State Farm (Market Line, 2016). State Farm’s long history of a good reputation enabled it to sit in the market stably. Its broad product offerings had earned customers’ loyalty and caused it to be ranked as the #1 U.S. private auto writer (State Farm Company, 2019). Allstate Corp. Executive Vice President and CFO Mario Rizzo, during a recent investor conference, said that State Farm had been “quite aggressive in reducing interest rates” and remains a “solid competitor so far” (Zawacki, 2020, p1).
Management Information System (MIS)
Strength
Over the years, State Farm has built a reliable distribution network that has reached the majority of its potential market and has securely protected every account’s information (Market Line, 2016). State Farm had updated two network platforms in a short period of two years to better include all members’ relationship and direct contact information. These network platforms also automatically generate concise icons to show every single agent’s onboarding task and performance (T. Bowers, personal communication, October 31, 2020). Scams were prevalent in State Farm through various forms. “Anything [related to] information security, State Farm is probably doing. The main goal of information security is to make sure that data and our information is safe,” (T. Stevens, personal communication, October 31, 2020). There were numerous projects to work in every area in any language, and numerous forms of protection were established to access control of the public cloud. State Farm had teams to protect the database, to establish encryption, and to perform vulnerability scans and infrastructure (Moorcraft, 2019). It spent a lot of time and resources on giving employees the ability to learn, grow, and adapt to create leadership skills and communication skills. The information technology team member of State Farm’s headquarters said, “we were constantly evolving and learning new threats and ways to mitigate the future hackers of tomorrow.” (T. Stevens, personal communication, October 31, 2020). It was astonishing to see a collaborative and user-friendly space for all members to establish a large community connection that rival firms were unable to create.
Weakness
Even State Farm has advanced informational system, it still needs more investment in new technologies. It has 19,000 agencies in the United States and Canada (T. Bowers, personal communication, October 31, 2020), and as the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world. Given the scale of expansion and different geographies the company is planning to update informational system. The investment in technologies of State Farm is not at par with the vision of the company that can integrate the processes across the board (T. Bowers, personal communication, October 31, 2020).
Human Resources
Strength
State Farm employees work hard, and different benefits are offered as rewards (StateFarm.com, 2019). The rewards include the compensation for sales and agents, various investment plans for retirement, tuition aid to employees if they plan to learn beyond the office, and being part of an open-minded culture that encourages professional and personal growth. Most crucial for most people was that they were allowed to work from home (StateFarm.com, 2019), which resulted in a workforce that was not only highly skilled but also motivated to achieve more.
Weakness
However, even though State Farm had options for medical, dental, life, and other welfare bundles, not every employee is eligible for all of them. Toby’s office’s human resources manager said that employees of independent contract agents were excluded from State Farm’s flexible compensation plan for U.S. employees (L. Miller, personal communication, October 31, 2020). On the other hand, compared to other organizations in the industry, State Farm had a higher attrition rate and spent a lot more than its competitors did on training and developing its employees. State Farm had 151,000 employees in 2016, which shrunk to 59,827 in 2018 (Lucija B., 2017). The employee attrition rate was therefore 132%, which can be calculated by examining the data from StateFarm.com.
Core Competence
Strength
State Farm takes a holistic view of insurance, no matter what kind of insurance product it is. For coverage contracts, it had a certain percentage above and a detailed coverage statement. In the purchase process, State Farm considered many factors to ensure that its capabilities matched the insured property’s value. It has always had a threat of new entrants, and there are a great many competitors in the market, such as AllState, Liberty Mutual, Geico, and Farmers. Different insurance companies have different qualifying standards to issue insurance policies. For the claim process, besides offering insured coverage, State Farm focuses on what clients have at risk in terms of assets and then proposes a comprehensive insurance plan, which takes much more time than merely doing a brief survey with the client. Still, it is necessary and crucial to protect clients’ assets.
Weakness
Because there are a lot of insurance companies and distributors in the same market, the
Over the years the company has developed numerous products but those are often response to the development by other players ((T. Stevens, personal communication, October 31, 2020). “[There is] no doubt that everyone is concerned about insurance prices and products. But both of them we can not guarantee [in State Farm], ” Toby said ((T. Stevens, personal communication, October 31, 2020). State Farm does not access regular supply of innovative products thus leading to high and low swings in the sales number over period time.
Conclusion
For internal environment factors, as one of the leading companies in the insurance industry, State Farm protects its market share through a highly skilled workforce through training and development programs, entering new markets by creating advertisement platforms, and having a strong brand portfolio, which has a high level of customer satisfaction. The three things that surprised me are: Toby’s office is using multi-language market platform to gain a staggered market; loss ratio is over 60% which is not like the surface we can see; employees of independent contract agents were excluded from State Farm’s flexible compensation plan which sounds unfair to most people.
Although State Farm had numerous strengths, there were weaknesses that could not be ignored. As before mentioned, State Farm had a high attrition rate in the workforce, financial planning was not covered properly, the profitability ratio and net contribution of State Farm were below the industry average, and the organization structure was only compatible with the present business model, which limited the innovation of new products.
References
David, F. R. & David, F. R. (2017). Strategic management: A competitive advantage approach, concepts and cases (16th ed.). Essex, England: Pearson Education.
Grice, A. L. (2018). Strategic analysis and planning series V: Internal analysis. EquiManagement. Retrieved from
Market Line. (2016). State Farm mutual automobile insurance company – strategy and SWOT report. Market Reseach.com. Retrieved from
https://www.marketresearch.com/MarketLine-v3883/State-Farm-Mutual-Automobile-Insurance-9889420/
Molinari, C. (2020). Top 6 markets to invest in real estate properties in Washington. Journal of RHAWA. Retrieved from https://www.rhawa.org/blog/top-6-markets-to-invest-in-real-estate-properties-in-washington
Moorcraft, B. (2019). State Farm hit by data breach. Insurance Business America. https://www.insurancebusinessmag.com/us/news/cyber/state-farm-hit-by-data-breach-174829.aspx
Morris, P. (2018). Insurance industry basics: Combined ratio. Journal of SNL Financial. https://www.fool.com/investing/general/2015/02/23/insurance-industry-basics- combined-ratio.aspx
Parish, D. (2016). Strategic Planning: Internal analysis an online course with David Parrish. EU-Eastern Partnership Culture and Creativity Programme.
State Farm.com. (2019). State Farm announces 2019 financial results. https://newsroom.statefarm.com/2019-state-farm-financial-results/
StateFarm.com. (2019). Outstanding employee benefits. https://www.statefarm.com/careers/become-an-employee/employee-benefits
World Population Review. (2020). Washington population 2020. https://worldpopulationreview.com/states/washington-population
Zawacki, T. (2020). State Farm’s auto premiums slippage spans geographies. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/state-farm-s-auto-premiums-slippage-spans-geographies-57509277
6
External Environment Analysis
Jingyan Liang
Center for Leadership Studies, Northwest University
LDRS 7073: Strategic Thinking and Planning
Dr. Rowlanda Cawthon
October 25, 2020
External Environment Analysis
An external audit reveals critical opportunities and threats confronting an organization so that managers can formulate strategies to (David & David, 2017). I interviewed with the owner of State Farm agency Toby Stevens and his employees to see the external environment concerning five of the most critical external forces that would impact the business working tract. So the following contents of this paper is divided into five parts based on interviewing rage to analyze external environmental elements of State Farm by using Porter’s Five competitive forces framework.
Economic Forces
As we know, State Farm was a directive product line in business and does not have any subsidiaries to sell various products or outsourcing services (
https://www.statefarm.com/about-us/company-overview/company-profile/state-farm-story
). State Farm’s estimated revenue was $87.9 billion for 2016, and market share of
10.09%
comparing with other insurance companies (Lucijia, 2016). Interview participants found that there is a correlativity between the interest rate and sales number. One of the employee named Jennifer Ittner (personal communication, October 24, 2020)said “people are willing to invest in homes and cars due to zero loan rate in pandemic and our office’s sales increases by 5% per month over last year.” On the other hand, awareness of death and health incredibly increases this year due to COVID-19, which impacts the consumption patterns for clients who tend to invest money into life and health insurance. A review of disclosures on the state pages (Zawacki, 2019, p1) of State Farm annual statements revealed broad-based declines in private-passenger auto premium volumes, with direct premiums written and earned falling in 39 and 41 states. Across all lines, State Farm’s direct and net premiums written fell by 0.6% and 0.7% in 2019 (Zawacki, 2019, p1). However, State Farm had not gotten the traction with rates that market would expect (Zawacki, 2019, p2). Toby said he would continue to believe that State Farm continue to look to grow, but “rate is always the core competitive element we need to consider” (Toby, S., personal communication, October 24, 2020). The data represented U.S. city averages inflation (InflactionData.com, 2020) in 2020 was 1.31%. The low inflation rate brought more stability in the market and enable credit at lower interest rate to the customers of State Farm that would stimulate economic growth in State Farm.
Demographic Forces
The office located in King County of Washington state, which is the 18th largest state in the US with respective populations of 2,188,649 in 2020 (world population review, 2020). Thus the market for an insurance agent selling insurance in Toby’s office was synonymous with continued population growth and a healthy growth rate of 1.27% (world population review, 2020). Besides, Microsoft and Amazon announced big growth plans in Washington state and will begin surpassing 100,000 employees in the Seattle area, which expands the potential market. They will bring more part-time appliers to State Farm (Nickelsburg, 2019). There is a part-time service in Toby’s office whose husband is transferred work place state to state due to Microsoft growth plan, and as a housewife, part-time service job is a flexible and less demanding occupation. So Toby believes that even a pandemic is a challenge and an obstacle for business, as the economic environment, the trend of integration is worth looking forward to see.
Environmental Forces
State Farm has a long history of taking our environmental responsibility seriously. According to the State Farm official website (
https://www.statefarm.com/about-us/environmental-programs
), State Farm had recycled more than 8,500 tons of building materials in facility construction projects than 12.5 million pounds of paper have been recycled since 2011. “Greening our fleet is something we have taken very seriously and is one of the tasks our agent needs to assist the head office, and it was also our efforts to the environment. We should let more people raise the awareness of environmental protection and let more people join in,” said State Farm agent Toby Stevens (personal communication, October 24, 2020). There are environmental achievements could be found on the State Farm homepage, and it’s not hard to see that many State Farm agencies were working to make their little corner of the world a greener place for getting its slogan called “Think Globally, Act Locally” better understanding. So what agent can do to give a hand to saving the environment? The answer was exciting from Toby that the whole office was rebuilt and refurbished by himself with recycled products produced and old desks. Toby’s office installed LED troffer lights not only to protect employees’ eyes when they were working but provide high-efficiency lighting. State Farm offered recycled office supplies and furniture to every single agency to protect the environment and save budget. All of office supplies were literally “rented” by employees with no cost and would be returned to head office when employees left or needed to be repaired. Every interview participant believed that they did start a green-up challenge where they encouraged other businesses to be more green.
Ethical Forces
For nearly a century, State Farm had worked and lived in thousands of neighborhoods across America. It had a vision statement called “a good neighbor of you,” which highlighted the effort to stay at the core of what it concerted and what it did when a neighbor needed help. “Our employees volunteered more than half a million hours in education-related cases and has more than 7,000 charitable groups across the country to do our best for helping people” (T. Stevens, personal communication, October 24, 2020). I am surprised to find that so many public activities State Farm participated in and its employees to support it. State Farm provided $20 million to bring a first-of-its-kind public-private partnership that helps qualified students in Georgia entering campus (https://www.statefarm.com/about-us/environmental-programs). State Farm had a long-term goal to help students have a pathway to a productive future and created a strong workforce for everyone.
Technological Forces
Toby was confident that State Farm has one of the world’s largest private virtual computer networks and is one of the largest Unified Communications implementations in America (T. Stevens, personal communication, October 24, 2020). It was impressed that State Farm still keep the oldest network to protect databank. Although it was old-fashioned and backward, this conservative approach allowed the database to be best protected. It’s infrequent in developed informational systems in terms of not neglect traditional fender walls and work with the advanced net approaches at the same time. All employees worked in an agile environment to quickly iterate and develop solutions that meet clients’ needs by using cutting-edge technologies such as mobile applications and full-stack development. State Farm has its own app to track clients’ driving history and created a device named Drive Save and Safe to help clients drop insurance premium meanwhile monitor clients’ driving record.
Conclusion
According to the interview participants’ conversation, consumer preference tendency for insurance products was how much they spend in. So in this contact, buyer price sensitivity was ranked N.1 in the “bargaining power of customers” frame. Forward vertical integration eliminated some tedious steps, but it also suffered from lagging information updates and inflexible positions in State Farm. For example, State Farm underwriting reviewed every insured’s record at the time of pricing, and it would take 14 business days, and nobody could know the issued price during this time, whether it’s sales or insured. So insured would become anxious and confused with no answer from sales who sold products to them directly and got calls to transfer a few times into different departments which handling additional responsibilities. Also, State Farm had a good brand effect by using nontraditional marketing practices such as web videos, sponsoring NBA events and car racing, and partnering with schools and public welfare groups. State Farm would not grow consistently and be the largest insurer in America if it did not do well.
References
Christiansen, C. V., & Topic, G. (2014). Strategic planning. JFQ: Joint Force Quarterly, (74), 80-83.
David, F. R. & David, F. R. (2017). Strategic management: A competitive advantage approach, concepts and cases (16th ed.). Essex, England: Pearson Education.
Grice, A. L. (2017). Strategic analysis and planning series: Macro external analysis. EquiManagement.
Strategic Analysis & Planning Series: Macro External Analysis
Nickelsburg, M. (2019). Amazon surpasses Microsoft in number of Seattle region employees amid big growth plans across US. GreekWire.
https://www.geekwire.com/2019/amazon-surpasses-microsoft-number-seattle-region-employees-amid-big-growth-plans-across-us/
State Farm Insurance Company. (2019). Why it matters?
https://neighborhoodofgood.statefarm.com/why/index.shtml
.
State Farm Insurance Company. (2020). State Farm innovation.
https://www.statefarm.com/about-us/innovation-research
.
State Farm Insurance Company. (2020). State Farm Story. https://www.statefarm.com/about-us/company-overview/company-profile/state-farm-story.
State Farm Insurance Company. (2007). Nation’s Largest Insurer Recognized for “Green” Focus.
https://www.csrwire.com/press_releases/20357-nation-s-largest-insurer-recognized-for-green-focus
.