SWOT Analysis -- State Farm
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
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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.