Tomtom Case Analysis SWOT

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Tom Tom is facing significant difficulties as a shift in technology has threatened its major revenue streams. Smartphones are basically giving away for free what TomTom has been charging people a lot of money for, and to nobody's surprise this has resulted in the company losing revenue and taking a loss last year. If TomTom lost money in the first year of the smartphone era, when they were still a niche technology, the writing is on the wall for what will happen when smartphones become saturated in the market.

An examination of the company's strengths, weaknesses, opportunities and threats reveals that all is not hopeless for TomTom, however. There are opportunities within the market that the company can leverage. While its strengths are losing their ability to generate competitive advantage, TomTom is still strong enough to develop new market opportunities for itself. Three different strategic options are presented, based on careful consideration of the marketplace and its future direction, and then recommendations are given as to what the best option might be for TomTom going forward.

Introduction

TomTom, the satellite navigation company, is facing declining revenues in 2009, the time period in which this case is set. The company's investors are rightfully worried about a downturn in revenues, which has come at a time of increased competition and declining growth rates. The company's major markets are saturated, but emerging markets still offer potential. The company's 2008 revenues were just over €1.5 billion, a slight decline over 2007 levels. The declining revenue trend has continued in the first quarters of 2009. Net income gained slowly until FY2007 but the company lost nearly €1 billion in FY 2008. Management at TomTom needs to correctly analyze the causes of these declines, and shift the company's strategy to restore profitability and develop a long-term vision for the company.

Mandate

TomTom has to this point in its history been driven by a mandate to "improve people's lives by transforming navigation that gets people from one place to another safer, faster, cheaper and better informed." The company still maintains this vision, but realistically the vision is one of the biggest problems that the company faces, because this is no longer something that TomTom alone can provide -- it is one of the many companies to deliver this basic benefit.

The objectives that TomTom has set for its business are as follows. The first is it should have better maps, something that its recent acquisition of TeleAtlas should help with, for example. Having better maps is a clear source of competitive advantage when seeking to help people find their way more efficiently. The second objective is better routing, something that also reflects the company's vision, and would provide a source of competitive advantage. This is also an area where TomTom has started to really lose ground to the competition. The third objective is better traffic information. This actually ties into the second objective of better routing, since the optimal route is in part dependent on prevailing traffic conditions. Again, this is very much a potential source of competitive advantage, should TomTom outperform the competition.

The case does not appear to state a mission for TomTom, but the company's current website states a mission to "reduce traffic congestion for all," something that ties into the third objective, but would appear to be different from what the company was pursuing back in 2009. The case also does not say anything about core values, but the company's website today focuses on three: "community giving," environmental impact, and supply chain management. Environmental impact ties into the company's focus on traffic and supply chain management hints at the company having a role in logistics solutions, which would be a creative use of their base technology.

There are a number of stakeholders for TomTom. Internal stakeholders include employees, management and shareholders. External stakeholders include the general public (especially given the traffic mandate), governments (for the same), competitors, suppliers and customers. The stakeholder of most concern right now is the shareholder, as the company is no longer profitable and its revenues are declining. Should this trend continue, internal stakeholders will also be affected. Furthermore, TomTom needs to consider the customer, because identifying and meeting customer needs will be essential to reversing the negative financial trends the company is facing.

Internal Analysis

The internal analysis of TomTom will focus on the company's strengths and weaknesses. The company has listed several of its strengths, the factors to which it attributes its record of success.

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These include the strength of the TomTom brand, the size of the user base, the size of the distribution network, and it should also be mentioned that the success the company has enjoyed in the past has left it with a healthy balance sheet, though recent borrowings have compromised that. Most of the borrowing appear to have been to finance acquisitions.

The TomTom brand and user base size are both valuable, but related. TomTom is the market leader in Europe, and #2 to North America, the two largest markets in the world. This means that there is a significant installed base of customers who are familiar with the TomTom product and are using it. The company can sell additional services to these customers. The brand value stems from its early leadership in the category, and having built up such a large customer base. It is also worth considering where the value of the brand does not come from -- service. That will be discussed under weaknesses. The user base is also a fleeting strength, given diminishing revenues and new competition, and is therefore not the sort of strength from which the company can derive sustainable competitive advantage.

Likewise, the distribution network is not a source of sustainable competitive advantage. TomTom has probably misread this. The company built up a strong distribution network, with retail, car dealers and car rental companies among the leading points of distribution. This distribution strength has most certainly helped the company build out its market share in recent years. The problem for TomTom is that distribution in the industry is changing, and TomTom's traditional strength in distribution is now worth a lot less in the marketplace. TomTom is starting to be in a position where distribution is more of a weakness for the company than strength, because it sees distribution as product-focused rather than service-focused.

Flowing from the reduction in the power of these three traditional strengths is that the company is weaker financially. That said, they only turned their first loss last year, and still have financial strength as a result. A healthy balance sheet gives the company time to work out a solution to its issues; management does not have a financial crisis to avert and that is very much a strength when facing myriad strategic problems, as TomTom is.

In terms of weaknesses, TomTom has gone from a position where it had few weaknesses just a couple of years ago to being in a position where it has a lot of them now. A traditional weakness has always been service. The satellite navigation business has basically been a duopoly, the other competitor being the American company Garmin. Substitutes like MapQuest or paper maps were inefficient kludges for people who found satellite navigation too costly. Within the context of duopoly, neither company developed much competency with respect to service, which compromised customer loyalty for both firms. With the shift in the nature of competition, this has come to hurt TomTom.

This leads us to the second weakness for TomTom -- technology. The company has always emphasized technology as a critical strength in this industry, but in 2009 nobody can honestly say that TomTom has technological superiority. The reality is that with smartphones, satellite navigation has become inexpensive. TomTom has been slow to deal with mobile. They now have an iPhone app, but nothing for Blackberry or the popular new Android operating system. Furthermore, TomTom's mapping, even with the TeleAtlas acquisition, is inferior to Google's. With Google maps as standard on iPhones (in 2009) and obviously on Android phones as well, TomTom is marketing an app that is inferior to the default app on most new non-Blackberry smartphones. This technological inferiority is a big part of the reason that the company is losing sales.

While TomTom is still financially healthy, there is no doubt that another weakness is declining financial health. They will not remain healthy for long at this rate. Revenues are declining, margins are declining, and the company is now posting losses. This is a major weakness because the company needs to invest more to restore technological superiority and get back into the game, precisely at a point in time when it may face layoffs and other cost-saving measures to try to restore profitability. If the company does not turn things around quickly, finances are going to become a considerable constraint on its future strategic implementation.

External Analysis

This analysis will focus on the threats and opportunities that exist.....

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