Introduction
Eastvaco Inc. is an American organization that specializes in paper and paperboards processing, manufacture of specialized chemicals, lumber production, timber production, and development of land. The company has a decentralized leadership structure with its charlotte facility acting as an investment center with the responsibility of manufacturing the company products. This section examines the strengths, weaknesses, opportunities, and threats that face Eastvaco Corporation.
SWOT Analysis of Eastvaco
Strengths
From the company analysis, Eastvaco has several strengths that it can exploit to increase its performance and growth. The company has a favorable labor efficiency variance indicating that the cost of labor incurred by the firm is less than the budgeted labor costs. This could be because of good human resource practices and skilled employees in the firm. The comparison of Eastvaco with its industry and competitor performance indicates that eh firm has a strength in its strong liquidity and efficiency position. In addition, it has low debt ratios indicating overall financial viability compared to MeadWestvaco and the industry. Eastvaco also has strength in the decentralization of its decision-making. Through this strategy, the company can train its junior management on decision-making hence enabling them to assume future senior management positions in the organization (Artinkinson, Kaplan & Young, 2004).
Weaknesses
One of the weaknesses of Eastvaco is the measure of its performance using only financial measures. The measure only provides the financial performance of the organization and does not include the performance of other sections such as the customer, internal operations, and learning and growth perspectives. Despite a positive industry comparison analysis, Eastvaco has a weakness of low profits compared to MeadWestvaco and the industry.
Opportunities
The company has the opportunity to overcome its weakness of measuring its performance using only financial measures. Other non-financial measures such as a balanced scorecard should be used to measure the performance of the organization. Using such a measure, Eastvaco will be able to measure the performance of its entire departments such as the customer section, internal operations, learning, and growth perspective, and the financial sector. Analysis of the whole organization will provide the firm with a true picture of its overall performance hence exposition of areas that need further improvement (Kaplan & Norton, 2002).
Another opportunity is the opportunity to invest in the packaging project. From the company analysis, the packaging project seems favorable to Eastvaco because it has higher returns as indicated by a high NPV of $4,487, a high IRR and ARR of 11% and 24% respectively, and lastly, the shortest payback period of 3.2 years. In addition, the charlotte facility has the opportunity of acquiring the Cremodium facility at a low market price. Its acquisition will increase the company’s productivity and overcome the weakness of low profitability.
Threats to Eastvaco
The major threat to the existence of Eastvaco is an increase in competition in the industry. This is possible because of free entry and exit. An increase in competition in the industry could affect the profitability of the company hence its production. However, the initiation of a new packaging project and acquisition of other facilities such as the Cremodium will alleviate any threats to the company’s existence.
Conclusion
A SWOT analysis of Eastvaco arising from its financial analysis reveals that the company has major strengths in its financial performance, decentralization, and reduced labor costs. However, the company has a weakness in its realized profit and utilization of only the financial method to measure the company performance. The company can use its liquidity and efficiency strength to invest in the packaging project to increase its low-profit weakness and overcome industry competition.
References
Artinkinson, A., Kaplan, R. & Young, M. (2004). Management Accounting. New Jersey, NJ: Pearson Prentice Hall.
Kaplan, S.R. & Norton, D.P. (2002). The Balanced Scorecard. New York, NY: Harvard Business School Press.