Case Study Description of Arcelor: Undervaluation: Threat or Opportunity?
Arcelor believes its shares are undervalued and has to decide whether to buy back stock via a repurchase tender offer or via an open market repurchase. Before doing so, it has to value the company to get an estimate of the fair value of the company. It has also to decide whether it can afford the buyback: is the increase in leverage a move to a better capital structure?
Swot Analysis of "Arcelor: Undervaluation: Threat or Opportunity?" written by Theo Vermaelen, Divad Andrade includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Arcelor Repurchase facing as an external strategic factors. Some of the topics covered in Arcelor: Undervaluation: Threat or Opportunity? case study are - Strategic Management Strategies, and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Arcelor: Undervaluation: Threat or Opportunity? casestudy better are - – challanges to central banks by blockchain based private currencies, increasing government debt because of Covid-19 spendings, technology disruption, talent flight as more people leaving formal jobs, there is backlash against globalization, there is increasing trade war between United States & China, increasing energy prices,
supply chains are disrupted by pandemic , cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of Arcelor: Undervaluation: Threat or Opportunity?
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Arcelor: Undervaluation: Threat or Opportunity? case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Arcelor Repurchase, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Arcelor Repurchase operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Arcelor: Undervaluation: Threat or Opportunity? can be done for the following purposes –
1. Strategic planning using facts provided in Arcelor: Undervaluation: Threat or Opportunity? case study
2. Improving business portfolio management of Arcelor Repurchase
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Arcelor Repurchase
Strengths Arcelor: Undervaluation: Threat or Opportunity? | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Arcelor Repurchase in Arcelor: Undervaluation: Threat or Opportunity? Harvard Business Review case study are -
Superior customer experience
– The customer experience strategy of Arcelor Repurchase in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High switching costs
– The high switching costs that Arcelor Repurchase has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Learning organization
- Arcelor Repurchase is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Arcelor Repurchase is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Arcelor: Undervaluation: Threat or Opportunity? Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Effective Research and Development (R&D)
– Arcelor Repurchase has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Arcelor: Undervaluation: Threat or Opportunity? - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Operational resilience
– The operational resilience strategy in the Arcelor: Undervaluation: Threat or Opportunity? Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Arcelor Repurchase digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Arcelor Repurchase has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Sustainable margins compare to other players in Finance & Accounting industry
– Arcelor: Undervaluation: Threat or Opportunity? firm has clearly differentiated products in the market place. This has enabled Arcelor Repurchase to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Arcelor Repurchase to invest into research and development (R&D) and innovation.
Training and development
– Arcelor Repurchase has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Arcelor: Undervaluation: Threat or Opportunity? Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
High brand equity
– Arcelor Repurchase has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Arcelor Repurchase to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Ability to lead change in Finance & Accounting field
– Arcelor Repurchase is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Arcelor Repurchase in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Successful track record of launching new products
– Arcelor Repurchase has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Arcelor Repurchase has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Analytics focus
– Arcelor Repurchase is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Theo Vermaelen, Divad Andrade can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Weaknesses Arcelor: Undervaluation: Threat or Opportunity? | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Arcelor: Undervaluation: Threat or Opportunity? are -
Need for greater diversity
– Arcelor Repurchase has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Interest costs
– Compare to the competition, Arcelor Repurchase has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Slow to strategic competitive environment developments
– As Arcelor: Undervaluation: Threat or Opportunity? HBR case study mentions - Arcelor Repurchase takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Arcelor: Undervaluation: Threat or Opportunity?, is just above the industry average. Arcelor Repurchase needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Aligning sales with marketing
– It come across in the case study Arcelor: Undervaluation: Threat or Opportunity? that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Arcelor: Undervaluation: Threat or Opportunity? can leverage the sales team experience to cultivate customer relationships as Arcelor Repurchase is planning to shift buying processes online.
High bargaining power of channel partners
– Because of the regulatory requirements, Theo Vermaelen, Divad Andrade suggests that, Arcelor Repurchase is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Arcelor: Undervaluation: Threat or Opportunity?, in the dynamic environment Arcelor Repurchase has struggled to respond to the nimble upstart competition. Arcelor Repurchase has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Low market penetration in new markets
– Outside its home market of Arcelor Repurchase, firm in the HBR case study Arcelor: Undervaluation: Threat or Opportunity? needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Arcelor Repurchase supply chain. Even after few cautionary changes mentioned in the HBR case study - Arcelor: Undervaluation: Threat or Opportunity?, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Arcelor Repurchase vulnerable to further global disruptions in South East Asia.
Lack of clear differentiation of Arcelor Repurchase products
– To increase the profitability and margins on the products, Arcelor Repurchase needs to provide more differentiated products than what it is currently offering in the marketplace.
Increasing silos among functional specialists
– The organizational structure of Arcelor Repurchase is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Arcelor Repurchase needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Arcelor Repurchase to focus more on services rather than just following the product oriented approach.
Opportunities Arcelor: Undervaluation: Threat or Opportunity? | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Arcelor: Undervaluation: Threat or Opportunity? are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Arcelor Repurchase is facing challenges because of the dominance of functional experts in the organization. Arcelor: Undervaluation: Threat or Opportunity? case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Arcelor Repurchase can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Developing new processes and practices
– Arcelor Repurchase can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Arcelor Repurchase to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Arcelor Repurchase to hire the very best people irrespective of their geographical location.
Loyalty marketing
– Arcelor Repurchase has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Arcelor Repurchase in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Arcelor Repurchase can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Arcelor Repurchase can use these opportunities to build new business models that can help the communities that Arcelor Repurchase operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Arcelor Repurchase can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Arcelor Repurchase can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Arcelor Repurchase in the consumer business. Now Arcelor Repurchase can target international markets with far fewer capital restrictions requirements than the existing system.
Manufacturing automation
– Arcelor Repurchase can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Buying journey improvements
– Arcelor Repurchase can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Arcelor: Undervaluation: Threat or Opportunity? suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Arcelor Repurchase can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Threats Arcelor: Undervaluation: Threat or Opportunity? External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Arcelor: Undervaluation: Threat or Opportunity? are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Arcelor Repurchase can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Arcelor: Undervaluation: Threat or Opportunity? .
Stagnating economy with rate increase
– Arcelor Repurchase can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Technology acceleration in Forth Industrial Revolution
– Arcelor Repurchase has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Arcelor Repurchase needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Arcelor Repurchase business can come under increasing regulations regarding data privacy, data security, etc.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Arcelor Repurchase with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
High dependence on third party suppliers
– Arcelor Repurchase high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Consumer confidence and its impact on Arcelor Repurchase demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Arcelor Repurchase in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Regulatory challenges
– Arcelor Repurchase needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Increasing wage structure of Arcelor Repurchase
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Arcelor Repurchase.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Arcelor: Undervaluation: Threat or Opportunity?, Arcelor Repurchase may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Weighted SWOT Analysis of Arcelor: Undervaluation: Threat or Opportunity? Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Arcelor: Undervaluation: Threat or Opportunity? needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Arcelor: Undervaluation: Threat or Opportunity? is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Arcelor: Undervaluation: Threat or Opportunity? is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Arcelor: Undervaluation: Threat or Opportunity? is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Arcelor Repurchase needs to make to build a sustainable competitive advantage.