Case Study Description of Risk Arbitrage: Abbott Labs and Alza (A)
This case is available in only hard copy format (HBP does not have digital distribution rights to the content). As a result, a digital Educator Copy of the case is not available through this web site.A hedge fund is trying to decide whether to capitalize on a seeming risk arbitrage opportunity that exists during the Abbott Labs acquisition of ALZA.
Authors :: George Chacko, Randolph B. Cohen, Andrew Kuhlman, Marc Chennault
Swot Analysis of "Risk Arbitrage: Abbott Labs and Alza (A)" written by George Chacko, Randolph B. Cohen, Andrew Kuhlman, Marc Chennault includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Alza Abbott facing as an external strategic factors. Some of the topics covered in Risk Arbitrage: Abbott Labs and Alza (A) case study are - Strategic Management Strategies, Financial analysis, Financial markets, Managing uncertainty, Mergers & acquisitions, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Risk Arbitrage: Abbott Labs and Alza (A) casestudy better are - – wage bills are increasing, increasing commodity prices, geopolitical disruptions, banking and financial system is disrupted by Bitcoin and other crypto currencies, customer relationship management is fast transforming because of increasing concerns over data privacy, technology disruption, increasing energy prices,
competitive advantages are harder to sustain because of technology dispersion, increasing transportation and logistics costs, etc
Introduction to SWOT Analysis of Risk Arbitrage: Abbott Labs and Alza (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Risk Arbitrage: Abbott Labs and Alza (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Alza Abbott, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Alza Abbott 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 Risk Arbitrage: Abbott Labs and Alza (A) can be done for the following purposes –
1. Strategic planning using facts provided in Risk Arbitrage: Abbott Labs and Alza (A) case study
2. Improving business portfolio management of Alza Abbott
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 Alza Abbott
Strengths Risk Arbitrage: Abbott Labs and Alza (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Alza Abbott in Risk Arbitrage: Abbott Labs and Alza (A) Harvard Business Review case study are -
Diverse revenue streams
– Alza Abbott is present in almost all the verticals within the industry. This has provided firm in Risk Arbitrage: Abbott Labs and Alza (A) case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
High switching costs
– The high switching costs that Alza Abbott 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.
Strong track record of project management
– Alza Abbott is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
High brand equity
– Alza Abbott has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Alza Abbott to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Innovation driven organization
– Alza Abbott is one of the most innovative firm in sector. Manager in Risk Arbitrage: Abbott Labs and Alza (A) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Sustainable margins compare to other players in Finance & Accounting industry
– Risk Arbitrage: Abbott Labs and Alza (A) firm has clearly differentiated products in the market place. This has enabled Alza Abbott to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Alza Abbott to invest into research and development (R&D) and innovation.
Training and development
– Alza Abbott has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Risk Arbitrage: Abbott Labs and Alza (A) 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.
Cross disciplinary teams
– Horizontal connected teams at the Alza Abbott are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Ability to lead change in Finance & Accounting field
– Alza Abbott 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 Alza Abbott in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Ability to recruit top talent
– Alza Abbott is one of the leading recruiters in the industry. Managers in the Risk Arbitrage: Abbott Labs and Alza (A) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Effective Research and Development (R&D)
– Alza Abbott 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 Risk Arbitrage: Abbott Labs and Alza (A) - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Superior customer experience
– The customer experience strategy of Alza Abbott in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses Risk Arbitrage: Abbott Labs and Alza (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Risk Arbitrage: Abbott Labs and Alza (A) are -
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Risk Arbitrage: Abbott Labs and Alza (A), it seems that the employees of Alza Abbott don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Capital Spending Reduction
– Even during the low interest decade, Alza Abbott has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Interest costs
– Compare to the competition, Alza Abbott 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.
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 Alza Abbott supply chain. Even after few cautionary changes mentioned in the HBR case study - Risk Arbitrage: Abbott Labs and Alza (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Alza Abbott vulnerable to further global disruptions in South East Asia.
Slow to strategic competitive environment developments
– As Risk Arbitrage: Abbott Labs and Alza (A) HBR case study mentions - Alza Abbott 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.
High operating costs
– Compare to the competitors, firm in the HBR case study Risk Arbitrage: Abbott Labs and Alza (A) has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Alza Abbott 's lucrative customers.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Risk Arbitrage: Abbott Labs and Alza (A), in the dynamic environment Alza Abbott has struggled to respond to the nimble upstart competition. Alza Abbott has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Products dominated business model
– Even though Alza Abbott has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Risk Arbitrage: Abbott Labs and Alza (A) should strive to include more intangible value offerings along with its core products and services.
Low market penetration in new markets
– Outside its home market of Alza Abbott, firm in the HBR case study Risk Arbitrage: Abbott Labs and Alza (A) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
No frontier risks strategy
– After analyzing the HBR case study Risk Arbitrage: Abbott Labs and Alza (A), it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
High cash cycle compare to competitors
Alza Abbott has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Opportunities Risk Arbitrage: Abbott Labs and Alza (A) | 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 Risk Arbitrage: Abbott Labs and Alza (A) are -
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. Alza Abbott 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. Alza Abbott 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.
Loyalty marketing
– Alza Abbott 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.
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 Alza Abbott in the consumer business. Now Alza Abbott can target international markets with far fewer capital restrictions requirements than the existing system.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Alza Abbott can use these opportunities to build new business models that can help the communities that Alza Abbott operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Manufacturing automation
– Alza Abbott 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.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Alza Abbott to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Using analytics as competitive advantage
– Alza Abbott has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Risk Arbitrage: Abbott Labs and Alza (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Alza Abbott to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Low interest rates
– Even though inflation is raising its head in most developed economies, Alza Abbott 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.
Better consumer reach
– The expansion of the 5G network will help Alza Abbott to increase its market reach. Alza Abbott will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Creating value in data economy
– The success of analytics program of Alza Abbott has opened avenues for new revenue streams for the organization in the industry. This can help Alza Abbott to build a more holistic ecosystem as suggested in the Risk Arbitrage: Abbott Labs and Alza (A) case study. Alza Abbott can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Alza Abbott 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.
Leveraging digital technologies
– Alza Abbott can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Alza Abbott is facing challenges because of the dominance of functional experts in the organization. Risk Arbitrage: Abbott Labs and Alza (A) 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.
Threats Risk Arbitrage: Abbott Labs and Alza (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Risk Arbitrage: Abbott Labs and Alza (A) are -
Stagnating economy with rate increase
– Alza Abbott 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 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.
Environmental challenges
– Alza Abbott needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Alza Abbott can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Consumer confidence and its impact on Alza Abbott 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.
High dependence on third party suppliers
– Alza Abbott 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Alza Abbott with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Alza Abbott 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 Risk Arbitrage: Abbott Labs and Alza (A) .
Shortening product life cycle
– it is one of the major threat that Alza Abbott is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Alza Abbott 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.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Alza Abbott needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
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 Alza Abbott business can come under increasing regulations regarding data privacy, data security, etc.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Alza Abbott in the Finance & Accounting sector and impact the bottomline 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.
Weighted SWOT Analysis of Risk Arbitrage: Abbott Labs and Alza (A) 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 Risk Arbitrage: Abbott Labs and Alza (A) 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 Risk Arbitrage: Abbott Labs and Alza (A) 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 Risk Arbitrage: Abbott Labs and Alza (A) 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 Risk Arbitrage: Abbott Labs and Alza (A) 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 Alza Abbott needs to make to build a sustainable competitive advantage.