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 - – geopolitical disruptions, banking and financial system is disrupted by Bitcoin and other crypto currencies, supply chains are disrupted by pandemic , wage bills are increasing, increasing inequality as vast percentage of new income is going to the top 1%, increasing energy prices, digital marketing is dominated by two big players Facebook and Google,
increasing government debt because of Covid-19 spendings, increasing commodity prices, 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 -
Learning organization
- Alza Abbott 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 Alza Abbott is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Risk Arbitrage: Abbott Labs and Alza (A) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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.
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.
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.
Analytics focus
– Alza Abbott 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 George Chacko, Randolph B. Cohen, Andrew Kuhlman, Marc Chennault 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.
Organizational Resilience of Alza Abbott
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Alza Abbott does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Low bargaining power of suppliers
– Suppliers of Alza Abbott in the sector have low bargaining power. Risk Arbitrage: Abbott Labs and Alza (A) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Alza Abbott to manage not only supply disruptions but also source products at highly competitive prices.
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.
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.
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.
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.
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 -
Workers concerns about automation
– As automation is fast increasing in the segment, Alza Abbott needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
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.
Need for greater diversity
– Alza Abbott 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Alza Abbott is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Risk Arbitrage: Abbott Labs and Alza (A) can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
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.
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.
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.
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.
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.
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.
Lack of clear differentiation of Alza Abbott products
– To increase the profitability and margins on the products, Alza Abbott needs to provide more differentiated products than what it is currently offering in the marketplace.
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 -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Alza Abbott can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Risk Arbitrage: Abbott Labs and Alza (A), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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.
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.
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.
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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Alza Abbott can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Buying journey improvements
– Alza Abbott can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Risk Arbitrage: Abbott Labs and Alza (A) 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Alza Abbott 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 Alza Abbott to hire the very best people irrespective of their geographical location.
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.
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.
Developing new processes and practices
– Alza Abbott 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.
Learning at scale
– Online learning technologies has now opened space for Alza Abbott to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Building a culture of innovation
– managers at Alza Abbott can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
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 -
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.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Alza Abbott can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Technology acceleration in Forth Industrial Revolution
– Alza Abbott has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Alza Abbott 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.
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.
Increasing wage structure of Alza Abbott
– 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 Alza Abbott.
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.
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.
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.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Risk Arbitrage: Abbott Labs and Alza (A), Alza Abbott 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 .
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.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Alza Abbott will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
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.
