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 - – cloud computing is disrupting traditional business models, challanges to central banks by blockchain based private currencies, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing commodity prices, increasing energy prices, increasing inequality as vast percentage of new income is going to the top 1%, talent flight as more people leaving formal jobs,
wage bills are increasing, competitive advantages are harder to sustain because of technology dispersion, 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 -
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.
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.
Highly skilled collaborators
– Alza Abbott has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Risk Arbitrage: Abbott Labs and Alza (A) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
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.
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.
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.
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.
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.
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.
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.
Successful track record of launching new products
– Alza Abbott has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Alza Abbott 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.
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 -
Increasing silos among functional specialists
– The organizational structure of Alza Abbott is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Alza Abbott needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Alza Abbott to focus more on services rather than just following the product oriented approach.
Skills based hiring
– The stress on hiring functional specialists at Alza Abbott has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
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 bargaining power of channel partners
– Because of the regulatory requirements, George Chacko, Randolph B. Cohen, Andrew Kuhlman, Marc Chennault suggests that, Alza Abbott 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.
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.
Aligning sales with marketing
– It come across in the case study Risk Arbitrage: Abbott Labs and Alza (A) 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 Risk Arbitrage: Abbott Labs and Alza (A) can leverage the sales team experience to cultivate customer relationships as Alza Abbott is planning to shift buying processes online.
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.
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.
Slow decision making process
– As mentioned earlier in the report, Alza Abbott has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Alza Abbott even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Risk Arbitrage: Abbott Labs and Alza (A) HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Alza Abbott has relatively successful track record of launching new products.
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.
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 -
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.
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.
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.
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.
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.
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.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Alza Abbott can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
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.
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.
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. Alza Abbott can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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.
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.
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.
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.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Alza Abbott.
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.
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.
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 .
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.
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.
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.
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.
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.
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.