Globalizing the Cost of Capital and Capital Budgeting at AES SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Globalizing the Cost of Capital and Capital Budgeting at AES
With electricity generating businesses around the world, AES Corp. is seeking a methodology for calculating the cost of capital for its various businesses and potential projects. In the past, AES used the same cost of capital for all of its capital budgeting, but the company's international expansion has raised questions about this approach and whether a single cost of capital adequately accounts for the different risks AES faces in its diverse businesses and diverse environments. The company recently suffered heavy losses from currency devaluations in South America and regulatory changes in other countries. The director of the corporate planning group is developing a methodology for taking account of different country and project risks, and the case allows students to use this methodology to calculate the cost of capital for 15 different projects around the world. Students must consider how a global firm can account for differing risks in evaluating its international operations and in investing abroad. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.
Swot Analysis of "Globalizing the Cost of Capital and Capital Budgeting at AES" written by Mihir A. Desai, Doug Schillinger includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Aes Capital facing as an external strategic factors. Some of the topics covered in Globalizing the Cost of Capital and Capital Budgeting at AES case study are - Strategic Management Strategies, Costs, Emerging markets, Financial analysis, Globalization, Operations management, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Globalizing the Cost of Capital and Capital Budgeting at AES casestudy better are - – geopolitical disruptions, increasing transportation and logistics costs, increasing household debt because of falling income levels, wage bills are increasing, there is increasing trade war between United States & China, customer relationship management is fast transforming because of increasing concerns over data privacy, central banks are concerned over increasing inflation,
increasing energy prices, digital marketing is dominated by two big players Facebook and Google, etc
Introduction to SWOT Analysis of Globalizing the Cost of Capital and Capital Budgeting at AES
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Globalizing the Cost of Capital and Capital Budgeting at AES case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Aes Capital, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Aes Capital 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 Globalizing the Cost of Capital and Capital Budgeting at AES can be done for the following purposes –
1. Strategic planning using facts provided in Globalizing the Cost of Capital and Capital Budgeting at AES case study
2. Improving business portfolio management of Aes Capital
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 Aes Capital
Strengths Globalizing the Cost of Capital and Capital Budgeting at AES | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Aes Capital in Globalizing the Cost of Capital and Capital Budgeting at AES Harvard Business Review case study are -
Low bargaining power of suppliers
– Suppliers of Aes Capital in the sector have low bargaining power. Globalizing the Cost of Capital and Capital Budgeting at AES has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Aes Capital to manage not only supply disruptions but also source products at highly competitive prices.
Superior customer experience
– The customer experience strategy of Aes Capital in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Cross disciplinary teams
– Horizontal connected teams at the Aes Capital 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
– Aes Capital has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Globalizing the Cost of Capital and Capital Budgeting at AES 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 recruit top talent
– Aes Capital is one of the leading recruiters in the industry. Managers in the Globalizing the Cost of Capital and Capital Budgeting at AES are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Organizational Resilience of Aes Capital
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Aes Capital does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Successful track record of launching new products
– Aes Capital has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Aes Capital 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.
High brand equity
– Aes Capital has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Aes Capital to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Analytics focus
– Aes Capital 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 Mihir A. Desai, Doug Schillinger 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.
Sustainable margins compare to other players in Finance & Accounting industry
– Globalizing the Cost of Capital and Capital Budgeting at AES firm has clearly differentiated products in the market place. This has enabled Aes Capital to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Aes Capital to invest into research and development (R&D) and innovation.
Innovation driven organization
– Aes Capital is one of the most innovative firm in sector. Manager in Globalizing the Cost of Capital and Capital Budgeting at AES Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Highly skilled collaborators
– Aes Capital 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 Globalizing the Cost of Capital and Capital Budgeting at AES HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Weaknesses Globalizing the Cost of Capital and Capital Budgeting at AES | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Globalizing the Cost of Capital and Capital Budgeting at AES are -
Capital Spending Reduction
– Even during the low interest decade, Aes Capital 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Globalizing the Cost of Capital and Capital Budgeting at AES, in the dynamic environment Aes Capital has struggled to respond to the nimble upstart competition. Aes Capital has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High bargaining power of channel partners
– Because of the regulatory requirements, Mihir A. Desai, Doug Schillinger suggests that, Aes Capital 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.
Increasing silos among functional specialists
– The organizational structure of Aes Capital is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Aes Capital needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Aes Capital to focus more on services rather than just following the product oriented approach.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Globalizing the Cost of Capital and Capital Budgeting at AES, it seems that the employees of Aes Capital 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Globalizing the Cost of Capital and Capital Budgeting at AES 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 Aes Capital has relatively successful track record of launching new products.
High cash cycle compare to competitors
Aes Capital 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.
Slow to strategic competitive environment developments
– As Globalizing the Cost of Capital and Capital Budgeting at AES HBR case study mentions - Aes Capital 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.
Skills based hiring
– The stress on hiring functional specialists at Aes Capital 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Aes Capital 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.
No frontier risks strategy
– After analyzing the HBR case study Globalizing the Cost of Capital and Capital Budgeting at AES, 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.
Opportunities Globalizing the Cost of Capital and Capital Budgeting at AES | 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 Globalizing the Cost of Capital and Capital Budgeting at AES are -
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 Aes Capital in the consumer business. Now Aes Capital can target international markets with far fewer capital restrictions requirements than the existing system.
Buying journey improvements
– Aes Capital can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Globalizing the Cost of Capital and Capital Budgeting at AES 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 Aes Capital 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 Aes Capital to hire the very best people irrespective of their geographical location.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Aes Capital is facing challenges because of the dominance of functional experts in the organization. Globalizing the Cost of Capital and Capital Budgeting at AES 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.
Better consumer reach
– The expansion of the 5G network will help Aes Capital to increase its market reach. Aes Capital 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.
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. Aes Capital can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Building a culture of innovation
– managers at Aes Capital 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.
Manufacturing automation
– Aes Capital 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Aes Capital can use these opportunities to build new business models that can help the communities that Aes Capital operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
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. Aes Capital can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Aes Capital 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, Globalizing the Cost of Capital and Capital Budgeting at AES, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Developing new processes and practices
– Aes Capital 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.
Loyalty marketing
– Aes Capital 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.
Threats Globalizing the Cost of Capital and Capital Budgeting at AES External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Globalizing the Cost of Capital and Capital Budgeting at AES are -
High dependence on third party suppliers
– Aes Capital 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.
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 Aes Capital in the Finance & Accounting sector and impact the bottomline of the organization.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Aes Capital with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Technology acceleration in Forth Industrial Revolution
– Aes Capital has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Aes Capital 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.
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.
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 Aes Capital business can come under increasing regulations regarding data privacy, data security, 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. Aes Capital needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Increasing wage structure of Aes Capital
– 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 Aes Capital.
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. Aes Capital 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Aes Capital 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.
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 Aes Capital.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Aes Capital 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 Globalizing the Cost of Capital and Capital Budgeting at AES .
Environmental challenges
– Aes Capital 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. Aes Capital can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Weighted SWOT Analysis of Globalizing the Cost of Capital and Capital Budgeting at AES 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 Globalizing the Cost of Capital and Capital Budgeting at AES 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 Globalizing the Cost of Capital and Capital Budgeting at AES 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 Globalizing the Cost of Capital and Capital Budgeting at AES 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 Globalizing the Cost of Capital and Capital Budgeting at AES 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 Aes Capital needs to make to build a sustainable competitive advantage.
