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 - – increasing energy prices, there is increasing trade war between United States & China, increasing government debt because of Covid-19 spendings, there is backlash against globalization, challanges to central banks by blockchain based private currencies, digital marketing is dominated by two big players Facebook and Google, supply chains are disrupted by pandemic ,
geopolitical disruptions, banking and financial system is disrupted by Bitcoin and other crypto currencies, 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 -
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.
Learning organization
- Aes Capital 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 Aes Capital is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Globalizing the Cost of Capital and Capital Budgeting at AES Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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.
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.
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.
Diverse revenue streams
– Aes Capital is present in almost all the verticals within the industry. This has provided firm in Globalizing the Cost of Capital and Capital Budgeting at AES 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.
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.
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.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Aes Capital digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Aes Capital has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
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 -
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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Globalizing the Cost of Capital and Capital Budgeting at AES, is just above the industry average. Aes Capital needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Aligning sales with marketing
– It come across in the case study Globalizing the Cost of Capital and Capital Budgeting at AES 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 Globalizing the Cost of Capital and Capital Budgeting at AES can leverage the sales team experience to cultivate customer relationships as Aes Capital is planning to shift buying processes online.
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 operating costs
– Compare to the competitors, firm in the HBR case study Globalizing the Cost of Capital and Capital Budgeting at AES 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 Aes Capital 's lucrative customers.
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 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Aes Capital is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Globalizing the Cost of Capital and Capital Budgeting at AES can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Lack of clear differentiation of Aes Capital products
– To increase the profitability and margins on the products, Aes Capital needs to provide more differentiated products than what it is currently offering in the marketplace.
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 Aes Capital supply chain. Even after few cautionary changes mentioned in the HBR case study - Globalizing the Cost of Capital and Capital Budgeting at AES, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Aes Capital vulnerable to further global disruptions in South East Asia.
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 -
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.
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.
Learning at scale
– Online learning technologies has now opened space for Aes Capital 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.
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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Aes Capital can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Aes Capital 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.
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.
Using analytics as competitive advantage
– Aes Capital 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 Globalizing the Cost of Capital and Capital Budgeting at AES - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Aes Capital to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
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.
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.
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.
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 -
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Globalizing the Cost of Capital and Capital Budgeting at AES, Aes Capital 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 Aes Capital in the Finance & Accounting sector and impact the bottomline of the organization.
Stagnating economy with rate increase
– Aes Capital 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.
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.
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.
Regulatory challenges
– Aes Capital needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
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. Aes Capital can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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 Aes Capital 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.
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.
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 .
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.