Point of View: Expensing Employee Stock Options Is Improper Accounting SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Point of View: Expensing Employee Stock Options Is Improper Accounting
In December 2004, the Financial Accounting Standards Board (FASB) adopted a new standard of accounting for employee stock options (ESOs). This standard, entitled Statement of Financial Accounting Standards 123R, requires that ESOs be valued at the date of grant and expensed over the vesting period of the options. The signatories to this position paper strongly oppose this revision to GAAP because they believe that the expensing of ESOs is improper accounting that will result in the serious impairment of the financial statements of companies that are users of broad-based option plans. The case against expensing ESOs can be summed up in six simple statements: an ESO is a "gain-sharing instrument" in which shareholders agree to share their gains (stock appreciation), if any, with employees; a gain-sharing instrument, by its nature, has no accounting cost unless and until there is a gain to be shared; the cost of a gain-sharing instrument must be located on the books of the party that reaps the gain--in the case of an ESO the gain is reaped by shareholders and not by the enterprise; the cost of the ESO, therefore, is borne by the shareholders; this cost to shareholders (which, not coincidentally, exactly equals the employee's post-tax profit) is already properly accounted for under the treasury stock method of accounting (described in FAS 128, entitled "Earnings per Share") as a transfer of value from shareholders to employee option holders; and neither the grant nor the vesting of an ESO meets the standard accounting definition of an expense. These six statements lead to the conclusion that an ESO, while it may have an economic cost to shareholders, is not an expense of the entity that grants it.
Swot Analysis of "Point of View: Expensing Employee Stock Options Is Improper Accounting" written by Kip Hagopian includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Eso Esos facing as an external strategic factors. Some of the topics covered in Point of View: Expensing Employee Stock Options Is Improper Accounting case study are - Strategic Management Strategies, Compensation, Financial management, Government and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Point of View: Expensing Employee Stock Options Is Improper Accounting casestudy better are - – increasing government debt because of Covid-19 spendings, challanges to central banks by blockchain based private currencies, geopolitical disruptions, there is backlash against globalization, there is increasing trade war between United States & China, competitive advantages are harder to sustain because of technology dispersion, digital marketing is dominated by two big players Facebook and Google,
increasing inequality as vast percentage of new income is going to the top 1%, wage bills are increasing, etc
Introduction to SWOT Analysis of Point of View: Expensing Employee Stock Options Is Improper Accounting
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Point of View: Expensing Employee Stock Options Is Improper Accounting case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Eso Esos, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Eso Esos 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 Point of View: Expensing Employee Stock Options Is Improper Accounting can be done for the following purposes –
1. Strategic planning using facts provided in Point of View: Expensing Employee Stock Options Is Improper Accounting case study
2. Improving business portfolio management of Eso Esos
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 Eso Esos
Strengths Point of View: Expensing Employee Stock Options Is Improper Accounting | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Eso Esos in Point of View: Expensing Employee Stock Options Is Improper Accounting Harvard Business Review case study are -
High switching costs
– The high switching costs that Eso Esos 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.
Sustainable margins compare to other players in Finance & Accounting industry
– Point of View: Expensing Employee Stock Options Is Improper Accounting firm has clearly differentiated products in the market place. This has enabled Eso Esos to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Eso Esos to invest into research and development (R&D) and innovation.
High brand equity
– Eso Esos has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Eso Esos to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Training and development
– Eso Esos has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Point of View: Expensing Employee Stock Options Is Improper Accounting 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
– Eso Esos is one of the most innovative firm in sector. Manager in Point of View: Expensing Employee Stock Options Is Improper Accounting Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Eso Esos digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Eso Esos 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.
Strong track record of project management
– Eso Esos is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Effective Research and Development (R&D)
– Eso Esos 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 Point of View: Expensing Employee Stock Options Is Improper Accounting - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Cross disciplinary teams
– Horizontal connected teams at the Eso Esos 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.
Analytics focus
– Eso Esos 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 Kip Hagopian 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.
Low bargaining power of suppliers
– Suppliers of Eso Esos in the sector have low bargaining power. Point of View: Expensing Employee Stock Options Is Improper Accounting has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Eso Esos to manage not only supply disruptions but also source products at highly competitive prices.
Ability to lead change in Finance & Accounting field
– Eso Esos 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 Eso Esos in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses Point of View: Expensing Employee Stock Options Is Improper Accounting | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Point of View: Expensing Employee Stock Options Is Improper Accounting are -
High cash cycle compare to competitors
Eso Esos 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.
Low market penetration in new markets
– Outside its home market of Eso Esos, firm in the HBR case study Point of View: Expensing Employee Stock Options Is Improper Accounting needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Interest costs
– Compare to the competition, Eso Esos 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.
Skills based hiring
– The stress on hiring functional specialists at Eso Esos 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Point of View: Expensing Employee Stock Options Is Improper Accounting, is just above the industry average. Eso Esos 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 Point of View: Expensing Employee Stock Options Is Improper Accounting 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 Point of View: Expensing Employee Stock Options Is Improper Accounting can leverage the sales team experience to cultivate customer relationships as Eso Esos is planning to shift buying processes online.
Increasing silos among functional specialists
– The organizational structure of Eso Esos is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Eso Esos needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Eso Esos to focus more on services rather than just following the product oriented approach.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Point of View: Expensing Employee Stock Options Is Improper Accounting 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 Eso Esos has relatively successful track record of launching new products.
Lack of clear differentiation of Eso Esos products
– To increase the profitability and margins on the products, Eso Esos needs to provide more differentiated products than what it is currently offering in the marketplace.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Point of View: Expensing Employee Stock Options Is Improper Accounting, in the dynamic environment Eso Esos has struggled to respond to the nimble upstart competition. Eso Esos has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Products dominated business model
– Even though Eso Esos 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 - Point of View: Expensing Employee Stock Options Is Improper Accounting should strive to include more intangible value offerings along with its core products and services.
Opportunities Point of View: Expensing Employee Stock Options Is Improper Accounting | 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 Point of View: Expensing Employee Stock Options Is Improper Accounting are -
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 Eso Esos 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Eso Esos is facing challenges because of the dominance of functional experts in the organization. Point of View: Expensing Employee Stock Options Is Improper Accounting 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.
Using analytics as competitive advantage
– Eso Esos 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 Point of View: Expensing Employee Stock Options Is Improper Accounting - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Eso Esos to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Building a culture of innovation
– managers at Eso Esos 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.
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. Eso Esos can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
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 Eso Esos in the consumer business. Now Eso Esos can target international markets with far fewer capital restrictions requirements than the existing system.
Developing new processes and practices
– Eso Esos 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.
Manufacturing automation
– Eso Esos 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Eso Esos 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.
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. Eso Esos can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Creating value in data economy
– The success of analytics program of Eso Esos has opened avenues for new revenue streams for the organization in the industry. This can help Eso Esos to build a more holistic ecosystem as suggested in the Point of View: Expensing Employee Stock Options Is Improper Accounting case study. Eso Esos can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Eso Esos 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 Eso Esos 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.
Threats Point of View: Expensing Employee Stock Options Is Improper Accounting External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Point of View: Expensing Employee Stock Options Is Improper Accounting are -
Stagnating economy with rate increase
– Eso Esos 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.
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 Eso Esos.
Technology acceleration in Forth Industrial Revolution
– Eso Esos has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Eso Esos 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.
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 Eso Esos business can come under increasing regulations regarding data privacy, data security, etc.
Consumer confidence and its impact on Eso Esos 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.
Regulatory challenges
– Eso Esos 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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Eso Esos 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 Point of View: Expensing Employee Stock Options Is Improper Accounting .
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. Eso Esos needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
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. Eso Esos 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.
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 Eso Esos 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.
Environmental challenges
– Eso Esos 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. Eso Esos can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Point of View: Expensing Employee Stock Options Is Improper Accounting, Eso Esos 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 .
Weighted SWOT Analysis of Point of View: Expensing Employee Stock Options Is Improper Accounting 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 Point of View: Expensing Employee Stock Options Is Improper Accounting 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 Point of View: Expensing Employee Stock Options Is Improper Accounting 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 Point of View: Expensing Employee Stock Options Is Improper Accounting 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 Point of View: Expensing Employee Stock Options Is Improper Accounting 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 Eso Esos needs to make to build a sustainable competitive advantage.