Case Study Description of PayPal Merchant Services
In early 2006, PayPal management is deciding how to respond to Google's entry into online payments. PayPal, owned by eBay, has targeted online merchants outside eBay's auction community for its next wave of expansion. Google represents a potential threat to PayPal's "off eBay" strategy, as do incumbent credit card companies. PayPal management must determine whether to increase investment in its "off eBay" strategy; how to allocate investments between the two sides of its payment network (i.e., consumers and merchants) which consumer segments to target (e.g., existing PayPal account holders vs. new users); which types of merchants to recruit (e.g., large vs. small); and what changes to make to pricing terms and product features.
Swot Analysis of "PayPal Merchant Services" written by Thomas R. Eisenmann, Lauren Barley includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Paypal Merchants facing as an external strategic factors. Some of the topics covered in PayPal Merchant Services case study are - Strategic Management Strategies, Competition, Entrepreneurship, Growth strategy, Marketing, Networking, Pricing and Strategy & Execution.
Some of the macro environment factors that can be used to understand the PayPal Merchant Services casestudy better are - – wage bills are increasing, technology disruption, increasing transportation and logistics costs, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing commodity prices, there is increasing trade war between United States & China, talent flight as more people leaving formal jobs,
banking and financial system is disrupted by Bitcoin and other crypto currencies, central banks are concerned over increasing inflation, etc
Introduction to SWOT Analysis of PayPal Merchant Services
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in PayPal Merchant Services case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Paypal Merchants, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Paypal Merchants 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 PayPal Merchant Services can be done for the following purposes –
1. Strategic planning using facts provided in PayPal Merchant Services case study
2. Improving business portfolio management of Paypal Merchants
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Paypal Merchants
Strengths PayPal Merchant Services | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Paypal Merchants in PayPal Merchant Services Harvard Business Review case study are -
Successful track record of launching new products
– Paypal Merchants has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Paypal Merchants 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.
Organizational Resilience of Paypal Merchants
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Paypal Merchants does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to recruit top talent
– Paypal Merchants is one of the leading recruiters in the industry. Managers in the PayPal Merchant Services are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Strong track record of project management
– Paypal Merchants is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Innovation driven organization
– Paypal Merchants is one of the most innovative firm in sector. Manager in PayPal Merchant Services Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Diverse revenue streams
– Paypal Merchants is present in almost all the verticals within the industry. This has provided firm in PayPal Merchant Services 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.
Operational resilience
– The operational resilience strategy in the PayPal Merchant Services Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Training and development
– Paypal Merchants has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in PayPal Merchant Services 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.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Paypal Merchants digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Paypal Merchants 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.
Effective Research and Development (R&D)
– Paypal Merchants 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 PayPal Merchant Services - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Analytics focus
– Paypal Merchants 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 Thomas R. Eisenmann, Lauren Barley 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 Paypal Merchants in the sector have low bargaining power. PayPal Merchant Services has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Paypal Merchants to manage not only supply disruptions but also source products at highly competitive prices.
Weaknesses PayPal Merchant Services | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of PayPal Merchant Services are -
Products dominated business model
– Even though Paypal Merchants 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 - PayPal Merchant Services should strive to include more intangible value offerings along with its core products and services.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study PayPal Merchant Services, in the dynamic environment Paypal Merchants has struggled to respond to the nimble upstart competition. Paypal Merchants 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, Thomas R. Eisenmann, Lauren Barley suggests that, Paypal Merchants 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.
High operating costs
– Compare to the competitors, firm in the HBR case study PayPal Merchant Services 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 Paypal Merchants 's lucrative customers.
Capital Spending Reduction
– Even during the low interest decade, Paypal Merchants 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.
No frontier risks strategy
– After analyzing the HBR case study PayPal Merchant Services, it seems that company is thinking about the frontier risks that can impact Strategy & Execution 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.
Lack of clear differentiation of Paypal Merchants products
– To increase the profitability and margins on the products, Paypal Merchants 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 PayPal Merchant Services 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 PayPal Merchant Services can leverage the sales team experience to cultivate customer relationships as Paypal Merchants is planning to shift buying processes online.
Slow decision making process
– As mentioned earlier in the report, Paypal Merchants 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. Paypal Merchants 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.
Interest costs
– Compare to the competition, Paypal Merchants 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.
Need for greater diversity
– Paypal Merchants 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 PayPal Merchant Services | 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 PayPal Merchant Services are -
Learning at scale
– Online learning technologies has now opened space for Paypal Merchants 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.
Leveraging digital technologies
– Paypal Merchants can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Paypal Merchants in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Building a culture of innovation
– managers at Paypal Merchants 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 Strategy & Execution segment.
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. Paypal Merchants can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Loyalty marketing
– Paypal Merchants 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Paypal Merchants 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 Strategy & Execution industry, but it has also influenced the consumer preferences. Paypal Merchants can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Paypal Merchants 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 Paypal Merchants to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Paypal Merchants 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 PayPal Merchant Services - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Paypal Merchants to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Creating value in data economy
– The success of analytics program of Paypal Merchants has opened avenues for new revenue streams for the organization in the industry. This can help Paypal Merchants to build a more holistic ecosystem as suggested in the PayPal Merchant Services case study. Paypal Merchants can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Paypal Merchants is facing challenges because of the dominance of functional experts in the organization. PayPal Merchant Services 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, Paypal Merchants 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, PayPal Merchant Services, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats PayPal Merchant Services External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study PayPal Merchant Services are -
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 Paypal Merchants in the Strategy & Execution sector and impact the bottomline of the organization.
Regulatory challenges
– Paypal Merchants 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 Strategy & Execution industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study PayPal Merchant Services, Paypal Merchants may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Paypal Merchants can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Paypal Merchants in the Strategy & Execution industry. The Strategy & Execution 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Paypal Merchants with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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 Paypal Merchants.
Shortening product life cycle
– it is one of the major threat that Paypal Merchants is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
High dependence on third party suppliers
– Paypal Merchants 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.
Stagnating economy with rate increase
– Paypal Merchants 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.
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.
Increasing wage structure of Paypal Merchants
– 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 Paypal Merchants.
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. Paypal Merchants will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Weighted SWOT Analysis of PayPal Merchant Services 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 PayPal Merchant Services 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 PayPal Merchant Services 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 PayPal Merchant Services 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 PayPal Merchant Services 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 Paypal Merchants needs to make to build a sustainable competitive advantage.