Case Study Description of Corporate Governance at Citic Pacific
On the evening of 20 October 2008, Citic Pacific, the Hong Kong arm of the CITIC Group, China's largest state-owned investment company, stunned the stock markets by announcing that it would lose as much as HK$15.5 billion (approximately US$2 billion). The company stated that these losses were due to foreign exchange exposures that it had been aware of for six weeks, but had failed to tell the investors about. In an apologetic statement to the public, Larry Yung Chi-kin, the chairman of Citic Pacific, acknowledged the losses and admitted that the contracts had not been properly authorized. Investors and analysts subsequently attacked Citic Pacific for its corporate governance and internal control practices. They expressed shock that the company would make such risky transactions and that it would delay the disclosure of these large potential losses for six weeks. What does this incident say about Citic Pacific's internal risk management and its board of directors, particularly the independent directors? Has the company demonstrated effective corporate governance standards and mechanisms through alignment of its top-level managers' decisions with the interests of the shareholders?
Swot Analysis of "Corporate Governance at Citic Pacific" written by Stephen Ko, Havovi Joshi includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Citic Pacific facing as an external strategic factors. Some of the topics covered in Corporate Governance at Citic Pacific case study are - Strategic Management Strategies, Corporate governance, Costs, Ethics, Executive compensation, Human resource management, Operations management, Social enterprise and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Corporate Governance at Citic Pacific casestudy better are - – increasing household debt because of falling income levels, central banks are concerned over increasing inflation, increasing inequality as vast percentage of new income is going to the top 1%, technology disruption, there is increasing trade war between United States & China, supply chains are disrupted by pandemic , increasing government debt because of Covid-19 spendings,
wage bills are increasing, banking and financial system is disrupted by Bitcoin and other crypto currencies, etc
Introduction to SWOT Analysis of Corporate Governance at Citic Pacific
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Corporate Governance at Citic Pacific case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Citic Pacific, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Citic Pacific 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 Corporate Governance at Citic Pacific can be done for the following purposes –
1. Strategic planning using facts provided in Corporate Governance at Citic Pacific case study
2. Improving business portfolio management of Citic Pacific
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 Citic Pacific
Strengths Corporate Governance at Citic Pacific | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Citic Pacific in Corporate Governance at Citic Pacific Harvard Business Review case study are -
Sustainable margins compare to other players in Finance & Accounting industry
– Corporate Governance at Citic Pacific firm has clearly differentiated products in the market place. This has enabled Citic Pacific to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Citic Pacific to invest into research and development (R&D) and innovation.
Low bargaining power of suppliers
– Suppliers of Citic Pacific in the sector have low bargaining power. Corporate Governance at Citic Pacific has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Citic Pacific to manage not only supply disruptions but also source products at highly competitive prices.
High brand equity
– Citic Pacific has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Citic Pacific to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Analytics focus
– Citic Pacific 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 Stephen Ko, Havovi Joshi 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.
Organizational Resilience of Citic Pacific
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Citic Pacific does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High switching costs
– The high switching costs that Citic Pacific 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.
Ability to lead change in Finance & Accounting field
– Citic Pacific 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 Citic Pacific in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– Citic Pacific 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 Corporate Governance at Citic Pacific HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Training and development
– Citic Pacific has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Corporate Governance at Citic Pacific 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.
Effective Research and Development (R&D)
– Citic Pacific 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 Corporate Governance at Citic Pacific - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Innovation driven organization
– Citic Pacific is one of the most innovative firm in sector. Manager in Corporate Governance at Citic Pacific Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Ability to recruit top talent
– Citic Pacific is one of the leading recruiters in the industry. Managers in the Corporate Governance at Citic Pacific are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses Corporate Governance at Citic Pacific | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Corporate Governance at Citic Pacific are -
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Corporate Governance at Citic Pacific, is just above the industry average. Citic Pacific 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.
High cash cycle compare to competitors
Citic Pacific 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.
No frontier risks strategy
– After analyzing the HBR case study Corporate Governance at Citic Pacific, 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.
Interest costs
– Compare to the competition, Citic Pacific 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 Citic Pacific 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.
Increasing silos among functional specialists
– The organizational structure of Citic Pacific is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Citic Pacific needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Citic Pacific to focus more on services rather than just following the product oriented approach.
Lack of clear differentiation of Citic Pacific products
– To increase the profitability and margins on the products, Citic Pacific needs to provide more differentiated products than what it is currently offering in the marketplace.
Products dominated business model
– Even though Citic Pacific 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 - Corporate Governance at Citic Pacific 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 Corporate Governance at Citic Pacific, in the dynamic environment Citic Pacific has struggled to respond to the nimble upstart competition. Citic Pacific has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Aligning sales with marketing
– It come across in the case study Corporate Governance at Citic Pacific 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 Corporate Governance at Citic Pacific can leverage the sales team experience to cultivate customer relationships as Citic Pacific is planning to shift buying processes online.
Capital Spending Reduction
– Even during the low interest decade, Citic Pacific 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.
Opportunities Corporate Governance at Citic Pacific | 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 Corporate Governance at Citic Pacific are -
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Citic Pacific 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 Citic Pacific to hire the very best people irrespective of their geographical location.
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. Citic Pacific can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Buying journey improvements
– Citic Pacific can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Corporate Governance at Citic Pacific 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.
Building a culture of innovation
– managers at Citic Pacific 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Citic Pacific 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.
Developing new processes and practices
– Citic Pacific 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.
Better consumer reach
– The expansion of the 5G network will help Citic Pacific to increase its market reach. Citic Pacific 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.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Citic Pacific can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Citic Pacific can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Loyalty marketing
– Citic Pacific 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Citic Pacific 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Citic Pacific 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, Corporate Governance at Citic Pacific, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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. Citic Pacific can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Using analytics as competitive advantage
– Citic Pacific 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 Corporate Governance at Citic Pacific - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Citic Pacific to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats Corporate Governance at Citic Pacific External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Corporate Governance at Citic Pacific are -
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Corporate Governance at Citic Pacific, Citic Pacific 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 .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Citic Pacific 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.
Technology acceleration in Forth Industrial Revolution
– Citic Pacific has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Citic Pacific 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.
Regulatory challenges
– Citic Pacific 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.
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.
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. Citic Pacific can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Shortening product life cycle
– it is one of the major threat that Citic Pacific is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Increasing wage structure of Citic Pacific
– 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 Citic Pacific.
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. Citic Pacific 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 Citic Pacific in the Finance & Accounting sector and impact the bottomline of the organization.
Consumer confidence and its impact on Citic Pacific 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.
High dependence on third party suppliers
– Citic Pacific 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.
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. Citic Pacific needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Weighted SWOT Analysis of Corporate Governance at Citic Pacific 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 Corporate Governance at Citic Pacific 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 Corporate Governance at Citic Pacific 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 Corporate Governance at Citic Pacific 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 Corporate Governance at Citic Pacific 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 Citic Pacific needs to make to build a sustainable competitive advantage.