Case Study Description of Accounting Fraud at WorldCom
The principal players in WorldCom's accounting fraud included CFO Scott Sullivan, the General Accounting and Internal Audit departments, external auditor Arthur Andersen, and the board of directors. The case provides sufficient detail to allow for a full discussion of the pressures that lead executives and managers to "cook the books," the boundary between earnings smoothing or management and fraudulent reporting, the role for internal control systems and internal audit to prevent or rapidly detect accounting fraud, the expectations about governance processes performed by external auditors and the board of directors, and the pressure and consequences when middle managers follow orders that they know are wrong. Written from the public record, the case contains numerous quotes from an individual involved in the WorldCom fraud that were reported by the Investigative Committee and Wall Street Journal articles about several of the individuals caught up in the situation.
Swot Analysis of "Accounting Fraud at WorldCom" written by Robert S. Kaplan, David Kiron includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Fraud Accounting facing as an external strategic factors. Some of the topics covered in Accounting Fraud at WorldCom case study are - Strategic Management Strategies, Boards, Ethics, Financial management, Leadership and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Accounting Fraud at WorldCom casestudy better are - – banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing inequality as vast percentage of new income is going to the top 1%, digital marketing is dominated by two big players Facebook and Google, geopolitical disruptions, customer relationship management is fast transforming because of increasing concerns over data privacy, talent flight as more people leaving formal jobs, technology disruption,
wage bills are increasing, increasing government debt because of Covid-19 spendings, etc
Introduction to SWOT Analysis of Accounting Fraud at WorldCom
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Accounting Fraud at WorldCom case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Fraud Accounting, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Fraud Accounting 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 Accounting Fraud at WorldCom can be done for the following purposes –
1. Strategic planning using facts provided in Accounting Fraud at WorldCom case study
2. Improving business portfolio management of Fraud Accounting
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 Fraud Accounting
Strengths Accounting Fraud at WorldCom | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Fraud Accounting in Accounting Fraud at WorldCom Harvard Business Review case study are -
Highly skilled collaborators
– Fraud Accounting 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 Accounting Fraud at WorldCom HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Low bargaining power of suppliers
– Suppliers of Fraud Accounting in the sector have low bargaining power. Accounting Fraud at WorldCom has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Fraud Accounting to manage not only supply disruptions but also source products at highly competitive prices.
Superior customer experience
– The customer experience strategy of Fraud Accounting in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Organizational Resilience of Fraud Accounting
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Fraud Accounting does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Sustainable margins compare to other players in Strategy & Execution industry
– Accounting Fraud at WorldCom firm has clearly differentiated products in the market place. This has enabled Fraud Accounting to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Fraud Accounting to invest into research and development (R&D) and innovation.
Operational resilience
– The operational resilience strategy in the Accounting Fraud at WorldCom 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.
Cross disciplinary teams
– Horizontal connected teams at the Fraud Accounting 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.
High switching costs
– The high switching costs that Fraud Accounting 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.
Learning organization
- Fraud Accounting 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 Fraud Accounting is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Accounting Fraud at WorldCom Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Ability to recruit top talent
– Fraud Accounting is one of the leading recruiters in the industry. Managers in the Accounting Fraud at WorldCom are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Fraud Accounting digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Fraud Accounting 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.
Training and development
– Fraud Accounting has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Accounting Fraud at WorldCom 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.
Weaknesses Accounting Fraud at WorldCom | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Accounting Fraud at WorldCom are -
Slow to strategic competitive environment developments
– As Accounting Fraud at WorldCom HBR case study mentions - Fraud Accounting 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Fraud Accounting 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.
Need for greater diversity
– Fraud Accounting 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.
Skills based hiring
– The stress on hiring functional specialists at Fraud Accounting 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.
Products dominated business model
– Even though Fraud Accounting 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 - Accounting Fraud at WorldCom should strive to include more intangible value offerings along with its core products and services.
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 Fraud Accounting supply chain. Even after few cautionary changes mentioned in the HBR case study - Accounting Fraud at WorldCom, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Fraud Accounting vulnerable to further global disruptions in South East Asia.
Low market penetration in new markets
– Outside its home market of Fraud Accounting, firm in the HBR case study Accounting Fraud at WorldCom needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High operating costs
– Compare to the competitors, firm in the HBR case study Accounting Fraud at WorldCom 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 Fraud Accounting 's lucrative customers.
Lack of clear differentiation of Fraud Accounting products
– To increase the profitability and margins on the products, Fraud Accounting needs to provide more differentiated products than what it is currently offering in the marketplace.
Interest costs
– Compare to the competition, Fraud Accounting 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.
Capital Spending Reduction
– Even during the low interest decade, Fraud Accounting 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 Accounting Fraud at WorldCom | 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 Accounting Fraud at WorldCom are -
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Fraud Accounting can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Fraud Accounting is facing challenges because of the dominance of functional experts in the organization. Accounting Fraud at WorldCom 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
– Fraud Accounting 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 Accounting Fraud at WorldCom - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Fraud Accounting to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Developing new processes and practices
– Fraud Accounting can develop new processes and procedures in Strategy & Execution 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.
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. Fraud Accounting can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Learning at scale
– Online learning technologies has now opened space for Fraud Accounting 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.
Building a culture of innovation
– managers at Fraud Accounting 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.
Better consumer reach
– The expansion of the 5G network will help Fraud Accounting to increase its market reach. Fraud Accounting 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.
Buying journey improvements
– Fraud Accounting can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Accounting Fraud at WorldCom 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Fraud Accounting 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Fraud Accounting 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, Accounting Fraud at WorldCom, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Leveraging digital technologies
– Fraud Accounting 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Fraud Accounting 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 Fraud Accounting to hire the very best people irrespective of their geographical location.
Threats Accounting Fraud at WorldCom External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Accounting Fraud at WorldCom 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 Accounting Fraud at WorldCom, Fraud Accounting 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 .
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Fraud Accounting 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.
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.
Technology acceleration in Forth Industrial Revolution
– Fraud Accounting has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Fraud Accounting needs to keep up with the evolution of technology in the Strategy & Execution 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.
Stagnating economy with rate increase
– Fraud Accounting 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Fraud Accounting with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Fraud Accounting 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 Accounting Fraud at WorldCom .
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 Fraud 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 Fraud Accounting in the Strategy & Execution sector and impact the bottomline of the organization.
Regulatory challenges
– Fraud Accounting 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.
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 Fraud Accounting business can come under increasing regulations regarding data privacy, data security, etc.
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. Fraud Accounting 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 Accounting Fraud at WorldCom 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 Accounting Fraud at WorldCom 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 Accounting Fraud at WorldCom 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 Accounting Fraud at WorldCom 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 Accounting Fraud at WorldCom 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 Fraud Accounting needs to make to build a sustainable competitive advantage.