In 1997, WorldCom's CEO bid successfully to acquire MCI Communications. The key questions that remained to be settled were how to structure the deal for tax purposes and what impact the acquisition would have on the combined company's reported earnings. The CEO knew that the tax and accounting structure of the MCI acquisition could have serious implications for the combined company's future financial performance. He also knew that the composition of his offer (80% cash, 20% stock) for MCI would impact both. Under WorldCom's 80% cash offer, purchase accounting was the only financial reporting option. Under purchase accounting, the target's net assets were recorded at their fair value, and the unallocated purchase price was assigned to goodwill. However, the amount of goodwill created in a transaction depended on the tax structure of the acquisition. The creation of a new liability on the target's books reduced its net asset value, thereby resulting in more goodwill. This case analyzes and illustrates by example how the transaction's tax structure can affect both the tax implications of and the financial recording for an acquisition. The amount of tax paid, liabilities assumed, the tax implications of and the financial recording for an acquisition. The amount of tax paid, liabilities assumed, and goodwill recognized all depend on the transaction's tax structure.
Swot Analysis of "MCI" written by Mary E. Barth, Fraser Preston includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Tax Mci facing as an external strategic factors. Some of the topics covered in MCI case study are - Strategic Management Strategies, Corporate communications, Financial analysis, Financial management, Mergers & acquisitions and Finance & Accounting.
Some of the macro environment factors that can be used to understand the MCI casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, banking and financial system is disrupted by Bitcoin and other crypto currencies, talent flight as more people leaving formal jobs, competitive advantages are harder to sustain because of technology dispersion, increasing commodity prices, challanges to central banks by blockchain based private currencies, supply chains are disrupted by pandemic ,
cloud computing is disrupting traditional business models, increasing energy prices, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in MCI case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Tax Mci, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Tax Mci 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 MCI can be done for the following purposes –
1. Strategic planning using facts provided in MCI case study
2. Improving business portfolio management of Tax Mci
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 Tax Mci
Strengths MCI | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Tax Mci in MCI Harvard Business Review case study are -
Diverse revenue streams
– Tax Mci is present in almost all the verticals within the industry. This has provided firm in MCI 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.
Highly skilled collaborators
– Tax Mci 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 MCI HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
High brand equity
– Tax Mci has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Tax Mci to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Organizational Resilience of Tax Mci
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Tax Mci does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Tax Mci digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Tax Mci 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.
Analytics focus
– Tax Mci 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 Mary E. Barth, Fraser Preston 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.
Successful track record of launching new products
– Tax Mci has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Tax Mci 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.
Ability to lead change in Finance & Accounting field
– Tax Mci 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 Tax Mci in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Learning organization
- Tax Mci 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 Tax Mci is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in MCI Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Effective Research and Development (R&D)
– Tax Mci 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 MCI - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
High switching costs
– The high switching costs that Tax Mci 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.
Strong track record of project management
– Tax Mci is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Weaknesses MCI | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of MCI are -
Interest costs
– Compare to the competition, Tax Mci 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, Tax Mci 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Mary E. Barth, Fraser Preston suggests that, Tax Mci 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.
Need for greater diversity
– Tax Mci 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.
Aligning sales with marketing
– It come across in the case study MCI 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 MCI can leverage the sales team experience to cultivate customer relationships as Tax Mci is planning to shift buying processes online.
Lack of clear differentiation of Tax Mci products
– To increase the profitability and margins on the products, Tax Mci needs to provide more differentiated products than what it is currently offering in the marketplace.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Tax Mci supply chain. Even after few cautionary changes mentioned in the HBR case study - MCI, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Tax Mci vulnerable to further global disruptions in South East Asia.
Skills based hiring
– The stress on hiring functional specialists at Tax Mci 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Tax Mci 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the MCI 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 Tax Mci has relatively successful track record of launching new products.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Tax Mci is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study MCI can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Opportunities MCI | 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 MCI are -
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 Tax Mci in the consumer business. Now Tax Mci can target international markets with far fewer capital restrictions requirements than the existing system.
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. Tax Mci 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. Tax Mci 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.
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. Tax Mci can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Tax Mci 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, MCI, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Tax Mci 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, Tax Mci is facing challenges because of the dominance of functional experts in the organization. MCI 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Tax Mci 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Tax Mci can use these opportunities to build new business models that can help the communities that Tax Mci operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Using analytics as competitive advantage
– Tax Mci 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 MCI - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Tax Mci to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Manufacturing automation
– Tax Mci 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.
Developing new processes and practices
– Tax Mci 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Tax Mci 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Tax Mci 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 Tax Mci to hire the very best people irrespective of their geographical location.
Threats MCI External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study MCI are -
High dependence on third party suppliers
– Tax Mci 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.
Technology acceleration in Forth Industrial Revolution
– Tax Mci has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Tax Mci 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.
Shortening product life cycle
– it is one of the major threat that Tax Mci is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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. Tax Mci 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 Tax Mci 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Tax Mci 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, Tax Mci 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 MCI .
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 Tax Mci business can come under increasing regulations regarding data privacy, data security, etc.
Stagnating economy with rate increase
– Tax Mci 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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study MCI, Tax Mci 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 .
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.
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 Tax Mci.
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.
Weighted SWOT Analysis of MCI 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 MCI 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 MCI 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 MCI 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 MCI 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 Tax Mci needs to make to build a sustainable competitive advantage.