From Free Lunch to Black Hole: Credit Default Swaps at AIG SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of From Free Lunch to Black Hole: Credit Default Swaps at AIG
It is July of 2007 and Alan Frost, executive vice president for AIG Financial Products (AIGFP) has just received a heads up on a margin call from Goldman Sachs. The next day the company served AIGFP with an invoice for collateral worth $1.8 billion on $20 billion notional value of credit default swaps (CDS) related to the housing market. As the market fell, homeowners defaulted, making the value of the securities underlying the CDS plummet. AIGFP had up until this point thought that the prospect of every having to pay up on the CDS was virtually non-existent. Students will have to decide if the company underestimated the risk.
Swot Analysis of "From Free Lunch to Black Hole: Credit Default Swaps at AIG" written by Stefan Nagel includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Aigfp Cds facing as an external strategic factors. Some of the topics covered in From Free Lunch to Black Hole: Credit Default Swaps at AIG case study are - Strategic Management Strategies, and Finance & Accounting.
Some of the macro environment factors that can be used to understand the From Free Lunch to Black Hole: Credit Default Swaps at AIG casestudy better are - – talent flight as more people leaving formal jobs, digital marketing is dominated by two big players Facebook and Google, increasing commodity prices, increasing energy prices, geopolitical disruptions, customer relationship management is fast transforming because of increasing concerns over data privacy, there is increasing trade war between United States & China,
cloud computing is disrupting traditional business models, wage bills are increasing, etc
Introduction to SWOT Analysis of From Free Lunch to Black Hole: Credit Default Swaps at AIG
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in From Free Lunch to Black Hole: Credit Default Swaps at AIG case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Aigfp Cds, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Aigfp Cds 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG can be done for the following purposes –
1. Strategic planning using facts provided in From Free Lunch to Black Hole: Credit Default Swaps at AIG case study
2. Improving business portfolio management of Aigfp Cds
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 Aigfp Cds
Strengths From Free Lunch to Black Hole: Credit Default Swaps at AIG | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Aigfp Cds in From Free Lunch to Black Hole: Credit Default Swaps at AIG Harvard Business Review case study are -
Highly skilled collaborators
– Aigfp Cds 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of Aigfp Cds in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High brand equity
– Aigfp Cds has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Aigfp Cds to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Aigfp Cds digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Aigfp Cds 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.
Diverse revenue streams
– Aigfp Cds is present in almost all the verticals within the industry. This has provided firm in From Free Lunch to Black Hole: Credit Default Swaps at AIG 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.
Analytics focus
– Aigfp Cds 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 Stefan Nagel 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.
Learning organization
- Aigfp Cds 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 Aigfp Cds is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in From Free Lunch to Black Hole: Credit Default Swaps at AIG Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Sustainable margins compare to other players in Finance & Accounting industry
– From Free Lunch to Black Hole: Credit Default Swaps at AIG firm has clearly differentiated products in the market place. This has enabled Aigfp Cds to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Aigfp Cds to invest into research and development (R&D) and innovation.
Cross disciplinary teams
– Horizontal connected teams at the Aigfp Cds 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.
Organizational Resilience of Aigfp Cds
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Aigfp Cds does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Innovation driven organization
– Aigfp Cds is one of the most innovative firm in sector. Manager in From Free Lunch to Black Hole: Credit Default Swaps at AIG Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Operational resilience
– The operational resilience strategy in the From Free Lunch to Black Hole: Credit Default Swaps at AIG 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.
Weaknesses From Free Lunch to Black Hole: Credit Default Swaps at AIG | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of From Free Lunch to Black Hole: Credit Default Swaps at AIG are -
Aligning sales with marketing
– It come across in the case study From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG can leverage the sales team experience to cultivate customer relationships as Aigfp Cds is planning to shift buying processes online.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 Aigfp Cds has relatively successful track record of launching new products.
Need for greater diversity
– Aigfp Cds 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.
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 Aigfp Cds supply chain. Even after few cautionary changes mentioned in the HBR case study - From Free Lunch to Black Hole: Credit Default Swaps at AIG, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Aigfp Cds vulnerable to further global disruptions in South East Asia.
Interest costs
– Compare to the competition, Aigfp Cds 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study From Free Lunch to Black Hole: Credit Default Swaps at AIG, in the dynamic environment Aigfp Cds has struggled to respond to the nimble upstart competition. Aigfp Cds has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Capital Spending Reduction
– Even during the low interest decade, Aigfp Cds 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.
Slow to strategic competitive environment developments
– As From Free Lunch to Black Hole: Credit Default Swaps at AIG HBR case study mentions - Aigfp Cds 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.
Low market penetration in new markets
– Outside its home market of Aigfp Cds, firm in the HBR case study From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 Aigfp Cds 's lucrative customers.
High bargaining power of channel partners
– Because of the regulatory requirements, Stefan Nagel suggests that, Aigfp Cds 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.
Opportunities From Free Lunch to Black Hole: Credit Default Swaps at AIG | 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG are -
Buying journey improvements
– Aigfp Cds can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. From Free Lunch to Black Hole: Credit Default Swaps at AIG 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.
Developing new processes and practices
– Aigfp Cds 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.
Leveraging digital technologies
– Aigfp Cds 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.
Manufacturing automation
– Aigfp Cds 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Aigfp Cds can use these opportunities to build new business models that can help the communities that Aigfp Cds operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Aigfp Cds can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Aigfp Cds 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 Aigfp Cds 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 Aigfp Cds to hire the very best people irrespective of their geographical location.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Aigfp Cds is facing challenges because of the dominance of functional experts in the organization. From Free Lunch to Black Hole: Credit Default Swaps at AIG 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
– Aigfp Cds 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Aigfp Cds to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Loyalty marketing
– Aigfp Cds has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Aigfp Cds 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.
Building a culture of innovation
– managers at Aigfp Cds 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.
Threats From Free Lunch to Black Hole: Credit Default Swaps at AIG External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG, Aigfp Cds 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 .
Environmental challenges
– Aigfp Cds needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Aigfp Cds can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Aigfp Cds with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Technology acceleration in Forth Industrial Revolution
– Aigfp Cds has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Aigfp Cds 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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Aigfp Cds 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG .
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 Aigfp Cds in the Finance & Accounting sector and impact the bottomline of the organization.
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.
Stagnating economy with rate increase
– Aigfp Cds can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Aigfp Cds.
Regulatory challenges
– Aigfp Cds 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.
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. Aigfp Cds 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.
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 Aigfp Cds business can come under increasing regulations regarding data privacy, data security, etc.
Weighted SWOT Analysis of From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 Aigfp Cds needs to make to build a sustainable competitive advantage.
