From Free Lunch to Black Hole: Credit Default Swaps at AIG SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
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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 - – increasing commodity prices, central banks are concerned over increasing inflation, challanges to central banks by blockchain based private currencies, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing household debt because of falling income levels, talent flight as more people leaving formal jobs, there is increasing trade war between United States & China,
cloud computing is disrupting traditional business models, customer relationship management is fast transforming because of increasing concerns over data privacy, 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 -
Ability to recruit top talent
– Aigfp Cds is one of the leading recruiters in the industry. Managers in the From Free Lunch to Black Hole: Credit Default Swaps at AIG are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
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.
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.
High switching costs
– The high switching costs that Aigfp Cds 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.
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.
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.
Strong track record of project management
– Aigfp Cds is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
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.
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.
Low bargaining power of suppliers
– Suppliers of Aigfp Cds in the sector have low bargaining power. From Free Lunch to Black Hole: Credit Default Swaps at AIG has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Aigfp Cds to manage not only supply disruptions but also source products at highly competitive prices.
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.
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.
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 -
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.
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.
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.
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.
Products dominated business model
– Even though Aigfp Cds 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 - From Free Lunch to Black Hole: Credit Default Swaps at AIG 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 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.
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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Aigfp Cds is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study From Free Lunch to Black Hole: Credit Default Swaps at AIG can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study From Free Lunch to Black Hole: Credit Default Swaps at AIG, is just above the industry average. Aigfp Cds 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.
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 -
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.
Creating value in data economy
– The success of analytics program of Aigfp Cds has opened avenues for new revenue streams for the organization in the industry. This can help Aigfp Cds to build a more holistic ecosystem as suggested in the From Free Lunch to Black Hole: Credit Default Swaps at AIG case study. Aigfp Cds can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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.
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.
Better consumer reach
– The expansion of the 5G network will help Aigfp Cds to increase its market reach. Aigfp Cds 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.
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.
Learning at scale
– Online learning technologies has now opened space for Aigfp Cds 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 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.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Aigfp Cds 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, From Free Lunch to Black Hole: Credit Default Swaps at AIG, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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. Aigfp Cds 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. Aigfp Cds 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
– 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.
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. Aigfp Cds can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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 -
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.
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.
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. Aigfp Cds can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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.
Shortening product life cycle
– it is one of the major threat that Aigfp Cds 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 Aigfp Cds
– 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 Aigfp Cds.
High dependence on third party suppliers
– Aigfp Cds 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.
Consumer confidence and its impact on Aigfp Cds 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.
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.
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.
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.
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.