Case Study Description of IndusInd Bank: Residual Income Valuation
In early 2013, an analyst at an insurance company was examining whether IndusInd Bank, a mid-size bank in India, would be a good investment for the insurance fund's equity portfolio. From January 2008 until March 30, 2013, the bank's stock had tripled under its new management. The analyst wondered whether deploying funds in the bank would yield any significant returns. He decided to use the available financial information and the residual income valuation method to forecast the company's stock price. Varun Dawar is affiliated with Institute of Management Technology, Ghaziabad. Rakesh Arrawatia is affiliated with Institute of Rural Management. Saumya Ranjan Dash is affiliated with Indian Institute of Management Indore.
Swot Analysis of "IndusInd Bank: Residual Income Valuation" written by Varun Dawar, Rakesh Arrawatia, Saumya Ranjan Dash, Arit Chaudhury includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Indusind Residual facing as an external strategic factors. Some of the topics covered in IndusInd Bank: Residual Income Valuation case study are - Strategic Management Strategies, and Finance & Accounting.
Some of the macro environment factors that can be used to understand the IndusInd Bank: Residual Income Valuation casestudy better are - – banking and financial system is disrupted by Bitcoin and other crypto currencies, talent flight as more people leaving formal jobs, cloud computing is disrupting traditional business models, supply chains are disrupted by pandemic , customer relationship management is fast transforming because of increasing concerns over data privacy, geopolitical disruptions, increasing inequality as vast percentage of new income is going to the top 1%,
competitive advantages are harder to sustain because of technology dispersion, technology disruption, etc
Introduction to SWOT Analysis of IndusInd Bank: Residual Income Valuation
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in IndusInd Bank: Residual Income Valuation case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Indusind Residual, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Indusind Residual 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 IndusInd Bank: Residual Income Valuation can be done for the following purposes –
1. Strategic planning using facts provided in IndusInd Bank: Residual Income Valuation case study
2. Improving business portfolio management of Indusind Residual
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 Indusind Residual
Strengths IndusInd Bank: Residual Income Valuation | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Indusind Residual in IndusInd Bank: Residual Income Valuation Harvard Business Review case study are -
Learning organization
- Indusind Residual 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 Indusind Residual is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in IndusInd Bank: Residual Income Valuation Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Superior customer experience
– The customer experience strategy of Indusind Residual in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High switching costs
– The high switching costs that Indusind Residual 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.
High brand equity
– Indusind Residual has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Indusind Residual to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Successful track record of launching new products
– Indusind Residual has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Indusind Residual 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
– Indusind Residual 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 Indusind Residual in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Organizational Resilience of Indusind Residual
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Indusind Residual does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Cross disciplinary teams
– Horizontal connected teams at the Indusind Residual 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.
Analytics focus
– Indusind Residual 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 Varun Dawar, Rakesh Arrawatia, Saumya Ranjan Dash, Arit Chaudhury 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.
Highly skilled collaborators
– Indusind Residual 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 IndusInd Bank: Residual Income Valuation HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Operational resilience
– The operational resilience strategy in the IndusInd Bank: Residual Income Valuation 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.
Innovation driven organization
– Indusind Residual is one of the most innovative firm in sector. Manager in IndusInd Bank: Residual Income Valuation Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Weaknesses IndusInd Bank: Residual Income Valuation | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of IndusInd Bank: Residual Income Valuation are -
Interest costs
– Compare to the competition, Indusind Residual has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Skills based hiring
– The stress on hiring functional specialists at Indusind Residual 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.
Slow to strategic competitive environment developments
– As IndusInd Bank: Residual Income Valuation HBR case study mentions - Indusind Residual 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.
Capital Spending Reduction
– Even during the low interest decade, Indusind Residual 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.
Products dominated business model
– Even though Indusind Residual 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 - IndusInd Bank: Residual Income Valuation should strive to include more intangible value offerings along with its core products and services.
Slow decision making process
– As mentioned earlier in the report, Indusind Residual has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Indusind Residual even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Indusind Residual is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study IndusInd Bank: Residual Income Valuation can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Need for greater diversity
– Indusind Residual 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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study IndusInd Bank: Residual Income Valuation, it seems that the employees of Indusind Residual don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study IndusInd Bank: Residual Income Valuation, in the dynamic environment Indusind Residual has struggled to respond to the nimble upstart competition. Indusind Residual has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
No frontier risks strategy
– After analyzing the HBR case study IndusInd Bank: Residual Income Valuation, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Opportunities IndusInd Bank: Residual Income Valuation | 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 IndusInd Bank: Residual Income Valuation are -
Lowering marketing communication costs
– 5G expansion will open new opportunities for Indusind Residual 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, Indusind Residual 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, IndusInd Bank: Residual Income Valuation, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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. Indusind Residual can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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 Indusind Residual in the consumer business. Now Indusind Residual can target international markets with far fewer capital restrictions requirements than the existing system.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Indusind Residual is facing challenges because of the dominance of functional experts in the organization. IndusInd Bank: Residual Income Valuation 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Indusind Residual 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 Indusind Residual 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 Indusind Residual to hire the very best people irrespective of their geographical location.
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. Indusind Residual 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. Indusind Residual 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.
Using analytics as competitive advantage
– Indusind Residual 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 IndusInd Bank: Residual Income Valuation - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Indusind Residual to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Leveraging digital technologies
– Indusind Residual 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.
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. Indusind Residual can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Developing new processes and practices
– Indusind Residual 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.
Creating value in data economy
– The success of analytics program of Indusind Residual has opened avenues for new revenue streams for the organization in the industry. This can help Indusind Residual to build a more holistic ecosystem as suggested in the IndusInd Bank: Residual Income Valuation case study. Indusind Residual can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Threats IndusInd Bank: Residual Income Valuation External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study IndusInd Bank: Residual Income Valuation are -
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Indusind Residual with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study IndusInd Bank: Residual Income Valuation, Indusind Residual 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 .
Stagnating economy with rate increase
– Indusind Residual 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 Indusind Residual is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Indusind Residual 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 IndusInd Bank: Residual Income Valuation .
Environmental challenges
– Indusind Residual 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. Indusind Residual can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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 Indusind Residual.
Technology acceleration in Forth Industrial Revolution
– Indusind Residual has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Indusind Residual 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.
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.
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 Indusind Residual in the Finance & Accounting sector and impact the bottomline 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. Indusind Residual can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Regulatory challenges
– Indusind Residual 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.
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.
Weighted SWOT Analysis of IndusInd Bank: Residual Income Valuation 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 IndusInd Bank: Residual Income Valuation 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 IndusInd Bank: Residual Income Valuation 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 IndusInd Bank: Residual Income Valuation 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 IndusInd Bank: Residual Income Valuation 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 Indusind Residual needs to make to build a sustainable competitive advantage.