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 - – supply chains are disrupted by pandemic , increasing inequality as vast percentage of new income is going to the top 1%, geopolitical disruptions, there is increasing trade war between United States & China, there is backlash against globalization, digital marketing is dominated by two big players Facebook and Google, central banks are concerned over increasing inflation,
increasing government debt because of Covid-19 spendings, talent flight as more people leaving formal jobs, 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 -
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.
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.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Indusind Residual digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Indusind Residual 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.
Effective Research and Development (R&D)
– Indusind Residual 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 IndusInd Bank: Residual Income Valuation - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
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.
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.
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.
Low bargaining power of suppliers
– Suppliers of Indusind Residual in the sector have low bargaining power. IndusInd Bank: Residual Income Valuation has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Indusind Residual to manage not only supply disruptions but also source products at highly competitive prices.
Sustainable margins compare to other players in Finance & Accounting industry
– IndusInd Bank: Residual Income Valuation firm has clearly differentiated products in the market place. This has enabled Indusind Residual to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Indusind Residual to invest into research and development (R&D) and innovation.
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.
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.
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.
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 -
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.
Aligning sales with marketing
– It come across in the case study IndusInd Bank: Residual Income Valuation 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 IndusInd Bank: Residual Income Valuation can leverage the sales team experience to cultivate customer relationships as Indusind Residual is planning to shift buying processes online.
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.
Increasing silos among functional specialists
– The organizational structure of Indusind Residual is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Indusind Residual needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Indusind Residual to focus more on services rather than just following the product oriented approach.
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.
High cash cycle compare to competitors
Indusind Residual has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
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.
Lack of clear differentiation of Indusind Residual products
– To increase the profitability and margins on the products, Indusind Residual needs to provide more differentiated products than what it is currently offering in the marketplace.
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 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.
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 -
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.
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.
Building a culture of innovation
– managers at Indusind Residual 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.
Manufacturing automation
– Indusind Residual 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.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Indusind Residual to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Loyalty marketing
– Indusind Residual 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.
Learning at scale
– Online learning technologies has now opened space for Indusind Residual 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.
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.
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.
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.
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.
Better consumer reach
– The expansion of the 5G network will help Indusind Residual to increase its market reach. Indusind Residual will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Buying journey improvements
– Indusind Residual can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. IndusInd Bank: Residual Income Valuation 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.
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 -
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Indusind Residual needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
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.
High dependence on third party suppliers
– Indusind Residual 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.
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.
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.
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.
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.
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.
Increasing wage structure of Indusind Residual
– 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 Indusind Residual.
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.
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 .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Indusind Residual 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.
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.
