Case Study Description of Principal-Protected Equity-Linked Note
The case puts students in the shoes of a private banker who wants to price a structured note for European high net worth clients with low levels of risk tolerance. The principal-protected equity-linked note (PP-ELN) provides investors with fixed income-like principal protection together with upside exposure to the S&P 500 Index. The students are asked how the bank should allocate the client's money to buy call options and invest in zero-coupon bonds to deliver this PP-ELN and still earn a fee. By adjusting the amount of principal protection or capping the upside potential, the students can calculate whether there is an opportunity for increased upside participation. This financial engineering case can be used to teach put-call parity, option strategies, and Black-Scholes pricing.
Swot Analysis of "Principal-Protected Equity-Linked Note" written by Pedro Matos includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Principal Upside facing as an external strategic factors. Some of the topics covered in Principal-Protected Equity-Linked Note case study are - Strategic Management Strategies, Financial markets and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Principal-Protected Equity-Linked Note casestudy better are - – technology disruption, talent flight as more people leaving formal jobs, central banks are concerned over increasing inflation, cloud computing is disrupting traditional business models, supply chains are disrupted by pandemic , digital marketing is dominated by two big players Facebook and Google, increasing energy prices,
challanges to central banks by blockchain based private currencies, there is backlash against globalization, etc
Introduction to SWOT Analysis of Principal-Protected Equity-Linked Note
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Principal-Protected Equity-Linked Note case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Principal Upside, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Principal Upside 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 Principal-Protected Equity-Linked Note can be done for the following purposes –
1. Strategic planning using facts provided in Principal-Protected Equity-Linked Note case study
2. Improving business portfolio management of Principal Upside
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 Principal Upside
Strengths Principal-Protected Equity-Linked Note | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Principal Upside in Principal-Protected Equity-Linked Note Harvard Business Review case study are -
Ability to recruit top talent
– Principal Upside is one of the leading recruiters in the industry. Managers in the Principal-Protected Equity-Linked Note are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Analytics focus
– Principal Upside 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 Pedro Matos 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.
Effective Research and Development (R&D)
– Principal Upside 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 Principal-Protected Equity-Linked Note - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Ability to lead change in Finance & Accounting field
– Principal Upside 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 Principal Upside in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Diverse revenue streams
– Principal Upside is present in almost all the verticals within the industry. This has provided firm in Principal-Protected Equity-Linked Note 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.
Low bargaining power of suppliers
– Suppliers of Principal Upside in the sector have low bargaining power. Principal-Protected Equity-Linked Note has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Principal Upside to manage not only supply disruptions but also source products at highly competitive prices.
Superior customer experience
– The customer experience strategy of Principal Upside in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Principal Upside digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Principal Upside 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.
Organizational Resilience of Principal Upside
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Principal Upside does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High brand equity
– Principal Upside has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Principal Upside to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Training and development
– Principal Upside has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Principal-Protected Equity-Linked Note Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Successful track record of launching new products
– Principal Upside has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Principal Upside 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.
Weaknesses Principal-Protected Equity-Linked Note | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Principal-Protected Equity-Linked Note are -
No frontier risks strategy
– After analyzing the HBR case study Principal-Protected Equity-Linked Note, 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.
Products dominated business model
– Even though Principal Upside 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 - Principal-Protected Equity-Linked Note should strive to include more intangible value offerings along with its core products and services.
High operating costs
– Compare to the competitors, firm in the HBR case study Principal-Protected Equity-Linked Note 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 Principal Upside 's lucrative customers.
Slow decision making process
– As mentioned earlier in the report, Principal Upside 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. Principal Upside 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Principal-Protected Equity-Linked Note 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 Principal Upside has relatively successful track record of launching new products.
High bargaining power of channel partners
– Because of the regulatory requirements, Pedro Matos suggests that, Principal Upside 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.
High cash cycle compare to competitors
Principal Upside 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Principal-Protected Equity-Linked Note, is just above the industry average. Principal Upside 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.
Lack of clear differentiation of Principal Upside products
– To increase the profitability and margins on the products, Principal Upside needs to provide more differentiated products than what it is currently offering in the marketplace.
Workers concerns about automation
– As automation is fast increasing in the segment, Principal Upside needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Capital Spending Reduction
– Even during the low interest decade, Principal Upside 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.
Opportunities Principal-Protected Equity-Linked Note | 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 Principal-Protected Equity-Linked Note are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Principal Upside is facing challenges because of the dominance of functional experts in the organization. Principal-Protected Equity-Linked Note 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Principal Upside can use these opportunities to build new business models that can help the communities that Principal Upside operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
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. Principal Upside can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Building a culture of innovation
– managers at Principal Upside 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.
Loyalty marketing
– Principal Upside 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.
Leveraging digital technologies
– Principal Upside 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.
Buying journey improvements
– Principal Upside can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Principal-Protected Equity-Linked Note 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.
Creating value in data economy
– The success of analytics program of Principal Upside has opened avenues for new revenue streams for the organization in the industry. This can help Principal Upside to build a more holistic ecosystem as suggested in the Principal-Protected Equity-Linked Note case study. Principal Upside can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Learning at scale
– Online learning technologies has now opened space for Principal Upside 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Principal Upside 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 Principal Upside to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Principal Upside 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 Principal-Protected Equity-Linked Note - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Principal Upside to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Manufacturing automation
– Principal Upside 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.
Better consumer reach
– The expansion of the 5G network will help Principal Upside to increase its market reach. Principal Upside 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.
Threats Principal-Protected Equity-Linked Note External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Principal-Protected Equity-Linked Note are -
Regulatory challenges
– Principal Upside 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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Principal-Protected Equity-Linked Note, Principal Upside 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 .
Technology acceleration in Forth Industrial Revolution
– Principal Upside has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Principal Upside 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.
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 Principal Upside in the Finance & Accounting sector and impact the bottomline of the organization.
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. Principal Upside 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.
Shortening product life cycle
– it is one of the major threat that Principal Upside 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. Principal Upside can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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.
Environmental challenges
– Principal Upside 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. Principal Upside can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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 Principal Upside business can come under increasing regulations regarding data privacy, data security, etc.
Increasing wage structure of Principal Upside
– 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 Principal Upside.
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 Principal Upside.
Weighted SWOT Analysis of Principal-Protected Equity-Linked Note 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 Principal-Protected Equity-Linked Note 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 Principal-Protected Equity-Linked Note 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 Principal-Protected Equity-Linked Note 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 Principal-Protected Equity-Linked Note 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 Principal Upside needs to make to build a sustainable competitive advantage.
