Case Study Description of Farallon Capital Management: Risk Arbitrage (C)
Farallon Capital Management, an investment firm that specializes in risk arbitrage, has taken significant long and short positions in MCI Communications and British Telecommunications, respectively, in the belief that the proposed merger of these firms will be successfully completed. Raises the issues facing Farallon as positive and negative events relating to the merger unfold. Provides a rich institutional setting for understanding merger arbitrage and its function in capital markets.
Swot Analysis of "Farallon Capital Management: Risk Arbitrage (C)" written by Andre F. Perold, Robert Howard includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Farallon Arbitrage facing as an external strategic factors. Some of the topics covered in Farallon Capital Management: Risk Arbitrage (C) case study are - Strategic Management Strategies, Financial markets, Mergers & acquisitions, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Farallon Capital Management: Risk Arbitrage (C) casestudy better are - – increasing inequality as vast percentage of new income is going to the top 1%, wage bills are increasing, increasing household debt because of falling income levels, customer relationship management is fast transforming because of increasing concerns over data privacy, technology disruption, increasing government debt because of Covid-19 spendings, challanges to central banks by blockchain based private currencies,
there is backlash against globalization, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of Farallon Capital Management: Risk Arbitrage (C)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Farallon Capital Management: Risk Arbitrage (C) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Farallon Arbitrage, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (C) can be done for the following purposes –
1. Strategic planning using facts provided in Farallon Capital Management: Risk Arbitrage (C) case study
2. Improving business portfolio management of Farallon Arbitrage
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 Farallon Arbitrage
Strengths Farallon Capital Management: Risk Arbitrage (C) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Farallon Arbitrage in Farallon Capital Management: Risk Arbitrage (C) Harvard Business Review case study are -
Training and development
– Farallon Arbitrage has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Farallon Capital Management: Risk Arbitrage (C) 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.
Operational resilience
– The operational resilience strategy in the Farallon Capital Management: Risk Arbitrage (C) 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.
Organizational Resilience of Farallon Arbitrage
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Farallon Arbitrage does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Low bargaining power of suppliers
– Suppliers of Farallon Arbitrage in the sector have low bargaining power. Farallon Capital Management: Risk Arbitrage (C) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Farallon Arbitrage to manage not only supply disruptions but also source products at highly competitive prices.
High brand equity
– Farallon Arbitrage has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Farallon Arbitrage to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Farallon Arbitrage digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Farallon Arbitrage 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.
Learning organization
- Farallon Arbitrage 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 Farallon Arbitrage is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Farallon Capital Management: Risk Arbitrage (C) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Effective Research and Development (R&D)
– Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (C) - 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
– Farallon Arbitrage 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 Farallon Arbitrage in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (C) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
High switching costs
– The high switching costs that Farallon Arbitrage 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
– Farallon Arbitrage 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 Andre F. Perold, Robert Howard 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.
Weaknesses Farallon Capital Management: Risk Arbitrage (C) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Farallon Capital Management: Risk Arbitrage (C) are -
Need for greater diversity
– Farallon Arbitrage 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.
Aligning sales with marketing
– It come across in the case study Farallon Capital Management: Risk Arbitrage (C) 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 Farallon Capital Management: Risk Arbitrage (C) can leverage the sales team experience to cultivate customer relationships as Farallon Arbitrage is planning to shift buying processes online.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Farallon Capital Management: Risk Arbitrage (C), is just above the industry average. Farallon Arbitrage 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.
Slow decision making process
– As mentioned earlier in the report, Farallon Arbitrage 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. Farallon Arbitrage 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 cash cycle compare to competitors
Farallon Arbitrage 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.
No frontier risks strategy
– After analyzing the HBR case study Farallon Capital Management: Risk Arbitrage (C), 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Farallon Capital Management: Risk Arbitrage (C) 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 Farallon Arbitrage has relatively successful track record of launching new products.
Capital Spending Reduction
– Even during the low interest decade, Farallon Arbitrage 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Andre F. Perold, Robert Howard suggests that, Farallon Arbitrage 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 operating costs
– Compare to the competitors, firm in the HBR case study Farallon Capital Management: Risk Arbitrage (C) 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 Farallon Arbitrage 's lucrative customers.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Farallon Arbitrage is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Farallon Capital Management: Risk Arbitrage (C) can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Opportunities Farallon Capital Management: Risk Arbitrage (C) | 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 Farallon Capital Management: Risk Arbitrage (C) are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Farallon Arbitrage 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, Farallon Capital Management: Risk Arbitrage (C), 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. Farallon Arbitrage 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. Farallon Arbitrage 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.
Manufacturing automation
– Farallon Arbitrage 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.
Leveraging digital technologies
– Farallon Arbitrage 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.
Learning at scale
– Online learning technologies has now opened space for Farallon Arbitrage 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Farallon Arbitrage 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.
Using analytics as competitive advantage
– Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (C) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Farallon Arbitrage to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
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 Farallon Arbitrage in the consumer business. Now Farallon Arbitrage can target international markets with far fewer capital restrictions requirements than the existing system.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Farallon Arbitrage can use these opportunities to build new business models that can help the communities that Farallon Arbitrage operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
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 Farallon Arbitrage 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Farallon Arbitrage can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Farallon Arbitrage 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 Farallon Arbitrage to hire the very best people irrespective of their geographical location.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Farallon Arbitrage is facing challenges because of the dominance of functional experts in the organization. Farallon Capital Management: Risk Arbitrage (C) 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.
Threats Farallon Capital Management: Risk Arbitrage (C) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Farallon Capital Management: Risk Arbitrage (C) are -
Consumer confidence and its impact on Farallon Arbitrage 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.
High dependence on third party suppliers
– Farallon Arbitrage 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Farallon Arbitrage 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.
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.
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. Farallon Arbitrage 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 Farallon Arbitrage is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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 Farallon Arbitrage.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (C) .
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.
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 Farallon Arbitrage 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. Farallon Arbitrage can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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. Farallon Arbitrage needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (C) 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 Farallon Capital Management: Risk Arbitrage (C) 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 Farallon Capital Management: Risk Arbitrage (C) 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 Farallon Capital Management: Risk Arbitrage (C) 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 Farallon Capital Management: Risk Arbitrage (C) 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 Farallon Arbitrage needs to make to build a sustainable competitive advantage.
