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 - – central banks are concerned over increasing inflation, talent flight as more people leaving formal jobs, competitive advantages are harder to sustain because of technology dispersion, customer relationship management is fast transforming because of increasing concerns over data privacy, wage bills are increasing, increasing government debt because of Covid-19 spendings, increasing inequality as vast percentage of new income is going to the top 1%,
cloud computing is disrupting traditional business models, increasing commodity prices, 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 -
Innovation driven organization
– Farallon Arbitrage is one of the most innovative firm in sector. Manager in Farallon Capital Management: Risk Arbitrage (C) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Strong track record of project management
– Farallon Arbitrage is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Successful track record of launching new products
– Farallon Arbitrage has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Farallon Arbitrage 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.
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.
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.
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.
Superior customer experience
– The customer experience strategy of Farallon Arbitrage in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
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.
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.
Cross disciplinary teams
– Horizontal connected teams at the Farallon Arbitrage are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Low bargaining power of suppliers
– Suppliers of 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.
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.
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 -
Increasing silos among functional specialists
– The organizational structure of Farallon Arbitrage is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Farallon Arbitrage needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Farallon Arbitrage to focus more on services rather than just following the product oriented approach.
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.
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.
Skills based hiring
– The stress on hiring functional specialists at Farallon Arbitrage 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.
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.
Workers concerns about automation
– As automation is fast increasing in the segment, Farallon Arbitrage 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.
Low market penetration in new markets
– Outside its home market of Farallon Arbitrage, firm in the HBR case study Farallon Capital Management: Risk Arbitrage (C) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
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.
Slow to strategic competitive environment developments
– As Farallon Capital Management: Risk Arbitrage (C) HBR case study mentions - Farallon Arbitrage 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, 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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Farallon Capital Management: Risk Arbitrage (C), it seems that the employees of Farallon Arbitrage 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.
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 -
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.
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.
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.
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.
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. Farallon Arbitrage can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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.
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.
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.
Loyalty marketing
– Farallon Arbitrage 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.
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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Farallon Arbitrage 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.
Creating value in data economy
– The success of analytics program of Farallon Arbitrage has opened avenues for new revenue streams for the organization in the industry. This can help Farallon Arbitrage to build a more holistic ecosystem as suggested in the Farallon Capital Management: Risk Arbitrage (C) case study. Farallon Arbitrage can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Buying journey improvements
– Farallon Arbitrage can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Farallon Capital Management: Risk Arbitrage (C) 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 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 -
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) .
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.
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.
Technology acceleration in Forth Industrial Revolution
– Farallon Arbitrage has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Farallon Arbitrage 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.
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.
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 Farallon Arbitrage business can come under increasing regulations regarding data privacy, data security, etc.
Stagnating economy with rate increase
– Farallon Arbitrage 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.
Environmental challenges
– Farallon Arbitrage 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. Farallon Arbitrage can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Farallon Capital Management: Risk Arbitrage (C), Farallon Arbitrage 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 .
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.
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.
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.
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.