The Pitfalls of Non-GAAP Metrics SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Leadership & Managing People
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of The Pitfalls of Non-GAAP Metrics
This is an MIT Sloan Management Review article. For decades, companies have used custom metrics that don't conform to generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS) as supplements to their official financial statements. Some common non-GAAP measures include adjusted earnings before interest, taxes, depreciation, and amortization (known as adjusted EBITDA), free cash flow, funds from operations, adjusted revenues, adjusted earnings, adjusted earnings per share, and net debt. However, as the authors point out, it's not unusual for these alternative measures to lead to problems. Since companies devise their own methods of calculation, it's difficult to compare the metrics from company to company -or, in many cases, from year to year within the same company. According to the authors, alternative measures, once used fairly sparingly and shared mostly with a small group of professional investors, have become more ubiquitous and further and further disconnected from reality. In 2013, McKinsey & Co. found that all of the 25 largest U.S.-based nonfinancial companies reported some form of non-GAAP earnings. Press releases and earnings-call summaries often present non-GAAP measures that are increasingly detached from their GAAP-based equivalents. In addition to creating potential problems for investors, the authors argue, alternative metrics can harm companies themselves by obscuring their financial health, overstating their growth prospects beyond what standard GAAP measures would support, and rewarding executives beyond what is justified. Board members, top executives, compliance officers, and corporate strategists need to make sure that whatever alternative measures companies use improve transparency and reduce bias in financial reports. Although no standard is perfect, the authors note that GAAP and IFRS standards provide a foundation for consistent measurement of corporate performance over time and across businesses.
Swot Analysis of "The Pitfalls of Non-GAAP Metrics" written by H. David Sherman, S. David Young includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Gaap Adjusted facing as an external strategic factors. Some of the topics covered in The Pitfalls of Non-GAAP Metrics case study are - Strategic Management Strategies, Performance measurement and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the The Pitfalls of Non-GAAP Metrics casestudy better are - – supply chains are disrupted by pandemic , digital marketing is dominated by two big players Facebook and Google, there is backlash against globalization, increasing government debt because of Covid-19 spendings, geopolitical disruptions, competitive advantages are harder to sustain because of technology dispersion, wage bills are increasing,
increasing household debt because of falling income levels, increasing energy prices, etc
Introduction to SWOT Analysis of The Pitfalls of Non-GAAP Metrics
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in The Pitfalls of Non-GAAP Metrics case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Gaap Adjusted, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Gaap Adjusted 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 The Pitfalls of Non-GAAP Metrics can be done for the following purposes –
1. Strategic planning using facts provided in The Pitfalls of Non-GAAP Metrics case study
2. Improving business portfolio management of Gaap Adjusted
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Gaap Adjusted
Strengths The Pitfalls of Non-GAAP Metrics | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Gaap Adjusted in The Pitfalls of Non-GAAP Metrics Harvard Business Review case study are -
Strong track record of project management
– Gaap Adjusted is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Analytics focus
– Gaap Adjusted 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 H. David Sherman, S. David Young 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.
Low bargaining power of suppliers
– Suppliers of Gaap Adjusted in the sector have low bargaining power. The Pitfalls of Non-GAAP Metrics has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Gaap Adjusted to manage not only supply disruptions but also source products at highly competitive prices.
Digital Transformation in Leadership & Managing People segment
- digital transformation varies from industry to industry. For Gaap Adjusted digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Gaap Adjusted 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 Gaap Adjusted
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Gaap Adjusted does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Cross disciplinary teams
– Horizontal connected teams at the Gaap Adjusted 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.
Successful track record of launching new products
– Gaap Adjusted has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Gaap Adjusted has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Ability to recruit top talent
– Gaap Adjusted is one of the leading recruiters in the industry. Managers in the The Pitfalls of Non-GAAP Metrics are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Training and development
– Gaap Adjusted has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in The Pitfalls of Non-GAAP Metrics 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.
Sustainable margins compare to other players in Leadership & Managing People industry
– The Pitfalls of Non-GAAP Metrics firm has clearly differentiated products in the market place. This has enabled Gaap Adjusted to fetch slight price premium compare to the competitors in the Leadership & Managing People industry. The sustainable margins have also helped Gaap Adjusted to invest into research and development (R&D) and innovation.
High brand equity
– Gaap Adjusted has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Gaap Adjusted to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Superior customer experience
– The customer experience strategy of Gaap Adjusted in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses The Pitfalls of Non-GAAP Metrics | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of The Pitfalls of Non-GAAP Metrics are -
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Gaap Adjusted is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study The Pitfalls of Non-GAAP Metrics can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
High bargaining power of channel partners
– Because of the regulatory requirements, H. David Sherman, S. David Young suggests that, Gaap Adjusted 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.
Interest costs
– Compare to the competition, Gaap Adjusted has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Skills based hiring
– The stress on hiring functional specialists at Gaap Adjusted has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Slow to strategic competitive environment developments
– As The Pitfalls of Non-GAAP Metrics HBR case study mentions - Gaap Adjusted 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study The Pitfalls of Non-GAAP Metrics, is just above the industry average. Gaap Adjusted 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 Gaap Adjusted products
– To increase the profitability and margins on the products, Gaap Adjusted needs to provide more differentiated products than what it is currently offering in the marketplace.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study The Pitfalls of Non-GAAP Metrics, in the dynamic environment Gaap Adjusted has struggled to respond to the nimble upstart competition. Gaap Adjusted has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow decision making process
– As mentioned earlier in the report, Gaap Adjusted 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. Gaap Adjusted 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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study The Pitfalls of Non-GAAP Metrics, it seems that the employees of Gaap Adjusted 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.
No frontier risks strategy
– After analyzing the HBR case study The Pitfalls of Non-GAAP Metrics, it seems that company is thinking about the frontier risks that can impact Leadership & Managing People strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Opportunities The Pitfalls of Non-GAAP Metrics | 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 The Pitfalls of Non-GAAP Metrics are -
Manufacturing automation
– Gaap Adjusted can use the latest technology developments to improve its manufacturing and designing process in Leadership & Managing People 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Gaap Adjusted 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.
Leveraging digital technologies
– Gaap Adjusted 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.
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 Gaap Adjusted 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.
Creating value in data economy
– The success of analytics program of Gaap Adjusted has opened avenues for new revenue streams for the organization in the industry. This can help Gaap Adjusted to build a more holistic ecosystem as suggested in the The Pitfalls of Non-GAAP Metrics case study. Gaap Adjusted can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Leadership & Managing People industry, but it has also influenced the consumer preferences. Gaap Adjusted can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Gaap Adjusted in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Leadership & Managing People segment, and it will provide faster access to the consumers.
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. Gaap Adjusted can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Loyalty marketing
– Gaap Adjusted 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Gaap Adjusted can use these opportunities to build new business models that can help the communities that Gaap Adjusted operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Gaap Adjusted is facing challenges because of the dominance of functional experts in the organization. The Pitfalls of Non-GAAP Metrics 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.
Buying journey improvements
– Gaap Adjusted can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. The Pitfalls of Non-GAAP Metrics 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.
Using analytics as competitive advantage
– Gaap Adjusted 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 The Pitfalls of Non-GAAP Metrics - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Gaap Adjusted to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats The Pitfalls of Non-GAAP Metrics External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study The Pitfalls of Non-GAAP Metrics are -
Increasing wage structure of Gaap Adjusted
– 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 Gaap Adjusted.
Stagnating economy with rate increase
– Gaap Adjusted 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.
High dependence on third party suppliers
– Gaap Adjusted 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.
Consumer confidence and its impact on Gaap Adjusted 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 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. Gaap Adjusted needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Gaap Adjusted in the Leadership & Managing People industry. The Leadership & Managing People 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.
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 Gaap Adjusted in the Leadership & Managing People 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 The Pitfalls of Non-GAAP Metrics, Gaap Adjusted may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Leadership & Managing People .
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 Gaap Adjusted.
Shortening product life cycle
– it is one of the major threat that Gaap Adjusted is facing in Leadership & Managing People sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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 Gaap Adjusted business can come under increasing regulations regarding data privacy, data security, etc.
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. Gaap Adjusted 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.
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 The Pitfalls of Non-GAAP Metrics 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 The Pitfalls of Non-GAAP Metrics 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 The Pitfalls of Non-GAAP Metrics 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 The Pitfalls of Non-GAAP Metrics 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 The Pitfalls of Non-GAAP Metrics 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 Gaap Adjusted needs to make to build a sustainable competitive advantage.