Examines the leveraged buyout of Hertz in 2005, a complex, high-profile deal and a good example of cutting-edge practice in private equity. The first of a two-part series on the Hertz LBO, adopts the perspective of Clayton, Dubilier & Rice, the leader of a private equity consortium bidding to buy Hertz from Ford in an auction. Set at the final round of the auction, the immediate problem for the consortium is how much to raise its previous bid. A reasonable bid must be based upon how much value the private equity consortium can create through improvements in Hertz's global operations on the one hand, and a more efficient capital structure on the other. Presents detailed descriptive information on both topics, but does not include detailed financial projections, which must be formulated by students or supplied, for discussion purposes, by the instructor.
Swot Analysis of "Hertz Corporation (A)" written by Timothy A. Luehrman, Douglas C. Scott includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Hertz Consortium facing as an external strategic factors. Some of the topics covered in Hertz Corporation (A) case study are - Strategic Management Strategies, Financial analysis, Mergers & acquisitions, Reorganization and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Hertz Corporation (A) casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, supply chains are disrupted by pandemic , increasing government debt because of Covid-19 spendings, competitive advantages are harder to sustain because of technology dispersion, technology disruption, challanges to central banks by blockchain based private currencies, increasing commodity prices,
increasing household debt because of falling income levels, banking and financial system is disrupted by Bitcoin and other crypto currencies, etc
Introduction to SWOT Analysis of Hertz Corporation (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Hertz Corporation (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Hertz Consortium, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Hertz Consortium 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 Hertz Corporation (A) can be done for the following purposes –
1. Strategic planning using facts provided in Hertz Corporation (A) case study
2. Improving business portfolio management of Hertz Consortium
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 Hertz Consortium
Strengths Hertz Corporation (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Hertz Consortium in Hertz Corporation (A) Harvard Business Review case study are -
High brand equity
– Hertz Consortium has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Hertz Consortium to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Learning organization
- Hertz Consortium 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 Hertz Consortium is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Hertz Corporation (A) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Successful track record of launching new products
– Hertz Consortium has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Hertz Consortium 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.
Operational resilience
– The operational resilience strategy in the Hertz Corporation (A) Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Low bargaining power of suppliers
– Suppliers of Hertz Consortium in the sector have low bargaining power. Hertz Corporation (A) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Hertz Consortium to manage not only supply disruptions but also source products at highly competitive prices.
Cross disciplinary teams
– Horizontal connected teams at the Hertz Consortium 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.
Organizational Resilience of Hertz Consortium
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Hertz Consortium does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to recruit top talent
– Hertz Consortium is one of the leading recruiters in the industry. Managers in the Hertz Corporation (A) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Sustainable margins compare to other players in Finance & Accounting industry
– Hertz Corporation (A) firm has clearly differentiated products in the market place. This has enabled Hertz Consortium to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Hertz Consortium to invest into research and development (R&D) and innovation.
Training and development
– Hertz Consortium has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Hertz Corporation (A) 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.
Strong track record of project management
– Hertz Consortium is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
High switching costs
– The high switching costs that Hertz Consortium 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.
Weaknesses Hertz Corporation (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Hertz Corporation (A) are -
Aligning sales with marketing
– It come across in the case study Hertz Corporation (A) 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 Hertz Corporation (A) can leverage the sales team experience to cultivate customer relationships as Hertz Consortium is planning to shift buying processes online.
Workers concerns about automation
– As automation is fast increasing in the segment, Hertz Consortium 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.
Lack of clear differentiation of Hertz Consortium products
– To increase the profitability and margins on the products, Hertz Consortium needs to provide more differentiated products than what it is currently offering in the marketplace.
High bargaining power of channel partners
– Because of the regulatory requirements, Timothy A. Luehrman, Douglas C. Scott suggests that, Hertz Consortium 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.
Slow decision making process
– As mentioned earlier in the report, Hertz Consortium 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. Hertz Consortium 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 Hertz Corporation (A) 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 Hertz Consortium has relatively successful track record of launching new products.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Hertz Corporation (A), it seems that the employees of Hertz Consortium 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.
Increasing silos among functional specialists
– The organizational structure of Hertz Consortium is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Hertz Consortium needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Hertz Consortium to focus more on services rather than just following the product oriented approach.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Hertz Consortium supply chain. Even after few cautionary changes mentioned in the HBR case study - Hertz Corporation (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Hertz Consortium vulnerable to further global disruptions in South East Asia.
Low market penetration in new markets
– Outside its home market of Hertz Consortium, firm in the HBR case study Hertz Corporation (A) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Slow to strategic competitive environment developments
– As Hertz Corporation (A) HBR case study mentions - Hertz Consortium 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.
Opportunities Hertz Corporation (A) | 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 Hertz Corporation (A) are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Hertz Consortium is facing challenges because of the dominance of functional experts in the organization. Hertz Corporation (A) 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Hertz Consortium 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, Hertz Corporation (A), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Leveraging digital technologies
– Hertz Consortium 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.
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. Hertz Consortium can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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 Hertz Consortium 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.
Using analytics as competitive advantage
– Hertz Consortium 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 Hertz Corporation (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Hertz Consortium to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Hertz Consortium can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Hertz Consortium 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.
Buying journey improvements
– Hertz Consortium can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Hertz Corporation (A) 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.
Manufacturing automation
– Hertz Consortium 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Hertz Consortium can use these opportunities to build new business models that can help the communities that Hertz Consortium operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Hertz Consortium 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Hertz Consortium 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 Hertz Consortium to hire the very best people irrespective of their geographical location.
Threats Hertz Corporation (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Hertz Corporation (A) are -
Increasing wage structure of Hertz Consortium
– 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 Hertz Consortium.
Stagnating economy with rate increase
– Hertz Consortium 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.
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. Hertz Consortium can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Regulatory challenges
– Hertz Consortium 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.
Shortening product life cycle
– it is one of the major threat that Hertz Consortium is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Environmental challenges
– Hertz Consortium 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. Hertz Consortium can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Hertz Consortium 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 Hertz Corporation (A) .
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 Hertz Consortium 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. Hertz Consortium 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.
High dependence on third party suppliers
– Hertz Consortium 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.
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.
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. Hertz Consortium needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Weighted SWOT Analysis of Hertz Corporation (A) 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 Hertz Corporation (A) 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 Hertz Corporation (A) 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 Hertz Corporation (A) 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 Hertz Corporation (A) 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 Hertz Consortium needs to make to build a sustainable competitive advantage.
