Goldman Sachs and the Big Short: Time to Go Long? SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Goldman Sachs and the Big Short: Time to Go Long?
On August 21, 2007, David Viniar, Chief Financial Officer of Goldman Sachs, received an e-mail from a trader in Goldman's Mortgage Department. In the e-mail, addressed also to Goldman Co-Presidents Gary Cohn and Jon Winkelreid, Joshua Birnbaum outlined a proposal for the firm to move from a net short position in subprime mortgage securities and derivatives to a net long position. Birnbaum claimed that the net long position would not only be profitable but also reduce Mortgage Department and firm-wide risk. This proposal came at a critical time for the subprime mortgage markets in the U.S. and around the world. Subprime mortgage originators such as New Century had filed for bankruptcy. Two Bear Sterns hedge funds that traded subprime mortgages had collapsed. The turmoil had also spread to global markets. Goldman Sachs, unique among New York investment banks, had anticipated the downturn in the subprime mortgage markets and had positioned itself to profit from the meltdown. Now, at a critical juncture, traders on the front lines of the subprime mortgage markets wanted to reverse Goldman's net short position and go net long. David Viniar knew that the decision to go long could not be taken lightly and would have major implications for the firm, the firm's overall levels of risk and possibly the firm's survival. Goldman's board of directors and key board members had been monitoring the firm's subprime exposure and would likely want to be consulted regarding such a consequential decision.
Swot Analysis of "Goldman Sachs and the Big Short: Time to Go Long?" written by Randall D. Harris includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Subprime Mortgage facing as an external strategic factors. Some of the topics covered in Goldman Sachs and the Big Short: Time to Go Long? case study are - Strategic Management Strategies, Crisis management, Decision making, Financial management, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Goldman Sachs and the Big Short: Time to Go Long? casestudy better are - – increasing inequality as vast percentage of new income is going to the top 1%, there is backlash against globalization, customer relationship management is fast transforming because of increasing concerns over data privacy, competitive advantages are harder to sustain because of technology dispersion, increasing commodity prices, geopolitical disruptions, banking and financial system is disrupted by Bitcoin and other crypto currencies,
technology disruption, central banks are concerned over increasing inflation, etc
Introduction to SWOT Analysis of Goldman Sachs and the Big Short: Time to Go Long?
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Goldman Sachs and the Big Short: Time to Go Long? case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Subprime Mortgage, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Subprime Mortgage 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 Goldman Sachs and the Big Short: Time to Go Long? can be done for the following purposes –
1. Strategic planning using facts provided in Goldman Sachs and the Big Short: Time to Go Long? case study
2. Improving business portfolio management of Subprime Mortgage
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 Subprime Mortgage
Strengths Goldman Sachs and the Big Short: Time to Go Long? | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Subprime Mortgage in Goldman Sachs and the Big Short: Time to Go Long? Harvard Business Review case study are -
Successful track record of launching new products
– Subprime Mortgage has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Subprime Mortgage 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 Subprime Mortgage
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Subprime Mortgage does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Analytics focus
– Subprime Mortgage 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 Randall D. Harris 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 Subprime Mortgage in the sector have low bargaining power. Goldman Sachs and the Big Short: Time to Go Long? has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Subprime Mortgage to manage not only supply disruptions but also source products at highly competitive prices.
Ability to recruit top talent
– Subprime Mortgage is one of the leading recruiters in the industry. Managers in the Goldman Sachs and the Big Short: Time to Go Long? are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
High switching costs
– The high switching costs that Subprime Mortgage 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.
Highly skilled collaborators
– Subprime Mortgage 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 Goldman Sachs and the Big Short: Time to Go Long? HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Operational resilience
– The operational resilience strategy in the Goldman Sachs and the Big Short: Time to Go Long? 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.
Sustainable margins compare to other players in Finance & Accounting industry
– Goldman Sachs and the Big Short: Time to Go Long? firm has clearly differentiated products in the market place. This has enabled Subprime Mortgage to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Subprime Mortgage to invest into research and development (R&D) and innovation.
High brand equity
– Subprime Mortgage has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Subprime Mortgage to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Training and development
– Subprime Mortgage has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Goldman Sachs and the Big Short: Time to Go Long? 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.
Cross disciplinary teams
– Horizontal connected teams at the Subprime Mortgage 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.
Weaknesses Goldman Sachs and the Big Short: Time to Go Long? | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Goldman Sachs and the Big Short: Time to Go Long? are -
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 Subprime Mortgage supply chain. Even after few cautionary changes mentioned in the HBR case study - Goldman Sachs and the Big Short: Time to Go Long?, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Subprime Mortgage vulnerable to further global disruptions in South East Asia.
Products dominated business model
– Even though Subprime Mortgage has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Goldman Sachs and the Big Short: Time to Go Long? should strive to include more intangible value offerings along with its core products and services.
Capital Spending Reduction
– Even during the low interest decade, Subprime Mortgage 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Goldman Sachs and the Big Short: Time to Go Long?, in the dynamic environment Subprime Mortgage has struggled to respond to the nimble upstart competition. Subprime Mortgage has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Low market penetration in new markets
– Outside its home market of Subprime Mortgage, firm in the HBR case study Goldman Sachs and the Big Short: Time to Go Long? needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
No frontier risks strategy
– After analyzing the HBR case study Goldman Sachs and the Big Short: Time to Go Long?, 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 operating costs
– Compare to the competitors, firm in the HBR case study Goldman Sachs and the Big Short: Time to Go Long? 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 Subprime Mortgage 's lucrative customers.
High bargaining power of channel partners
– Because of the regulatory requirements, Randall D. Harris suggests that, Subprime Mortgage 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.
Aligning sales with marketing
– It come across in the case study Goldman Sachs and the Big Short: Time to Go Long? 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 Goldman Sachs and the Big Short: Time to Go Long? can leverage the sales team experience to cultivate customer relationships as Subprime Mortgage is planning to shift buying processes online.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Goldman Sachs and the Big Short: Time to Go Long? 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 Subprime Mortgage has relatively successful track record of launching new products.
Lack of clear differentiation of Subprime Mortgage products
– To increase the profitability and margins on the products, Subprime Mortgage needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Goldman Sachs and the Big Short: Time to Go Long? | 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 Goldman Sachs and the Big Short: Time to Go Long? are -
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Subprime Mortgage can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Building a culture of innovation
– managers at Subprime Mortgage can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Low interest rates
– Even though inflation is raising its head in most developed economies, Subprime Mortgage 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Subprime Mortgage 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 Subprime Mortgage to hire the very best people irrespective of their geographical location.
Loyalty marketing
– Subprime Mortgage 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Subprime Mortgage 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, Goldman Sachs and the Big Short: Time to Go Long?, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Subprime Mortgage can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Subprime Mortgage can use these opportunities to build new business models that can help the communities that Subprime Mortgage operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Manufacturing automation
– Subprime Mortgage 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.
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 Subprime Mortgage in the consumer business. Now Subprime Mortgage can target international markets with far fewer capital restrictions requirements than the existing system.
Creating value in data economy
– The success of analytics program of Subprime Mortgage has opened avenues for new revenue streams for the organization in the industry. This can help Subprime Mortgage to build a more holistic ecosystem as suggested in the Goldman Sachs and the Big Short: Time to Go Long? case study. Subprime Mortgage can build new products and services such as - data insight services, data privacy related products, data based consulting services, 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 Subprime Mortgage 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.
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. Subprime Mortgage can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Threats Goldman Sachs and the Big Short: Time to Go Long? External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Goldman Sachs and the Big Short: Time to Go Long? are -
Technology acceleration in Forth Industrial Revolution
– Subprime Mortgage has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Subprime Mortgage 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.
Increasing wage structure of Subprime Mortgage
– 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 Subprime Mortgage.
Environmental challenges
– Subprime Mortgage 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. Subprime Mortgage can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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. Subprime Mortgage 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Subprime Mortgage with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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.
Consumer confidence and its impact on Subprime Mortgage 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.
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 Subprime Mortgage business can come under increasing regulations regarding data privacy, data security, etc.
Regulatory challenges
– Subprime Mortgage 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Subprime Mortgage 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.
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.
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. Subprime Mortgage needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Stagnating economy with rate increase
– Subprime Mortgage 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.
Weighted SWOT Analysis of Goldman Sachs and the Big Short: Time to Go Long? 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 Goldman Sachs and the Big Short: Time to Go Long? 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 Goldman Sachs and the Big Short: Time to Go Long? 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 Goldman Sachs and the Big Short: Time to Go Long? 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 Goldman Sachs and the Big Short: Time to Go Long? 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 Subprime Mortgage needs to make to build a sustainable competitive advantage.