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 - – geopolitical disruptions, central banks are concerned over increasing inflation, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing energy prices, increasing government debt because of Covid-19 spendings, increasing commodity prices, customer relationship management is fast transforming because of increasing concerns over data privacy,
competitive advantages are harder to sustain because of technology dispersion, digital marketing is dominated by two big players Facebook and Google, 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 -
Learning organization
- Subprime Mortgage 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 Subprime Mortgage is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Goldman Sachs and the Big Short: Time to Go Long? Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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.
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.
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.
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.
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.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Subprime Mortgage digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Subprime Mortgage 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.
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.
Superior customer experience
– The customer experience strategy of Subprime Mortgage in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Effective Research and Development (R&D)
– Subprime Mortgage 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 Goldman Sachs and the Big Short: Time to Go Long? - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Ability to lead change in Finance & Accounting field
– Subprime Mortgage is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Subprime Mortgage in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
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 -
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Goldman Sachs and the Big Short: Time to Go Long?, is just above the industry average. Subprime Mortgage 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.
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.
Skills based hiring
– The stress on hiring functional specialists at Subprime Mortgage 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.
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.
High cash cycle compare to competitors
Subprime Mortgage has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Workers concerns about automation
– As automation is fast increasing in the segment, Subprime Mortgage 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Subprime Mortgage is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Goldman Sachs and the Big Short: Time to Go Long? 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 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.
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.
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.
Interest costs
– Compare to the competition, Subprime Mortgage 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.
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 -
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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Subprime Mortgage is facing challenges because of the dominance of functional experts in the organization. Goldman Sachs and the Big Short: Time to Go Long? 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Subprime Mortgage 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.
Leveraging digital technologies
– Subprime Mortgage 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.
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.
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.
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.
Learning at scale
– Online learning technologies has now opened space for Subprime Mortgage 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.
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.
Buying journey improvements
– Subprime Mortgage can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Goldman Sachs and the Big Short: Time to Go Long? 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.
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. Subprime Mortgage 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. Subprime Mortgage 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.
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.
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.
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 -
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.
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.
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.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Goldman Sachs and the Big Short: Time to Go Long?, Subprime Mortgage 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 .
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.
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 Subprime Mortgage.
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.
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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Subprime Mortgage 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 Goldman Sachs and the Big Short: Time to Go Long? .
Shortening product life cycle
– it is one of the major threat that Subprime Mortgage is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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. Subprime Mortgage can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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.
