Modern Portfolio Theory: Essential Concepts and Messages SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Modern Portfolio Theory: Essential Concepts and Messages
This note briefly summarizes the basic intuition and most important implications of Modern Portfolio Theory. It focuses on the equilibrium at the heart of the theory and discusses how this equilibrium is obtained, why it is important, and its essential implications. It also discusses the impact this equilibrium has had on financial practice. The discussion stresses the intuition behind the theory; a sketch of the formal background is relegated to the appendix, which can be omitted by readers only interested in the practical aspects of the analytical framework.
Swot Analysis of "Modern Portfolio Theory: Essential Concepts and Messages" written by Javier Estrada includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Equilibrium Theory facing as an external strategic factors. Some of the topics covered in Modern Portfolio Theory: Essential Concepts and Messages case study are - Strategic Management Strategies, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Modern Portfolio Theory: Essential Concepts and Messages casestudy better are - – increasing transportation and logistics costs, digital marketing is dominated by two big players Facebook and Google, increasing commodity prices, talent flight as more people leaving formal jobs, increasing inequality as vast percentage of new income is going to the top 1%, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing government debt because of Covid-19 spendings,
there is backlash against globalization, supply chains are disrupted by pandemic , etc
Introduction to SWOT Analysis of Modern Portfolio Theory: Essential Concepts and Messages
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Modern Portfolio Theory: Essential Concepts and Messages case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Equilibrium Theory, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Equilibrium Theory 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 Modern Portfolio Theory: Essential Concepts and Messages can be done for the following purposes –
1. Strategic planning using facts provided in Modern Portfolio Theory: Essential Concepts and Messages case study
2. Improving business portfolio management of Equilibrium Theory
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 Equilibrium Theory
Strengths Modern Portfolio Theory: Essential Concepts and Messages | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Equilibrium Theory in Modern Portfolio Theory: Essential Concepts and Messages Harvard Business Review case study are -
Cross disciplinary teams
– Horizontal connected teams at the Equilibrium Theory 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
– Equilibrium Theory 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 Modern Portfolio Theory: Essential Concepts and Messages HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Learning organization
- Equilibrium Theory 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 Equilibrium Theory is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Modern Portfolio Theory: Essential Concepts and Messages Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Strong track record of project management
– Equilibrium Theory is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Organizational Resilience of Equilibrium Theory
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Equilibrium Theory does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Low bargaining power of suppliers
– Suppliers of Equilibrium Theory in the sector have low bargaining power. Modern Portfolio Theory: Essential Concepts and Messages has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Equilibrium Theory to manage not only supply disruptions but also source products at highly competitive prices.
Training and development
– Equilibrium Theory has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Modern Portfolio Theory: Essential Concepts and Messages 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.
Operational resilience
– The operational resilience strategy in the Modern Portfolio Theory: Essential Concepts and Messages 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.
Ability to lead change in Finance & Accounting field
– Equilibrium Theory 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 Equilibrium Theory in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Successful track record of launching new products
– Equilibrium Theory has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Equilibrium Theory 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.
High switching costs
– The high switching costs that Equilibrium Theory 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.
Effective Research and Development (R&D)
– Equilibrium Theory 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 Modern Portfolio Theory: Essential Concepts and Messages - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses Modern Portfolio Theory: Essential Concepts and Messages | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Modern Portfolio Theory: Essential Concepts and Messages are -
Slow to strategic competitive environment developments
– As Modern Portfolio Theory: Essential Concepts and Messages HBR case study mentions - Equilibrium Theory 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.
Need for greater diversity
– Equilibrium Theory has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Modern Portfolio Theory: Essential Concepts and Messages, it seems that the employees of Equilibrium Theory 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.
Slow decision making process
– As mentioned earlier in the report, Equilibrium Theory 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. Equilibrium Theory 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.
Aligning sales with marketing
– It come across in the case study Modern Portfolio Theory: Essential Concepts and Messages 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 Modern Portfolio Theory: Essential Concepts and Messages can leverage the sales team experience to cultivate customer relationships as Equilibrium Theory is planning to shift buying processes online.
High bargaining power of channel partners
– Because of the regulatory requirements, Javier Estrada suggests that, Equilibrium Theory 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.
Skills based hiring
– The stress on hiring functional specialists at Equilibrium Theory has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Modern Portfolio Theory: Essential Concepts and Messages 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 Equilibrium Theory has relatively successful track record of launching new products.
Low market penetration in new markets
– Outside its home market of Equilibrium Theory, firm in the HBR case study Modern Portfolio Theory: Essential Concepts and Messages needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Modern Portfolio Theory: Essential Concepts and Messages, is just above the industry average. Equilibrium Theory 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.
Capital Spending Reduction
– Even during the low interest decade, Equilibrium Theory 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.
Opportunities Modern Portfolio Theory: Essential Concepts and Messages | 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 Modern Portfolio Theory: Essential Concepts and Messages are -
Leveraging digital technologies
– Equilibrium Theory 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.
Learning at scale
– Online learning technologies has now opened space for Equilibrium Theory 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Equilibrium Theory 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.
Building a culture of innovation
– managers at Equilibrium Theory 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.
Better consumer reach
– The expansion of the 5G network will help Equilibrium Theory to increase its market reach. Equilibrium Theory will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
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. Equilibrium Theory can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Equilibrium Theory can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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. Equilibrium Theory 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. Equilibrium Theory 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.
Loyalty marketing
– Equilibrium Theory 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.
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 Equilibrium Theory in the consumer business. Now Equilibrium Theory can target international markets with far fewer capital restrictions requirements than the existing system.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Equilibrium Theory can use these opportunities to build new business models that can help the communities that Equilibrium Theory operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Creating value in data economy
– The success of analytics program of Equilibrium Theory has opened avenues for new revenue streams for the organization in the industry. This can help Equilibrium Theory to build a more holistic ecosystem as suggested in the Modern Portfolio Theory: Essential Concepts and Messages case study. Equilibrium Theory can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Equilibrium Theory 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 Equilibrium Theory to hire the very best people irrespective of their geographical location.
Threats Modern Portfolio Theory: Essential Concepts and Messages External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Modern Portfolio Theory: Essential Concepts and Messages are -
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. Equilibrium Theory 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
– Equilibrium Theory 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.
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 Equilibrium Theory in the Finance & Accounting sector and impact the bottomline of the organization.
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.
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. Equilibrium Theory 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.
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 Equilibrium Theory.
High dependence on third party suppliers
– Equilibrium Theory 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.
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 Equilibrium Theory 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 Modern Portfolio Theory: Essential Concepts and Messages, Equilibrium Theory 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 .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Equilibrium Theory 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.
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. Equilibrium Theory can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Technology acceleration in Forth Industrial Revolution
– Equilibrium Theory has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Equilibrium Theory 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.
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 Modern Portfolio Theory: Essential Concepts and Messages 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 Modern Portfolio Theory: Essential Concepts and Messages 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 Modern Portfolio Theory: Essential Concepts and Messages 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 Modern Portfolio Theory: Essential Concepts and Messages 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 Modern Portfolio Theory: Essential Concepts and Messages 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 Equilibrium Theory needs to make to build a sustainable competitive advantage.