Case Study Description of Merrill Lynch's Asset Write-Down
Since late 2003, Merrill Lynch & Co., Inc ("Merrill Lynch") had become the world's largest underwriter of collateralized debt obligations ("CDOs"). The assets of CDOs comprised some of the riskiest tranches of mortgage-backed securities mostly tied to subprime mortgages. With the collapse of the subprime mortgage market and declining liquidity in the summer of 2007, Merrill Lynch was caught with a substantial number of CDOs that had diminished sharply in value. Disillusioned with chief executive Stanley O'Neal's leadership, the management of Merrill Lynch called for a series of meetings to assess the firm's exposure to subprime-backed CDOs and redefine its risk-management strategy. To the management, an embarrassing write-down seemed inevitable for the third quarter of 2007, but how much of such assets should be written down and how quickly? What would be the implications for the firm in making such an announcement?
Swot Analysis of "Merrill Lynch's Asset Write-Down" written by Yanling Guan, Mary Ho includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Cdos Merrill facing as an external strategic factors. Some of the topics covered in Merrill Lynch's Asset Write-Down case study are - Strategic Management Strategies, Corporate governance, Financial analysis, Financial management, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Merrill Lynch's Asset Write-Down casestudy better are - – increasing inequality as vast percentage of new income is going to the top 1%, supply chains are disrupted by pandemic , increasing household debt because of falling income levels, there is increasing trade war between United States & China, challanges to central banks by blockchain based private currencies, digital marketing is dominated by two big players Facebook and Google, banking and financial system is disrupted by Bitcoin and other crypto currencies,
customer relationship management is fast transforming because of increasing concerns over data privacy, talent flight as more people leaving formal jobs, etc
Introduction to SWOT Analysis of Merrill Lynch's Asset Write-Down
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Merrill Lynch's Asset Write-Down case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Cdos Merrill, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Cdos Merrill 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 Merrill Lynch's Asset Write-Down can be done for the following purposes –
1. Strategic planning using facts provided in Merrill Lynch's Asset Write-Down case study
2. Improving business portfolio management of Cdos Merrill
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 Cdos Merrill
Strengths Merrill Lynch's Asset Write-Down | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Cdos Merrill in Merrill Lynch's Asset Write-Down Harvard Business Review case study are -
Sustainable margins compare to other players in Finance & Accounting industry
– Merrill Lynch's Asset Write-Down firm has clearly differentiated products in the market place. This has enabled Cdos Merrill to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Cdos Merrill to invest into research and development (R&D) and innovation.
Diverse revenue streams
– Cdos Merrill is present in almost all the verticals within the industry. This has provided firm in Merrill Lynch's Asset Write-Down case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
High brand equity
– Cdos Merrill has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Cdos Merrill to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Innovation driven organization
– Cdos Merrill is one of the most innovative firm in sector. Manager in Merrill Lynch's Asset Write-Down Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Strong track record of project management
– Cdos Merrill is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Low bargaining power of suppliers
– Suppliers of Cdos Merrill in the sector have low bargaining power. Merrill Lynch's Asset Write-Down has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Cdos Merrill to manage not only supply disruptions but also source products at highly competitive prices.
High switching costs
– The high switching costs that Cdos Merrill 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.
Analytics focus
– Cdos Merrill 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 Yanling Guan, Mary Ho 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.
Superior customer experience
– The customer experience strategy of Cdos Merrill in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Successful track record of launching new products
– Cdos Merrill has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Cdos Merrill 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.
Effective Research and Development (R&D)
– Cdos Merrill 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 Merrill Lynch's Asset Write-Down - 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 recruit top talent
– Cdos Merrill is one of the leading recruiters in the industry. Managers in the Merrill Lynch's Asset Write-Down are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses Merrill Lynch's Asset Write-Down | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Merrill Lynch's Asset Write-Down are -
Slow decision making process
– As mentioned earlier in the report, Cdos Merrill 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. Cdos Merrill 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Merrill Lynch's Asset Write-Down, in the dynamic environment Cdos Merrill has struggled to respond to the nimble upstart competition. Cdos Merrill has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
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 Cdos Merrill supply chain. Even after few cautionary changes mentioned in the HBR case study - Merrill Lynch's Asset Write-Down, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Cdos Merrill vulnerable to further global disruptions in South East Asia.
Interest costs
– Compare to the competition, Cdos Merrill 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Merrill Lynch's Asset Write-Down 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 Cdos Merrill has relatively successful track record of launching new products.
Capital Spending Reduction
– Even during the low interest decade, Cdos Merrill 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Yanling Guan, Mary Ho suggests that, Cdos Merrill 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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Merrill Lynch's Asset Write-Down, it seems that the employees of Cdos Merrill don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
No frontier risks strategy
– After analyzing the HBR case study Merrill Lynch's Asset Write-Down, 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.
Skills based hiring
– The stress on hiring functional specialists at Cdos Merrill 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 Cdos Merrill products
– To increase the profitability and margins on the products, Cdos Merrill needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Merrill Lynch's Asset Write-Down | 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 Merrill Lynch's Asset Write-Down are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Cdos Merrill 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.
Manufacturing automation
– Cdos Merrill 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.
Creating value in data economy
– The success of analytics program of Cdos Merrill has opened avenues for new revenue streams for the organization in the industry. This can help Cdos Merrill to build a more holistic ecosystem as suggested in the Merrill Lynch's Asset Write-Down case study. Cdos Merrill can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Buying journey improvements
– Cdos Merrill can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Merrill Lynch's Asset Write-Down 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Cdos Merrill 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 Cdos Merrill to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Cdos Merrill 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 Merrill Lynch's Asset Write-Down - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Cdos Merrill to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Loyalty marketing
– Cdos Merrill 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.
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 Cdos Merrill 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Cdos Merrill 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, Merrill Lynch's Asset Write-Down, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Better consumer reach
– The expansion of the 5G network will help Cdos Merrill to increase its market reach. Cdos Merrill 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. Cdos Merrill can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Learning at scale
– Online learning technologies has now opened space for Cdos Merrill 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Cdos Merrill can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Merrill Lynch's Asset Write-Down External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Merrill Lynch's Asset Write-Down are -
Increasing wage structure of Cdos Merrill
– 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 Cdos Merrill.
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. Cdos Merrill can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Shortening product life cycle
– it is one of the major threat that Cdos Merrill is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Cdos Merrill 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 Merrill Lynch's Asset Write-Down .
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Merrill Lynch's Asset Write-Down, Cdos Merrill 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 .
Technology acceleration in Forth Industrial Revolution
– Cdos Merrill has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Cdos Merrill 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Cdos Merrill with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Stagnating economy with rate increase
– Cdos Merrill 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.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Cdos Merrill 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.
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 Cdos Merrill in the Finance & Accounting sector and impact the bottomline 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. Cdos Merrill needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Weighted SWOT Analysis of Merrill Lynch's Asset Write-Down 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 Merrill Lynch's Asset Write-Down 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 Merrill Lynch's Asset Write-Down 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 Merrill Lynch's Asset Write-Down 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 Merrill Lynch's Asset Write-Down 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 Cdos Merrill needs to make to build a sustainable competitive advantage.