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 - – wage bills are increasing, increasing household debt because of falling income levels, competitive advantages are harder to sustain because of technology dispersion, increasing commodity prices, digital marketing is dominated by two big players Facebook and Google, banking and financial system is disrupted by Bitcoin and other crypto currencies, there is increasing trade war between United States & China,
there is backlash against globalization, 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 -
Highly skilled collaborators
– Cdos Merrill 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 Merrill Lynch's Asset Write-Down 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 Merrill Lynch's Asset Write-Down 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
– Cdos Merrill 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 Cdos Merrill in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
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.
Training and development
– Cdos Merrill has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Merrill Lynch's Asset Write-Down 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.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Cdos Merrill digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Cdos Merrill 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.
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.
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.
Learning organization
- Cdos Merrill 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 Cdos Merrill is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Merrill Lynch's Asset Write-Down Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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.
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.
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 -
Increasing silos among functional specialists
– The organizational structure of Cdos Merrill is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Cdos Merrill needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Cdos Merrill to focus more on services rather than just following the product oriented approach.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Merrill Lynch's Asset Write-Down, is just above the industry average. Cdos Merrill 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Cdos Merrill 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.
Products dominated business model
– Even though Cdos Merrill 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 - Merrill Lynch's Asset Write-Down should strive to include more intangible value offerings along with its core products and services.
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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Cdos Merrill is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Merrill Lynch's Asset Write-Down can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
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.
High operating costs
– Compare to the competitors, firm in the HBR case study Merrill Lynch's Asset Write-Down 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 Cdos Merrill 's lucrative customers.
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.
Need for greater diversity
– Cdos Merrill 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.
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 -
Developing new processes and practices
– Cdos Merrill can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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. Cdos Merrill can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Leveraging digital technologies
– Cdos Merrill 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 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.
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 -
Regulatory challenges
– Cdos Merrill 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.
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.
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.
Consumer confidence and its impact on Cdos Merrill 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.
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 .
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 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.
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.
High dependence on third party suppliers
– Cdos Merrill 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.
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. 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.
