Case Study Description of Farallon Capital Management: Risk Arbitrage (A)
Farallon Capital Management, an investment firm that specializes in risk arbitrage, has taken significant long and short positions in MCI Communications and British Telecommunications, respectively, in the belief that the proposed merger of these firms will be successfully completed. Raises the issues facing Farallon as positive and negative events relating to the merger unfold. Provides a rich institutional setting for understanding certain investment strategies involving short selling, and for understanding merger arbitrage and its function in the capital markets.
Swot Analysis of "Farallon Capital Management: Risk Arbitrage (A)" written by Andre F. Perold, Robert Howard includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Farallon Arbitrage facing as an external strategic factors. Some of the topics covered in Farallon Capital Management: Risk Arbitrage (A) case study are - Strategic Management Strategies, Financial markets, Mergers & acquisitions, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Farallon Capital Management: Risk Arbitrage (A) casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, competitive advantages are harder to sustain because of technology dispersion, supply chains are disrupted by pandemic , increasing household debt because of falling income levels, increasing transportation and logistics costs, technology disruption, talent flight as more people leaving formal jobs,
wage bills are increasing, challanges to central banks by blockchain based private currencies, etc
Introduction to SWOT Analysis of Farallon Capital Management: Risk Arbitrage (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Farallon Capital Management: Risk Arbitrage (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Farallon Arbitrage, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (A) can be done for the following purposes –
1. Strategic planning using facts provided in Farallon Capital Management: Risk Arbitrage (A) case study
2. Improving business portfolio management of Farallon Arbitrage
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 Farallon Arbitrage
Strengths Farallon Capital Management: Risk Arbitrage (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Farallon Arbitrage in Farallon Capital Management: Risk Arbitrage (A) Harvard Business Review case study are -
Ability to recruit top talent
– Farallon Arbitrage is one of the leading recruiters in the industry. Managers in the Farallon Capital Management: Risk Arbitrage (A) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Effective Research and Development (R&D)
– Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (A) - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Superior customer experience
– The customer experience strategy of Farallon Arbitrage in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Highly skilled collaborators
– Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (A) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Cross disciplinary teams
– Horizontal connected teams at the Farallon Arbitrage 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.
Innovation driven organization
– Farallon Arbitrage is one of the most innovative firm in sector. Manager in Farallon Capital Management: Risk Arbitrage (A) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Training and development
– Farallon Arbitrage has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Farallon Capital Management: Risk Arbitrage (A) 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.
Successful track record of launching new products
– Farallon Arbitrage has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Farallon Arbitrage 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.
Low bargaining power of suppliers
– Suppliers of Farallon Arbitrage in the sector have low bargaining power. Farallon Capital Management: Risk Arbitrage (A) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Farallon Arbitrage to manage not only supply disruptions but also source products at highly competitive prices.
Diverse revenue streams
– Farallon Arbitrage is present in almost all the verticals within the industry. This has provided firm in Farallon Capital Management: Risk Arbitrage (A) 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.
Operational resilience
– The operational resilience strategy in the Farallon Capital Management: Risk Arbitrage (A) 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.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Farallon Arbitrage digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Farallon Arbitrage 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.
Weaknesses Farallon Capital Management: Risk Arbitrage (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Farallon Capital Management: Risk Arbitrage (A) are -
Workers concerns about automation
– As automation is fast increasing in the segment, Farallon Arbitrage 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Farallon Capital Management: Risk Arbitrage (A), in the dynamic environment Farallon Arbitrage has struggled to respond to the nimble upstart competition. Farallon Arbitrage has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interest costs
– Compare to the competition, Farallon Arbitrage 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 cash cycle compare to competitors
Farallon Arbitrage 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.
Slow decision making process
– As mentioned earlier in the report, Farallon Arbitrage 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. Farallon Arbitrage 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Farallon Arbitrage is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Farallon Capital Management: Risk Arbitrage (A) 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 star products
– The top 2 products and services of the firm as mentioned in the Farallon Capital Management: Risk Arbitrage (A) 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 Farallon Arbitrage has relatively successful track record of launching new products.
Increasing silos among functional specialists
– The organizational structure of Farallon Arbitrage is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Farallon Arbitrage needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Farallon Arbitrage to focus more on services rather than just following the product oriented approach.
Aligning sales with marketing
– It come across in the case study Farallon Capital Management: Risk Arbitrage (A) 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 Farallon Capital Management: Risk Arbitrage (A) can leverage the sales team experience to cultivate customer relationships as Farallon Arbitrage is planning to shift buying processes online.
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 Farallon Arbitrage supply chain. Even after few cautionary changes mentioned in the HBR case study - Farallon Capital Management: Risk Arbitrage (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Farallon Arbitrage vulnerable to further global disruptions in South East Asia.
Lack of clear differentiation of Farallon Arbitrage products
– To increase the profitability and margins on the products, Farallon Arbitrage needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Farallon Capital Management: Risk Arbitrage (A) | 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 Farallon Capital Management: Risk Arbitrage (A) are -
Learning at scale
– Online learning technologies has now opened space for Farallon Arbitrage 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, Farallon Arbitrage 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.
Leveraging digital technologies
– Farallon Arbitrage 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.
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. Farallon Arbitrage 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. Farallon Arbitrage 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.
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 Farallon Arbitrage 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.
Loyalty marketing
– Farallon Arbitrage 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Farallon Arbitrage is facing challenges because of the dominance of functional experts in the organization. Farallon Capital Management: Risk Arbitrage (A) 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.
Developing new processes and practices
– Farallon Arbitrage 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Farallon Arbitrage 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 Farallon Arbitrage to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Farallon Arbitrage to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Better consumer reach
– The expansion of the 5G network will help Farallon Arbitrage to increase its market reach. Farallon Arbitrage 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. Farallon Arbitrage 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 Farallon Arbitrage can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Farallon Capital Management: Risk Arbitrage (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Farallon Capital Management: Risk Arbitrage (A) are -
Increasing wage structure of Farallon Arbitrage
– 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 Farallon Arbitrage.
Environmental challenges
– Farallon Arbitrage 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. Farallon Arbitrage 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 Farallon Arbitrage.
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. Farallon Arbitrage 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.
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. Farallon Arbitrage can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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 Farallon Arbitrage 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 Farallon Capital Management: Risk Arbitrage (A), Farallon Arbitrage 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 .
Stagnating economy with rate increase
– Farallon Arbitrage 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.
Shortening product life cycle
– it is one of the major threat that Farallon Arbitrage is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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. Farallon Arbitrage needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Farallon Arbitrage with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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.
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.
Weighted SWOT Analysis of Farallon Capital Management: Risk Arbitrage (A) 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 Farallon Capital Management: Risk Arbitrage (A) 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 Farallon Capital Management: Risk Arbitrage (A) 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 Farallon Capital Management: Risk Arbitrage (A) 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 Farallon Capital Management: Risk Arbitrage (A) 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 Farallon Arbitrage needs to make to build a sustainable competitive advantage.
