Case Study Description of Comerica Incorporated: The Valuation Dilemma
In early September 2008, in the midst of the subprime crisis, a manager with the student-run Darden Capital Management fund, wants to evaluate whether Comerica Incorporated, a regional bank based in Dallas, Texas, is a good candidate for inclusion in his portfolio. He needs to perform a valuation of the bank to assert whether the bank seems to be undervalued by the market or whether a further decline in value might be possible. He must account for all the factors that affect bank valuation, both as related to the bank itself as well as to the current market conditions. The case can be taught to: a) examine the valuation of a bank during turbulent times; b) understand the key accounting statements (balance sheet and income statement) for a bank and how they may differ from those for an industrial company; and c) understand the key value drivers of bank value (metrics for profitability, credit quality, liquidity, and capital).
Swot Analysis of "Comerica Incorporated: The Valuation Dilemma" written by Yiorgos Allayannis, Baijnath Ramraika includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Bank Comerica facing as an external strategic factors. Some of the topics covered in Comerica Incorporated: The Valuation Dilemma case study are - Strategic Management Strategies, Financial management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Comerica Incorporated: The Valuation Dilemma casestudy better are - – digital marketing is dominated by two big players Facebook and Google, increasing inequality as vast percentage of new income is going to the top 1%, competitive advantages are harder to sustain because of technology dispersion, cloud computing is disrupting traditional business models, there is backlash against globalization, challanges to central banks by blockchain based private currencies, technology disruption,
increasing household debt because of falling income levels, increasing energy prices, etc
Introduction to SWOT Analysis of Comerica Incorporated: The Valuation Dilemma
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Comerica Incorporated: The Valuation Dilemma case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Bank Comerica, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Bank Comerica 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 Comerica Incorporated: The Valuation Dilemma can be done for the following purposes –
1. Strategic planning using facts provided in Comerica Incorporated: The Valuation Dilemma case study
2. Improving business portfolio management of Bank Comerica
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 Bank Comerica
Strengths Comerica Incorporated: The Valuation Dilemma | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Bank Comerica in Comerica Incorporated: The Valuation Dilemma Harvard Business Review case study are -
Learning organization
- Bank Comerica 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 Bank Comerica is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Comerica Incorporated: The Valuation Dilemma Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Strong track record of project management
– Bank Comerica is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Operational resilience
– The operational resilience strategy in the Comerica Incorporated: The Valuation Dilemma 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.
Effective Research and Development (R&D)
– Bank Comerica 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 Comerica Incorporated: The Valuation Dilemma - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Innovation driven organization
– Bank Comerica is one of the most innovative firm in sector. Manager in Comerica Incorporated: The Valuation Dilemma Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Highly skilled collaborators
– Bank Comerica 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 Comerica Incorporated: The Valuation Dilemma HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Bank Comerica digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Bank Comerica 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.
Successful track record of launching new products
– Bank Comerica has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Bank Comerica 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.
Ability to recruit top talent
– Bank Comerica is one of the leading recruiters in the industry. Managers in the Comerica Incorporated: The Valuation Dilemma are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Cross disciplinary teams
– Horizontal connected teams at the Bank Comerica 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.
Sustainable margins compare to other players in Finance & Accounting industry
– Comerica Incorporated: The Valuation Dilemma firm has clearly differentiated products in the market place. This has enabled Bank Comerica to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Bank Comerica to invest into research and development (R&D) and innovation.
Superior customer experience
– The customer experience strategy of Bank Comerica in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses Comerica Incorporated: The Valuation Dilemma | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Comerica Incorporated: The Valuation Dilemma are -
Interest costs
– Compare to the competition, Bank Comerica 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.
Skills based hiring
– The stress on hiring functional specialists at Bank Comerica 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 operating costs
– Compare to the competitors, firm in the HBR case study Comerica Incorporated: The Valuation Dilemma 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 Bank Comerica 's lucrative customers.
Increasing silos among functional specialists
– The organizational structure of Bank Comerica is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Bank Comerica needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Bank Comerica to focus more on services rather than just following the product oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Bank Comerica 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 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 Bank Comerica supply chain. Even after few cautionary changes mentioned in the HBR case study - Comerica Incorporated: The Valuation Dilemma, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Bank Comerica vulnerable to further global disruptions in South East Asia.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Comerica Incorporated: The Valuation Dilemma 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 Bank Comerica has relatively successful track record of launching new products.
Aligning sales with marketing
– It come across in the case study Comerica Incorporated: The Valuation Dilemma 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 Comerica Incorporated: The Valuation Dilemma can leverage the sales team experience to cultivate customer relationships as Bank Comerica is planning to shift buying processes online.
Low market penetration in new markets
– Outside its home market of Bank Comerica, firm in the HBR case study Comerica Incorporated: The Valuation Dilemma needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High cash cycle compare to competitors
Bank Comerica 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Comerica Incorporated: The Valuation Dilemma, in the dynamic environment Bank Comerica has struggled to respond to the nimble upstart competition. Bank Comerica has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Opportunities Comerica Incorporated: The Valuation Dilemma | 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 Comerica Incorporated: The Valuation Dilemma are -
Buying journey improvements
– Bank Comerica can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Comerica Incorporated: The Valuation Dilemma 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.
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. Bank Comerica can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Manufacturing automation
– Bank Comerica 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Bank Comerica can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Developing new processes and practices
– Bank Comerica 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Bank Comerica 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, Comerica Incorporated: The Valuation Dilemma, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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. Bank Comerica can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Using analytics as competitive advantage
– Bank Comerica 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 Comerica Incorporated: The Valuation Dilemma - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Bank Comerica to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
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. Bank Comerica 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. Bank Comerica 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 Bank Comerica 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Bank Comerica 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 Bank Comerica to hire the very best people irrespective of their geographical location.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Bank Comerica can use these opportunities to build new business models that can help the communities that Bank Comerica operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Building a culture of innovation
– managers at Bank Comerica 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.
Threats Comerica Incorporated: The Valuation Dilemma External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Comerica Incorporated: The Valuation Dilemma are -
High dependence on third party suppliers
– Bank Comerica 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.
Stagnating economy with rate increase
– Bank Comerica can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Bank Comerica with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Technology acceleration in Forth Industrial Revolution
– Bank Comerica has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Bank Comerica 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Bank Comerica 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.
Consumer confidence and its impact on Bank Comerica 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 Comerica Incorporated: The Valuation Dilemma, Bank Comerica 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 .
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Bank Comerica 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 Comerica Incorporated: The Valuation Dilemma .
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.
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 Bank Comerica business can come under increasing regulations regarding data privacy, data security, etc.
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 Bank Comerica.
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. Bank Comerica 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.
Environmental challenges
– Bank Comerica 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. Bank Comerica can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Weighted SWOT Analysis of Comerica Incorporated: The Valuation Dilemma 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 Comerica Incorporated: The Valuation Dilemma 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 Comerica Incorporated: The Valuation Dilemma 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 Comerica Incorporated: The Valuation Dilemma 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 Comerica Incorporated: The Valuation Dilemma 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 Bank Comerica needs to make to build a sustainable competitive advantage.