Case Study Description of Union Carbide Corp.: Interest Rate Risk Management
Union Carbide's board of directors is asked to evaluate a proposal from the staff treasurer's that would articulate policies to manage its debt portfolio. The staff proposes that shareholder value will be maximized if the firm manages its exposure to interest rates by matching the duration of its liabilities to that of its assets. Based on statistical analysis, examination of rivals' policies, and reasoning, they argue that the firm, establish a benchmark duration for its liabilities against which all future active management activities be measured.
Swot Analysis of "Union Carbide Corp.: Interest Rate Risk Management" written by Peter Tufano, Jonathan S. Headley includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Duration Liabilities facing as an external strategic factors. Some of the topics covered in Union Carbide Corp.: Interest Rate Risk Management case study are - Strategic Management Strategies, Financial management, Financial markets, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Union Carbide Corp.: Interest Rate Risk Management casestudy better are - – increasing transportation and logistics costs, supply chains are disrupted by pandemic , increasing commodity prices, there is backlash against globalization, increasing inequality as vast percentage of new income is going to the top 1%, increasing household debt because of falling income levels, talent flight as more people leaving formal jobs,
banking and financial system is disrupted by Bitcoin and other crypto currencies, geopolitical disruptions, etc
Introduction to SWOT Analysis of Union Carbide Corp.: Interest Rate Risk Management
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Union Carbide Corp.: Interest Rate Risk Management case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Duration Liabilities, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Duration Liabilities 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 Union Carbide Corp.: Interest Rate Risk Management can be done for the following purposes –
1. Strategic planning using facts provided in Union Carbide Corp.: Interest Rate Risk Management case study
2. Improving business portfolio management of Duration Liabilities
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 Duration Liabilities
Strengths Union Carbide Corp.: Interest Rate Risk Management | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Duration Liabilities in Union Carbide Corp.: Interest Rate Risk Management Harvard Business Review case study are -
Diverse revenue streams
– Duration Liabilities is present in almost all the verticals within the industry. This has provided firm in Union Carbide Corp.: Interest Rate Risk Management 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 switching costs
– The high switching costs that Duration Liabilities 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.
Operational resilience
– The operational resilience strategy in the Union Carbide Corp.: Interest Rate Risk Management 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.
Successful track record of launching new products
– Duration Liabilities has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Duration Liabilities 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 lead change in Finance & Accounting field
– Duration Liabilities 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 Duration Liabilities in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Duration Liabilities digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Duration Liabilities 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.
Cross disciplinary teams
– Horizontal connected teams at the Duration Liabilities 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
– Duration Liabilities is one of the most innovative firm in sector. Manager in Union Carbide Corp.: Interest Rate Risk Management Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High brand equity
– Duration Liabilities has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Duration Liabilities to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Organizational Resilience of Duration Liabilities
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Duration Liabilities does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Low bargaining power of suppliers
– Suppliers of Duration Liabilities in the sector have low bargaining power. Union Carbide Corp.: Interest Rate Risk Management has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Duration Liabilities to manage not only supply disruptions but also source products at highly competitive prices.
Ability to recruit top talent
– Duration Liabilities is one of the leading recruiters in the industry. Managers in the Union Carbide Corp.: Interest Rate Risk Management 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 Union Carbide Corp.: Interest Rate Risk Management | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Union Carbide Corp.: Interest Rate Risk Management are -
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 Duration Liabilities supply chain. Even after few cautionary changes mentioned in the HBR case study - Union Carbide Corp.: Interest Rate Risk Management, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Duration Liabilities vulnerable to further global disruptions in South East Asia.
Increasing silos among functional specialists
– The organizational structure of Duration Liabilities is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Duration Liabilities needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Duration Liabilities to focus more on services rather than just following the product oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Duration Liabilities 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 star products
– The top 2 products and services of the firm as mentioned in the Union Carbide Corp.: Interest Rate Risk Management 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 Duration Liabilities has relatively successful track record of launching new products.
Lack of clear differentiation of Duration Liabilities products
– To increase the profitability and margins on the products, Duration Liabilities needs to provide more differentiated products than what it is currently offering in the marketplace.
No frontier risks strategy
– After analyzing the HBR case study Union Carbide Corp.: Interest Rate Risk Management, 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.
Slow to strategic competitive environment developments
– As Union Carbide Corp.: Interest Rate Risk Management HBR case study mentions - Duration Liabilities takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Workers concerns about automation
– As automation is fast increasing in the segment, Duration Liabilities 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.
High cash cycle compare to competitors
Duration Liabilities 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.
Interest costs
– Compare to the competition, Duration Liabilities 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 Duration Liabilities 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.
Opportunities Union Carbide Corp.: Interest Rate Risk Management | 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 Union Carbide Corp.: Interest Rate Risk Management are -
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Duration Liabilities can use these opportunities to build new business models that can help the communities that Duration Liabilities operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
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. Duration Liabilities 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. Duration Liabilities 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 Duration Liabilities 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.
Using analytics as competitive advantage
– Duration Liabilities 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 Union Carbide Corp.: Interest Rate Risk Management - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Duration Liabilities to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Low interest rates
– Even though inflation is raising its head in most developed economies, Duration Liabilities 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.
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. Duration Liabilities can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Learning at scale
– Online learning technologies has now opened space for Duration Liabilities 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Duration Liabilities is facing challenges because of the dominance of functional experts in the organization. Union Carbide Corp.: Interest Rate Risk Management 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.
Creating value in data economy
– The success of analytics program of Duration Liabilities has opened avenues for new revenue streams for the organization in the industry. This can help Duration Liabilities to build a more holistic ecosystem as suggested in the Union Carbide Corp.: Interest Rate Risk Management case study. Duration Liabilities can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Duration Liabilities 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.
Manufacturing automation
– Duration Liabilities 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.
Leveraging digital technologies
– Duration Liabilities 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.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Duration Liabilities in the consumer business. Now Duration Liabilities can target international markets with far fewer capital restrictions requirements than the existing system.
Threats Union Carbide Corp.: Interest Rate Risk Management External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Union Carbide Corp.: Interest Rate Risk Management are -
Consumer confidence and its impact on Duration Liabilities 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.
Stagnating economy with rate increase
– Duration Liabilities 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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Duration Liabilities 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 Union Carbide Corp.: Interest Rate Risk Management .
Environmental challenges
– Duration Liabilities 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. Duration Liabilities can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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. Duration Liabilities 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.
Technology acceleration in Forth Industrial Revolution
– Duration Liabilities has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Duration Liabilities 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
– Duration Liabilities 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.
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 Duration Liabilities 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 Duration Liabilities in the Finance & Accounting sector and impact the bottomline of the organization.
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. Duration Liabilities can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Regulatory challenges
– Duration Liabilities 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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Union Carbide Corp.: Interest Rate Risk Management, Duration Liabilities 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 .
Weighted SWOT Analysis of Union Carbide Corp.: Interest Rate Risk Management 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 Union Carbide Corp.: Interest Rate Risk Management 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 Union Carbide Corp.: Interest Rate Risk Management 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 Union Carbide Corp.: Interest Rate Risk Management 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 Union Carbide Corp.: Interest Rate Risk Management 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 Duration Liabilities needs to make to build a sustainable competitive advantage.