Moe Miller, the new managing director of M&M Pizza, is considering changing the company's capital structure to reduce the cost of capital. With the cost of debt at 4% and the cost of equity at 8%, adding a cheaper cost of funds through debt appears to be obvious. The case provides a simple framework for understanding the powerful intuition behind the foundational capital structure irrelevance propositions of Modigliani and Miller (1958). The case is written as an introductory experience in financial policy. Students are required to generate simple estimates of the cost of capital and estimate the value of debt and equity claims under various recapitalization scenarios. As the business is very simple and operates in a quasi-perfect market, the calculations require only that students are comfortable with the estimation of firm cost of capital.
Swot Analysis of "M&M Pizza" written by Michael J. Schill includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Cost Simple facing as an external strategic factors. Some of the topics covered in M&M Pizza case study are - Strategic Management Strategies, and Finance & Accounting.
Some of the macro environment factors that can be used to understand the M&M Pizza casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, central banks are concerned over increasing inflation, there is increasing trade war between United States & China, increasing transportation and logistics costs, challanges to central banks by blockchain based private currencies, increasing energy prices, increasing commodity prices,
supply chains are disrupted by pandemic , cloud computing is disrupting traditional business models, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in M&M Pizza case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Cost Simple, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Cost Simple 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 M&M Pizza can be done for the following purposes –
1. Strategic planning using facts provided in M&M Pizza case study
2. Improving business portfolio management of Cost Simple
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 Cost Simple
Strengths M&M Pizza | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Cost Simple in M&M Pizza Harvard Business Review case study are -
Operational resilience
– The operational resilience strategy in the M&M Pizza 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.
High brand equity
– Cost Simple has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Cost Simple to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Ability to lead change in Finance & Accounting field
– Cost Simple 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 Cost Simple in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– Cost Simple 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 M&M Pizza HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Analytics focus
– Cost Simple is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Michael J. Schill can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Low bargaining power of suppliers
– Suppliers of Cost Simple in the sector have low bargaining power. M&M Pizza has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Cost Simple to manage not only supply disruptions but also source products at highly competitive prices.
Superior customer experience
– The customer experience strategy of Cost Simple in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Innovation driven organization
– Cost Simple is one of the most innovative firm in sector. Manager in M&M Pizza Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Cost Simple digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Cost Simple 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.
Effective Research and Development (R&D)
– Cost Simple 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 M&M Pizza - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Organizational Resilience of Cost Simple
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Cost Simple does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Strong track record of project management
– Cost Simple is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Weaknesses M&M Pizza | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of M&M Pizza are -
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study M&M Pizza, it seems that the employees of Cost Simple 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.
Need for greater diversity
– Cost Simple 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.
Skills based hiring
– The stress on hiring functional specialists at Cost Simple 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Cost Simple is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study M&M Pizza can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Capital Spending Reduction
– Even during the low interest decade, Cost Simple 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 Cost Simple supply chain. Even after few cautionary changes mentioned in the HBR case study - M&M Pizza, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Cost Simple vulnerable to further global disruptions in South East Asia.
High cash cycle compare to competitors
Cost Simple 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Michael J. Schill suggests that, Cost Simple is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Increasing silos among functional specialists
– The organizational structure of Cost Simple is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Cost Simple needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Cost Simple to focus more on services rather than just following the product oriented approach.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the M&M Pizza 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 Cost Simple has relatively successful track record of launching new products.
Lack of clear differentiation of Cost Simple products
– To increase the profitability and margins on the products, Cost Simple needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities M&M Pizza | 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 M&M Pizza 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, Cost Simple can use these opportunities to build new business models that can help the communities that Cost Simple operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Learning at scale
– Online learning technologies has now opened space for Cost Simple 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.
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. Cost Simple can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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 Cost Simple 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.
Manufacturing automation
– Cost Simple 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.
Developing new processes and practices
– Cost Simple 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Cost Simple is facing challenges because of the dominance of functional experts in the organization. M&M Pizza 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.
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. Cost Simple can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Cost Simple in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Creating value in data economy
– The success of analytics program of Cost Simple has opened avenues for new revenue streams for the organization in the industry. This can help Cost Simple to build a more holistic ecosystem as suggested in the M&M Pizza case study. Cost Simple can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Buying journey improvements
– Cost Simple can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. M&M Pizza 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Cost Simple can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Loyalty marketing
– Cost Simple 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.
Threats M&M Pizza External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study M&M Pizza are -
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 Cost Simple.
Increasing wage structure of Cost Simple
– 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 Cost Simple.
Stagnating economy with rate increase
– Cost Simple 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.
Environmental challenges
– Cost Simple 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. Cost Simple can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Cost Simple with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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. Cost Simple can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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. Cost Simple needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Cost Simple 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 M&M Pizza .
Regulatory challenges
– Cost Simple 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.
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 Cost Simple in the Finance & Accounting sector and impact the bottomline of the organization.
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. Cost Simple 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Cost Simple 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.
High dependence on third party suppliers
– Cost Simple 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.
Weighted SWOT Analysis of M&M Pizza 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 M&M Pizza 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 M&M Pizza 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 M&M Pizza 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 M&M Pizza 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 Cost Simple needs to make to build a sustainable competitive advantage.