Case Study Description of Understanding Risk Preferences
MBA students are taught to use the expected monetary value (EMV) to evaluate risky opportunities. The reaction of individuals to risk, however, is far more complex. In fact, individuals are rarely found to be consistently risk neutral, risk averse, or risk seeking. They can be all these things, depending on whether the probabilities are small or large or the outcomes are gains or losses. The purpose of this note is to introduce a behavioral model that modifies EMV and does a better job of predicting how individuals evaluate risky prospects. The model builds on the distinction between probabilities and decision weights, as well as the notion of framing and loss aversion, as put forward by prospect theory.
Swot Analysis of "Understanding Risk Preferences" written by Manel Baucells includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Emv Risk facing as an external strategic factors. Some of the topics covered in Understanding Risk Preferences case study are - Strategic Management Strategies, Decision making and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Understanding Risk Preferences casestudy better are - – supply chains are disrupted by pandemic , there is backlash against globalization, digital marketing is dominated by two big players Facebook and Google, increasing household debt because of falling income levels, cloud computing is disrupting traditional business models, central banks are concerned over increasing inflation, talent flight as more people leaving formal jobs,
increasing transportation and logistics costs, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of Understanding Risk Preferences
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Understanding Risk Preferences case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Emv Risk, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Emv Risk 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 Understanding Risk Preferences can be done for the following purposes –
1. Strategic planning using facts provided in Understanding Risk Preferences case study
2. Improving business portfolio management of Emv Risk
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 Emv Risk
Strengths Understanding Risk Preferences | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Emv Risk in Understanding Risk Preferences Harvard Business Review case study are -
Highly skilled collaborators
– Emv Risk 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 Understanding Risk Preferences 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 Emv Risk 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.
Low bargaining power of suppliers
– Suppliers of Emv Risk in the sector have low bargaining power. Understanding Risk Preferences has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Emv Risk to manage not only supply disruptions but also source products at highly competitive prices.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Emv Risk digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Emv Risk 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.
Learning organization
- Emv Risk 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 Emv Risk is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Understanding Risk Preferences Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
High brand equity
– Emv Risk has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Emv Risk to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Successful track record of launching new products
– Emv Risk has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Emv Risk has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Effective Research and Development (R&D)
– Emv Risk 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 Understanding Risk Preferences - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Operational resilience
– The operational resilience strategy in the Understanding Risk Preferences 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.
Analytics focus
– Emv Risk 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 Manel Baucells 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.
Innovation driven organization
– Emv Risk is one of the most innovative firm in sector. Manager in Understanding Risk Preferences Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High switching costs
– The high switching costs that Emv Risk has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Weaknesses Understanding Risk Preferences | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Understanding Risk Preferences are -
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Understanding Risk Preferences 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 Emv Risk has relatively successful track record of launching new products.
Aligning sales with marketing
– It come across in the case study Understanding Risk Preferences 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 Understanding Risk Preferences can leverage the sales team experience to cultivate customer relationships as Emv Risk is planning to shift buying processes online.
Workers concerns about automation
– As automation is fast increasing in the segment, Emv Risk 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.
Lack of clear differentiation of Emv Risk products
– To increase the profitability and margins on the products, Emv Risk needs to provide more differentiated products than what it is currently offering in the marketplace.
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 Emv Risk supply chain. Even after few cautionary changes mentioned in the HBR case study - Understanding Risk Preferences, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Emv Risk vulnerable to further global disruptions in South East Asia.
Slow to strategic competitive environment developments
– As Understanding Risk Preferences HBR case study mentions - Emv Risk 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.
High operating costs
– Compare to the competitors, firm in the HBR case study Understanding Risk Preferences 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 Emv Risk 's lucrative customers.
Products dominated business model
– Even though Emv Risk has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Understanding Risk Preferences should strive to include more intangible value offerings along with its core products and services.
Skills based hiring
– The stress on hiring functional specialists at Emv Risk 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 decision making process
– As mentioned earlier in the report, Emv Risk 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. Emv Risk 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.
Capital Spending Reduction
– Even during the low interest decade, Emv Risk 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.
Opportunities Understanding Risk Preferences | 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 Understanding Risk Preferences are -
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. Emv Risk can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Leveraging digital technologies
– Emv Risk 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.
Building a culture of innovation
– managers at Emv Risk 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Emv Risk 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.
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 Emv Risk to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Buying journey improvements
– Emv Risk can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Understanding Risk Preferences 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. Emv Risk 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 Emv Risk can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Emv Risk can use these opportunities to build new business models that can help the communities that Emv Risk operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Better consumer reach
– The expansion of the 5G network will help Emv Risk to increase its market reach. Emv Risk 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Emv Risk is facing challenges because of the dominance of functional experts in the organization. Understanding Risk Preferences 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 Emv Risk has opened avenues for new revenue streams for the organization in the industry. This can help Emv Risk to build a more holistic ecosystem as suggested in the Understanding Risk Preferences case study. Emv Risk can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Using analytics as competitive advantage
– Emv Risk 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 Understanding Risk Preferences - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Emv Risk to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats Understanding Risk Preferences External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Understanding Risk Preferences are -
Regulatory challenges
– Emv Risk 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 Emv Risk in the Finance & Accounting sector and impact the bottomline of the organization.
Shortening product life cycle
– it is one of the major threat that Emv Risk is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, 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 Understanding Risk Preferences, Emv Risk 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 .
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. Emv Risk can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Emv Risk 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 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. Emv Risk needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
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. Emv Risk 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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Emv Risk 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 Understanding Risk Preferences .
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 Emv Risk.
Increasing wage structure of Emv Risk
– 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 Emv Risk.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Emv Risk with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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 Emv Risk business can come under increasing regulations regarding data privacy, data security, etc.
Weighted SWOT Analysis of Understanding Risk Preferences 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 Understanding Risk Preferences 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 Understanding Risk Preferences 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 Understanding Risk Preferences 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 Understanding Risk Preferences 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 Emv Risk needs to make to build a sustainable competitive advantage.
