Case Study Description of Federal Bank: Dividend Discount Valuation
In mid-2014, an investor was examining Federal Bank stock and its valuation. In order to fund her children's educational savings for the future, the investor had been looking for high-growth but undervalued investment stocks. Based on her current market analysis, she had narrowed her search to Federal Bank Limited. Could Federal Bank be the undervalued stock that the investor was looking for? What would be the fair fundamental value of the bank? The dividend discount valuation model, a technique to identify and value undervalued stocks, would determine whether Federal Bank was a potential investment target. Debasish Maitra is affiliated with Indian Institute of Management Indore. Varun Dawar is affiliated with Institute of Management Technology, Ghaziabad.
Swot Analysis of "Federal Bank: Dividend Discount Valuation" written by Debasish Maitra, Varun Dawar includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Federal Undervalued facing as an external strategic factors. Some of the topics covered in Federal Bank: Dividend Discount Valuation case study are - Strategic Management Strategies, Financial management, Financial markets and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Federal Bank: Dividend Discount Valuation casestudy better are - – talent flight as more people leaving formal jobs, challanges to central banks by blockchain based private currencies, increasing commodity prices, customer relationship management is fast transforming because of increasing concerns over data privacy, there is backlash against globalization, banking and financial system is disrupted by Bitcoin and other crypto currencies, cloud computing is disrupting traditional business models,
geopolitical disruptions, increasing energy prices, etc
Introduction to SWOT Analysis of Federal Bank: Dividend Discount Valuation
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Federal Bank: Dividend Discount Valuation case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Federal Undervalued, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Federal Undervalued 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 Federal Bank: Dividend Discount Valuation can be done for the following purposes –
1. Strategic planning using facts provided in Federal Bank: Dividend Discount Valuation case study
2. Improving business portfolio management of Federal Undervalued
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 Federal Undervalued
Strengths Federal Bank: Dividend Discount Valuation | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Federal Undervalued in Federal Bank: Dividend Discount Valuation Harvard Business Review case study are -
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Federal Undervalued digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Federal Undervalued 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.
High switching costs
– The high switching costs that Federal Undervalued 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.
Sustainable margins compare to other players in Finance & Accounting industry
– Federal Bank: Dividend Discount Valuation firm has clearly differentiated products in the market place. This has enabled Federal Undervalued to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Federal Undervalued to invest into research and development (R&D) and innovation.
Effective Research and Development (R&D)
– Federal Undervalued 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 Federal Bank: Dividend Discount Valuation - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Superior customer experience
– The customer experience strategy of Federal Undervalued in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High brand equity
– Federal Undervalued has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Federal Undervalued to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Ability to recruit top talent
– Federal Undervalued is one of the leading recruiters in the industry. Managers in the Federal Bank: Dividend Discount Valuation are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Training and development
– Federal Undervalued has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Federal Bank: Dividend Discount Valuation Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Strong track record of project management
– Federal Undervalued is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Diverse revenue streams
– Federal Undervalued is present in almost all the verticals within the industry. This has provided firm in Federal Bank: Dividend Discount Valuation 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.
Innovation driven organization
– Federal Undervalued is one of the most innovative firm in sector. Manager in Federal Bank: Dividend Discount Valuation Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Learning organization
- Federal Undervalued 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 Federal Undervalued is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Federal Bank: Dividend Discount Valuation Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Weaknesses Federal Bank: Dividend Discount Valuation | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Federal Bank: Dividend Discount Valuation are -
Increasing silos among functional specialists
– The organizational structure of Federal Undervalued is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Federal Undervalued needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Federal Undervalued to focus more on services rather than just following the product oriented approach.
Slow to strategic competitive environment developments
– As Federal Bank: Dividend Discount Valuation HBR case study mentions - Federal Undervalued 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.
Aligning sales with marketing
– It come across in the case study Federal Bank: Dividend Discount Valuation 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 Federal Bank: Dividend Discount Valuation can leverage the sales team experience to cultivate customer relationships as Federal Undervalued is planning to shift buying processes online.
High bargaining power of channel partners
– Because of the regulatory requirements, Debasish Maitra, Varun Dawar suggests that, Federal Undervalued 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.
No frontier risks strategy
– After analyzing the HBR case study Federal Bank: Dividend Discount Valuation, 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Federal Bank: Dividend Discount Valuation, in the dynamic environment Federal Undervalued has struggled to respond to the nimble upstart competition. Federal Undervalued has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Need for greater diversity
– Federal Undervalued 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Federal Bank: Dividend Discount Valuation 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 Federal Undervalued has relatively successful track record of launching new products.
Products dominated business model
– Even though Federal Undervalued 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 - Federal Bank: Dividend Discount Valuation should strive to include more intangible value offerings along with its core products and services.
Low market penetration in new markets
– Outside its home market of Federal Undervalued, firm in the HBR case study Federal Bank: Dividend Discount Valuation needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Federal Bank: Dividend Discount Valuation, it seems that the employees of Federal Undervalued 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.
Opportunities Federal Bank: Dividend Discount Valuation | 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 Federal Bank: Dividend Discount Valuation are -
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. Federal Undervalued can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Manufacturing automation
– Federal Undervalued 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.
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 Federal Undervalued 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.
Developing new processes and practices
– Federal Undervalued 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.
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 Federal Undervalued in the consumer business. Now Federal Undervalued can target international markets with far fewer capital restrictions requirements than the existing system.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Federal Undervalued is facing challenges because of the dominance of functional experts in the organization. Federal Bank: Dividend Discount Valuation 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.
Building a culture of innovation
– managers at Federal Undervalued 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, Federal Undervalued 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Federal Undervalued 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.
Leveraging digital technologies
– Federal Undervalued 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.
Better consumer reach
– The expansion of the 5G network will help Federal Undervalued to increase its market reach. Federal Undervalued 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.
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. Federal Undervalued 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. Federal Undervalued 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Federal Undervalued can use these opportunities to build new business models that can help the communities that Federal Undervalued operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Threats Federal Bank: Dividend Discount Valuation External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Federal Bank: Dividend Discount Valuation are -
Regulatory challenges
– Federal Undervalued 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Federal Undervalued 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.
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. Federal Undervalued 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, Federal Undervalued 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 Federal Bank: Dividend Discount Valuation .
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Federal Undervalued 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
– Federal Undervalued has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Federal Undervalued 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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Federal Bank: Dividend Discount Valuation, Federal Undervalued 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 .
Consumer confidence and its impact on Federal Undervalued 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.
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 Federal Undervalued.
Environmental challenges
– Federal Undervalued 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. Federal Undervalued can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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 Federal Undervalued business can come under increasing regulations regarding data privacy, data security, etc.
Stagnating economy with rate increase
– Federal Undervalued 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.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Weighted SWOT Analysis of Federal Bank: Dividend Discount Valuation 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 Federal Bank: Dividend Discount Valuation 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 Federal Bank: Dividend Discount Valuation 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 Federal Bank: Dividend Discount Valuation 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 Federal Bank: Dividend Discount Valuation 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 Federal Undervalued needs to make to build a sustainable competitive advantage.
