Case Study Description of Option Valuation and Dividend Payments
This is a Darden case study.This note shows how dividend payments affect option values owing to the effects of dividend payments on share price and resulting investor behavior. In addition to discussing the underlying logic, the note shows how to value options for dividend-paying stocks by adapting the Black-Scholes option-pricing model. The note addresses issues of early exercise and the underlying incentives of investors who own call or put options.
Swot Analysis of "Option Valuation and Dividend Payments" written by Robert S. Harris, Robert M. Conroy includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Dividend Payments facing as an external strategic factors. Some of the topics covered in Option Valuation and Dividend Payments case study are - Strategic Management Strategies, Financial analysis, Financial management, Financial markets, Strategy and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Option Valuation and Dividend Payments casestudy better are - – increasing government debt because of Covid-19 spendings, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing transportation and logistics costs, talent flight as more people leaving formal jobs, technology disruption, cloud computing is disrupting traditional business models, increasing inequality as vast percentage of new income is going to the top 1%,
banking and financial system is disrupted by Bitcoin and other crypto currencies, there is backlash against globalization, etc
Introduction to SWOT Analysis of Option Valuation and Dividend Payments
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Option Valuation and Dividend Payments case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Dividend Payments, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Dividend Payments 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 Option Valuation and Dividend Payments can be done for the following purposes –
1. Strategic planning using facts provided in Option Valuation and Dividend Payments case study
2. Improving business portfolio management of Dividend Payments
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 Dividend Payments
Strengths Option Valuation and Dividend Payments | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Dividend Payments in Option Valuation and Dividend Payments Harvard Business Review case study are -
Cross disciplinary teams
– Horizontal connected teams at the Dividend Payments 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.
Analytics focus
– Dividend Payments 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 Robert S. Harris, Robert M. Conroy 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.
High brand equity
– Dividend Payments has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Dividend Payments to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Strong track record of project management
– Dividend Payments is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Low bargaining power of suppliers
– Suppliers of Dividend Payments in the sector have low bargaining power. Option Valuation and Dividend Payments has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Dividend Payments to manage not only supply disruptions but also source products at highly competitive prices.
Sustainable margins compare to other players in Finance & Accounting industry
– Option Valuation and Dividend Payments firm has clearly differentiated products in the market place. This has enabled Dividend Payments to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Dividend Payments to invest into research and development (R&D) and innovation.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Dividend Payments digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Dividend Payments 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.
Training and development
– Dividend Payments has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Option Valuation and Dividend Payments 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.
High switching costs
– The high switching costs that Dividend Payments 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.
Effective Research and Development (R&D)
– Dividend Payments 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 Option Valuation and Dividend Payments - 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 Option Valuation and Dividend Payments 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.
Organizational Resilience of Dividend Payments
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Dividend Payments does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Weaknesses Option Valuation and Dividend Payments | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Option Valuation and Dividend Payments are -
Slow to strategic competitive environment developments
– As Option Valuation and Dividend Payments HBR case study mentions - Dividend Payments 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Dividend Payments is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Option Valuation and Dividend Payments can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
High bargaining power of channel partners
– Because of the regulatory requirements, Robert S. Harris, Robert M. Conroy suggests that, Dividend Payments 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.
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 Dividend Payments supply chain. Even after few cautionary changes mentioned in the HBR case study - Option Valuation and Dividend Payments, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Dividend Payments vulnerable to further global disruptions in South East Asia.
High operating costs
– Compare to the competitors, firm in the HBR case study Option Valuation and Dividend Payments 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 Dividend Payments 's lucrative customers.
Skills based hiring
– The stress on hiring functional specialists at Dividend Payments 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Option Valuation and Dividend Payments, is just above the industry average. Dividend Payments needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High cash cycle compare to competitors
Dividend Payments 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 dependence on star products
– The top 2 products and services of the firm as mentioned in the Option Valuation and Dividend Payments 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 Dividend Payments has relatively successful track record of launching new products.
Aligning sales with marketing
– It come across in the case study Option Valuation and Dividend Payments 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 Option Valuation and Dividend Payments can leverage the sales team experience to cultivate customer relationships as Dividend Payments is planning to shift buying processes online.
Products dominated business model
– Even though Dividend Payments 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 - Option Valuation and Dividend Payments should strive to include more intangible value offerings along with its core products and services.
Opportunities Option Valuation and Dividend Payments | 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 Option Valuation and Dividend Payments are -
Lowering marketing communication costs
– 5G expansion will open new opportunities for Dividend Payments 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.
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 Dividend Payments in the consumer business. Now Dividend Payments can target international markets with far fewer capital restrictions requirements than the existing system.
Buying journey improvements
– Dividend Payments can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Option Valuation and Dividend Payments 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.
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. Dividend Payments 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. Dividend Payments 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.
Better consumer reach
– The expansion of the 5G network will help Dividend Payments to increase its market reach. Dividend Payments 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.
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 Dividend Payments 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
– Dividend Payments 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.
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. Dividend Payments can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Dividend Payments is facing challenges because of the dominance of functional experts in the organization. Option Valuation and Dividend Payments 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.
Manufacturing automation
– Dividend Payments 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.
Using analytics as competitive advantage
– Dividend Payments 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 Option Valuation and Dividend Payments - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Dividend Payments to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Learning at scale
– Online learning technologies has now opened space for Dividend Payments 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. Dividend Payments can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Threats Option Valuation and Dividend Payments External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Option Valuation and Dividend Payments are -
Consumer confidence and its impact on Dividend Payments 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.
Shortening product life cycle
– it is one of the major threat that Dividend Payments is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Increasing wage structure of Dividend Payments
– 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 Dividend Payments.
Stagnating economy with rate increase
– Dividend Payments 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.
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. Dividend Payments needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
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 Dividend Payments business can come under increasing regulations regarding data privacy, data security, etc.
Technology acceleration in Forth Industrial Revolution
– Dividend Payments has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Dividend Payments 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.
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. Dividend Payments 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.
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 Dividend Payments in the Finance & Accounting sector and impact the bottomline of the organization.
Environmental challenges
– Dividend Payments 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. Dividend Payments can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Option Valuation and Dividend Payments, Dividend Payments 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. Dividend Payments can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Dividend Payments 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 Option Valuation and Dividend Payments .
Weighted SWOT Analysis of Option Valuation and Dividend Payments 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 Option Valuation and Dividend Payments 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 Option Valuation and Dividend Payments 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 Option Valuation and Dividend Payments 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 Option Valuation and Dividend Payments 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 Dividend Payments needs to make to build a sustainable competitive advantage.