Case Study Description of Stock Options and Compensation
This is a Darden case study.This note is a brief introduction to the logic and practice of using stock options to compensate executives. The Black-Scholes option-pricing model is used to estimate the value of option grants for a company. The note affords the opportunity to apply options valuation in the context of executive compensation, and serves as a companion to introductions to options that expose the reader to the Black-Scholes option-pricing model.
Swot Analysis of "Stock Options and Compensation" written by Robert S. Harris, Robert M. Conroy includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Scholes Options facing as an external strategic factors. Some of the topics covered in Stock Options and Compensation case study are - Strategic Management Strategies, Financial analysis, Financial management, Financial markets, Pricing and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Stock Options and Compensation casestudy better are - – banking and financial system is disrupted by Bitcoin and other crypto currencies, competitive advantages are harder to sustain because of technology dispersion, talent flight as more people leaving formal jobs, challanges to central banks by blockchain based private currencies, increasing transportation and logistics costs, increasing inequality as vast percentage of new income is going to the top 1%, cloud computing is disrupting traditional business models,
customer relationship management is fast transforming because of increasing concerns over data privacy, digital marketing is dominated by two big players Facebook and Google, etc
Introduction to SWOT Analysis of Stock Options and Compensation
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Stock Options and Compensation case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Scholes Options, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Scholes Options 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 Stock Options and Compensation can be done for the following purposes –
1. Strategic planning using facts provided in Stock Options and Compensation case study
2. Improving business portfolio management of Scholes Options
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 Scholes Options
Strengths Stock Options and Compensation | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Scholes Options in Stock Options and Compensation Harvard Business Review case study are -
Strong track record of project management
– Scholes Options 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
– Scholes Options is present in almost all the verticals within the industry. This has provided firm in Stock Options and Compensation 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
– Scholes Options is one of the most innovative firm in sector. Manager in Stock Options and Compensation Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Learning organization
- Scholes Options 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 Scholes Options is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Stock Options and Compensation Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Sustainable margins compare to other players in Finance & Accounting industry
– Stock Options and Compensation firm has clearly differentiated products in the market place. This has enabled Scholes Options to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Scholes Options to invest into research and development (R&D) and innovation.
Effective Research and Development (R&D)
– Scholes Options 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 Stock Options and Compensation - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Highly skilled collaborators
– Scholes Options 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 Stock Options and Compensation HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of Scholes Options in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Low bargaining power of suppliers
– Suppliers of Scholes Options in the sector have low bargaining power. Stock Options and Compensation has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Scholes Options to manage not only supply disruptions but also source products at highly competitive prices.
Operational resilience
– The operational resilience strategy in the Stock Options and Compensation 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
– Scholes Options has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Scholes Options to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Ability to recruit top talent
– Scholes Options is one of the leading recruiters in the industry. Managers in the Stock Options and Compensation are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses Stock Options and Compensation | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Stock Options and Compensation are -
Low market penetration in new markets
– Outside its home market of Scholes Options, firm in the HBR case study Stock Options and Compensation needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Aligning sales with marketing
– It come across in the case study Stock Options and Compensation 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 Stock Options and Compensation can leverage the sales team experience to cultivate customer relationships as Scholes Options is planning to shift buying processes online.
Lack of clear differentiation of Scholes Options products
– To increase the profitability and margins on the products, Scholes Options needs to provide more differentiated products than what it is currently offering in the marketplace.
No frontier risks strategy
– After analyzing the HBR case study Stock Options and Compensation, 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.
Need for greater diversity
– Scholes Options 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Stock Options and Compensation, in the dynamic environment Scholes Options has struggled to respond to the nimble upstart competition. Scholes Options has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Stock Options and Compensation, it seems that the employees of Scholes Options 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.
Capital Spending Reduction
– Even during the low interest decade, Scholes Options 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 Scholes Options supply chain. Even after few cautionary changes mentioned in the HBR case study - Stock Options and Compensation, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Scholes Options vulnerable to further global disruptions in South East Asia.
Skills based hiring
– The stress on hiring functional specialists at Scholes Options 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.
Products dominated business model
– Even though Scholes Options 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 - Stock Options and Compensation should strive to include more intangible value offerings along with its core products and services.
Opportunities Stock Options and Compensation | 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 Stock Options and Compensation are -
Developing new processes and practices
– Scholes Options 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.
Using analytics as competitive advantage
– Scholes Options 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 Stock Options and Compensation - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Scholes Options to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Scholes Options can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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 Scholes Options in the consumer business. Now Scholes Options 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, Scholes Options is facing challenges because of the dominance of functional experts in the organization. Stock Options and Compensation 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.
Better consumer reach
– The expansion of the 5G network will help Scholes Options to increase its market reach. Scholes Options 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.
Creating value in data economy
– The success of analytics program of Scholes Options has opened avenues for new revenue streams for the organization in the industry. This can help Scholes Options to build a more holistic ecosystem as suggested in the Stock Options and Compensation case study. Scholes Options can build new products and services such as - data insight services, data privacy related products, data based consulting services, 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. Scholes Options can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Manufacturing automation
– Scholes Options 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Scholes Options can use these opportunities to build new business models that can help the communities that Scholes Options operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Leveraging digital technologies
– Scholes Options 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.
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. Scholes Options 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. Scholes Options 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.
Loyalty marketing
– Scholes Options 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 Stock Options and Compensation External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Stock Options and Compensation are -
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Scholes Options 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.
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.
Environmental challenges
– Scholes Options 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. Scholes Options can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Scholes Options 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.
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 Scholes Options.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Scholes Options with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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 Scholes Options in the Finance & Accounting sector and impact the bottomline of the organization.
High dependence on third party suppliers
– Scholes Options 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.
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. Scholes Options needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Stagnating economy with rate increase
– Scholes Options 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.
Regulatory challenges
– Scholes Options needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Stock Options and Compensation, Scholes Options may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Weighted SWOT Analysis of Stock Options and Compensation 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 Stock Options and Compensation 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 Stock Options and Compensation 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 Stock Options and Compensation 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 Stock Options and Compensation 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 Scholes Options needs to make to build a sustainable competitive advantage.