Case Study Description of Interest Rates, Market Pricing, and Compounding
This is a Darden case study.Using examples from financial markets, this note examines links among market prices, stated interest rates, and compounding assumptions. The note emphasizes how interest rates are expressions of market prices, and pays particular attention to the role of compounding assumptions. Market prices are converted into stated interest rates for different compounding assumptions. Guidance is offered on how to make intelligent comparisons across markets that use different compounding conventions. The note is useful as background for the study of a wide array of pricing issues in fixed-income and options markets.
Swot Analysis of "Interest Rates, Market Pricing, and Compounding" written by Robert S. Harris, Robert M. Conroy includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Compounding Rates facing as an external strategic factors. Some of the topics covered in Interest Rates, Market Pricing, and Compounding case study are - Strategic Management Strategies, Financial markets, Pricing, Strategy and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Interest Rates, Market Pricing, and Compounding casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, increasing inequality as vast percentage of new income is going to the top 1%, challanges to central banks by blockchain based private currencies, central banks are concerned over increasing inflation, increasing energy prices, there is increasing trade war between United States & China, technology disruption,
geopolitical disruptions, there is backlash against globalization, etc
Introduction to SWOT Analysis of Interest Rates, Market Pricing, and Compounding
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Interest Rates, Market Pricing, and Compounding case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Compounding Rates, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Compounding Rates 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 Interest Rates, Market Pricing, and Compounding can be done for the following purposes –
1. Strategic planning using facts provided in Interest Rates, Market Pricing, and Compounding case study
2. Improving business portfolio management of Compounding Rates
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 Compounding Rates
Strengths Interest Rates, Market Pricing, and Compounding | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Compounding Rates in Interest Rates, Market Pricing, and Compounding Harvard Business Review case study are -
Effective Research and Development (R&D)
– Compounding Rates 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 Interest Rates, Market Pricing, and Compounding - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Ability to lead change in Finance & Accounting field
– Compounding Rates is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Compounding Rates in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Successful track record of launching new products
– Compounding Rates has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Compounding Rates 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.
Highly skilled collaborators
– Compounding Rates 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 Interest Rates, Market Pricing, and Compounding HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
High brand equity
– Compounding Rates has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Compounding Rates to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
High switching costs
– The high switching costs that Compounding Rates 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.
Organizational Resilience of Compounding Rates
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Compounding Rates does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to recruit top talent
– Compounding Rates is one of the leading recruiters in the industry. Managers in the Interest Rates, Market Pricing, and Compounding are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Low bargaining power of suppliers
– Suppliers of Compounding Rates in the sector have low bargaining power. Interest Rates, Market Pricing, and Compounding has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Compounding Rates to manage not only supply disruptions but also source products at highly competitive prices.
Cross disciplinary teams
– Horizontal connected teams at the Compounding Rates 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.
Learning organization
- Compounding Rates 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 Compounding Rates is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Interest Rates, Market Pricing, and Compounding Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Training and development
– Compounding Rates has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Interest Rates, Market Pricing, and Compounding 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.
Weaknesses Interest Rates, Market Pricing, and Compounding | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Interest Rates, Market Pricing, and Compounding are -
Capital Spending Reduction
– Even during the low interest decade, Compounding Rates 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.
Low market penetration in new markets
– Outside its home market of Compounding Rates, firm in the HBR case study Interest Rates, Market Pricing, and Compounding needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
No frontier risks strategy
– After analyzing the HBR case study Interest Rates, Market Pricing, and Compounding, 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.
Interest costs
– Compare to the competition, Compounding Rates has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Slow decision making process
– As mentioned earlier in the report, Compounding Rates 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. Compounding Rates 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.
Lack of clear differentiation of Compounding Rates products
– To increase the profitability and margins on the products, Compounding Rates needs to provide more differentiated products than what it is currently offering in the marketplace.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Interest Rates, Market Pricing, and Compounding, it seems that the employees of Compounding Rates don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Need for greater diversity
– Compounding Rates 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.
Slow to strategic competitive environment developments
– As Interest Rates, Market Pricing, and Compounding HBR case study mentions - Compounding Rates 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 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 Compounding Rates supply chain. Even after few cautionary changes mentioned in the HBR case study - Interest Rates, Market Pricing, and Compounding, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Compounding Rates vulnerable to further global disruptions in South East Asia.
Workers concerns about automation
– As automation is fast increasing in the segment, Compounding Rates 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.
Opportunities Interest Rates, Market Pricing, and Compounding | 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 Interest Rates, Market Pricing, and Compounding are -
Building a culture of innovation
– managers at Compounding Rates 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.
Buying journey improvements
– Compounding Rates can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Interest Rates, Market Pricing, and Compounding 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.
Creating value in data economy
– The success of analytics program of Compounding Rates has opened avenues for new revenue streams for the organization in the industry. This can help Compounding Rates to build a more holistic ecosystem as suggested in the Interest Rates, Market Pricing, and Compounding case study. Compounding Rates can build new products and services such as - data insight services, data privacy related products, data based consulting services, 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 Compounding Rates in the consumer business. Now Compounding Rates can target international markets with far fewer capital restrictions requirements than the existing system.
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. Compounding Rates can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Compounding Rates 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Compounding Rates is facing challenges because of the dominance of functional experts in the organization. Interest Rates, Market Pricing, and Compounding 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Compounding Rates 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.
Better consumer reach
– The expansion of the 5G network will help Compounding Rates to increase its market reach. Compounding Rates 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Compounding Rates can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Interest Rates, Market Pricing, and Compounding, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Compounding Rates to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Compounding Rates to hire the very best people irrespective of their geographical location.
Developing new processes and practices
– Compounding Rates 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Compounding Rates can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Interest Rates, Market Pricing, and Compounding External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Interest Rates, Market Pricing, and Compounding are -
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Compounding Rates.
Environmental challenges
– Compounding Rates 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. Compounding Rates can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Increasing wage structure of Compounding Rates
– 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 Compounding Rates.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Compounding Rates 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.
Shortening product life cycle
– it is one of the major threat that Compounding Rates is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Technology acceleration in Forth Industrial Revolution
– Compounding Rates has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Compounding Rates 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.
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. Compounding Rates can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Interest Rates, Market Pricing, and Compounding, Compounding Rates 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 .
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.
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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Compounding Rates 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 Interest Rates, Market Pricing, and Compounding .
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. Compounding Rates 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Compounding Rates with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Weighted SWOT Analysis of Interest Rates, Market Pricing, and Compounding 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 Interest Rates, Market Pricing, and Compounding 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 Interest Rates, Market Pricing, and Compounding 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 Interest Rates, Market Pricing, and Compounding 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 Interest Rates, Market Pricing, and Compounding 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 Compounding Rates needs to make to build a sustainable competitive advantage.