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 - – challanges to central banks by blockchain based private currencies, geopolitical disruptions, increasing inequality as vast percentage of new income is going to the top 1%, talent flight as more people leaving formal jobs, there is backlash against globalization, wage bills are increasing, customer relationship management is fast transforming because of increasing concerns over data privacy,
supply chains are disrupted by pandemic , competitive advantages are harder to sustain because of technology dispersion, 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 -
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.
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.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Compounding Rates digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Compounding Rates 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.
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.
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.
Sustainable margins compare to other players in Finance & Accounting industry
– Interest Rates, Market Pricing, and Compounding firm has clearly differentiated products in the market place. This has enabled Compounding Rates to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Compounding Rates to invest into research and development (R&D) and innovation.
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.
Diverse revenue streams
– Compounding Rates is present in almost all the verticals within the industry. This has provided firm in Interest Rates, Market Pricing, and Compounding 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.
Analytics focus
– Compounding Rates 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.
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.
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.
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 -
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.
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.
Skills based hiring
– The stress on hiring functional specialists at Compounding Rates 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.
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.
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.
Increasing silos among functional specialists
– The organizational structure of Compounding Rates is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Compounding Rates needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Compounding Rates to focus more on services rather than just following the product oriented approach.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Compounding Rates is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Interest Rates, Market Pricing, and Compounding can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Interest Rates, Market Pricing, and Compounding, is just above the industry average. Compounding Rates 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
Compounding Rates 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 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Interest Rates, Market Pricing, and Compounding, in the dynamic environment Compounding Rates has struggled to respond to the nimble upstart competition. Compounding Rates has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
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 -
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.
Learning at scale
– Online learning technologies has now opened space for Compounding Rates 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.
Using analytics as competitive advantage
– Compounding Rates 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 Interest Rates, Market Pricing, and Compounding - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Compounding Rates to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Manufacturing automation
– Compounding Rates 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.
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.
Loyalty marketing
– Compounding Rates 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.
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.
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.
Leveraging digital technologies
– Compounding Rates 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Compounding Rates 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Compounding Rates can use these opportunities to build new business models that can help the communities that Compounding Rates operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
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.
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 -
Stagnating economy with rate increase
– Compounding Rates 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.
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.
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 .
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.
High dependence on third party suppliers
– Compounding Rates 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.
Regulatory challenges
– Compounding Rates 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.
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 Compounding Rates business can come under increasing regulations regarding data privacy, data security, etc.
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.
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.
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.
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.
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.
Consumer confidence and its impact on Compounding Rates 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.
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.
