FX Risk Hedging at EADS SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of FX Risk Hedging at EADS
In 2008, EADS, the European aerospace group that owns Airbus, was faced with the decision of how best to hedge a large and growing mismatch between its dollar revenues and its euro manufacturing costs. Specifically, the company needed to decide if it would continue hedging primarily with forward contracts, but in much higher volumes and at increasingly unfavorable rates, or to break with past practice and begin using foreign exchange option contracts. The decision would have consequences for EADS' profitability, cash flow, and its ability to fund strategic investment programs crucial to its ability to remain competitive with Boeing. Students must address questions concerning the proper way to measure foreign exchange exposures, the objectives of a rational risk management policy and program for a company like EADS competing in a duopoly with Boeing, the differences between hedging with FX options versus FX futures, counterparty risk, and hedge accounting, among other considerations.
Authors :: W. Carl Kester, Vincent Dessain, Karol Misztal
Swot Analysis of "FX Risk Hedging at EADS" written by W. Carl Kester, Vincent Dessain, Karol Misztal includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Eads Fx facing as an external strategic factors. Some of the topics covered in FX Risk Hedging at EADS case study are - Strategic Management Strategies, Financial management, Financial markets, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the FX Risk Hedging at EADS casestudy better are - – wage bills are increasing, 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%, talent flight as more people leaving formal jobs, increasing commodity prices, increasing household debt because of falling income levels, there is increasing trade war between United States & China,
digital marketing is dominated by two big players Facebook and Google, cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of FX Risk Hedging at EADS
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in FX Risk Hedging at EADS case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Eads Fx, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Eads Fx 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 FX Risk Hedging at EADS can be done for the following purposes –
1. Strategic planning using facts provided in FX Risk Hedging at EADS case study
2. Improving business portfolio management of Eads Fx
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 Eads Fx
Strengths FX Risk Hedging at EADS | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Eads Fx in FX Risk Hedging at EADS Harvard Business Review case study are -
Organizational Resilience of Eads Fx
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Eads Fx does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High brand equity
– Eads Fx has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Eads Fx to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Strong track record of project management
– Eads Fx is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Ability to lead change in Finance & Accounting field
– Eads Fx 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 Eads Fx in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Operational resilience
– The operational resilience strategy in the FX Risk Hedging at EADS 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 switching costs
– The high switching costs that Eads Fx 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.
Cross disciplinary teams
– Horizontal connected teams at the Eads Fx 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.
Successful track record of launching new products
– Eads Fx has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Eads Fx 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.
Effective Research and Development (R&D)
– Eads Fx 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 FX Risk Hedging at EADS - 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 recruit top talent
– Eads Fx is one of the leading recruiters in the industry. Managers in the FX Risk Hedging at EADS are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Diverse revenue streams
– Eads Fx is present in almost all the verticals within the industry. This has provided firm in FX Risk Hedging at EADS 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.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Eads Fx digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Eads Fx 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.
Weaknesses FX Risk Hedging at EADS | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of FX Risk Hedging at EADS are -
Lack of clear differentiation of Eads Fx products
– To increase the profitability and margins on the products, Eads Fx needs to provide more differentiated products than what it is currently offering in the marketplace.
Workers concerns about automation
– As automation is fast increasing in the segment, Eads Fx 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.
Interest costs
– Compare to the competition, Eads Fx 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 to strategic competitive environment developments
– As FX Risk Hedging at EADS HBR case study mentions - Eads Fx 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.
Products dominated business model
– Even though Eads Fx 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 - FX Risk Hedging at EADS should strive to include more intangible value offerings along with its core products and services.
Need for greater diversity
– Eads Fx has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High operating costs
– Compare to the competitors, firm in the HBR case study FX Risk Hedging at EADS 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 Eads Fx 's lucrative customers.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study FX Risk Hedging at EADS, is just above the industry average. Eads Fx 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Eads Fx is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study FX Risk Hedging at EADS 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 cash cycle compare to competitors
Eads Fx 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 Eads Fx supply chain. Even after few cautionary changes mentioned in the HBR case study - FX Risk Hedging at EADS, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Eads Fx vulnerable to further global disruptions in South East Asia.
Opportunities FX Risk Hedging at EADS | 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 FX Risk Hedging at EADS are -
Learning at scale
– Online learning technologies has now opened space for Eads Fx 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Eads Fx is facing challenges because of the dominance of functional experts in the organization. FX Risk Hedging at EADS 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
– Eads Fx can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Eads Fx 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.
Creating value in data economy
– The success of analytics program of Eads Fx has opened avenues for new revenue streams for the organization in the industry. This can help Eads Fx to build a more holistic ecosystem as suggested in the FX Risk Hedging at EADS case study. Eads Fx can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Eads Fx can use these opportunities to build new business models that can help the communities that Eads Fx operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Better consumer reach
– The expansion of the 5G network will help Eads Fx to increase its market reach. Eads Fx 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 Eads Fx 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 Eads Fx to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Eads Fx 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 FX Risk Hedging at EADS - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Eads Fx to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
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. Eads Fx 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. Eads Fx 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.
Building a culture of innovation
– managers at Eads Fx can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Low interest rates
– Even though inflation is raising its head in most developed economies, Eads Fx 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Eads Fx can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats FX Risk Hedging at EADS External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study FX Risk Hedging at EADS are -
Environmental challenges
– Eads Fx 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. Eads Fx 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. Eads Fx 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 Eads Fx with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Shortening product life cycle
– it is one of the major threat that Eads Fx is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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. Eads Fx can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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 Eads Fx in the Finance & Accounting sector and impact the bottomline of the organization.
Increasing wage structure of Eads Fx
– 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 Eads Fx.
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. Eads Fx needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study FX Risk Hedging at EADS, Eads Fx 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 .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Eads Fx 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.
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 Eads Fx business can come under increasing regulations regarding data privacy, data security, etc.
High dependence on third party suppliers
– Eads Fx 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.
Weighted SWOT Analysis of FX Risk Hedging at EADS 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 FX Risk Hedging at EADS 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 FX Risk Hedging at EADS 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 FX Risk Hedging at EADS 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 FX Risk Hedging at EADS 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 Eads Fx needs to make to build a sustainable competitive advantage.