Case Study Description of Hedging Currency Risks at AIFS
The American Institute for Foreign Studies (AIFS) organizes study abroad programs and cultural exchanges for American students. The firm's revenues are mainly in U.S. dollars, but most of its costs are in eurodollars and British pounds. The company's controllers review the hedging activities of AIFS. AIFS has a hedging policy, but the controllers want to review the percentage of exposure that is covered and the use of forward contracts and options. AIFS sets guaranteed prices for its exchanges and tours a year in advance, before its final sales figures are known. The controllers need to ensure that the company adequately hedges its foreign exchange exposure and achieves an appropriate balance between forward contracts and currency options. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.
Authors :: Mihir A. Desai, Anders Sjoman, Vincent Dessain
Swot Analysis of "Hedging Currency Risks at AIFS" written by Mihir A. Desai, Anders Sjoman, Vincent Dessain includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Aifs Controllers facing as an external strategic factors. Some of the topics covered in Hedging Currency Risks at AIFS case study are - Strategic Management Strategies, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Hedging Currency Risks at AIFS casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, there is increasing trade war between United States & China, increasing inequality as vast percentage of new income is going to the top 1%, wage bills are increasing, central banks are concerned over increasing inflation, digital marketing is dominated by two big players Facebook and Google, increasing government debt because of Covid-19 spendings,
increasing transportation and logistics costs, supply chains are disrupted by pandemic , etc
Introduction to SWOT Analysis of Hedging Currency Risks at AIFS
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Hedging Currency Risks at AIFS case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Aifs Controllers, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Aifs Controllers 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 Hedging Currency Risks at AIFS can be done for the following purposes –
1. Strategic planning using facts provided in Hedging Currency Risks at AIFS case study
2. Improving business portfolio management of Aifs Controllers
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 Aifs Controllers
Strengths Hedging Currency Risks at AIFS | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Aifs Controllers in Hedging Currency Risks at AIFS Harvard Business Review case study are -
Learning organization
- Aifs Controllers 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 Aifs Controllers is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Hedging Currency Risks at AIFS Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
High switching costs
– The high switching costs that Aifs Controllers 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 Aifs Controllers
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Aifs Controllers does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to recruit top talent
– Aifs Controllers is one of the leading recruiters in the industry. Managers in the Hedging Currency Risks at AIFS 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 Aifs Controllers in the sector have low bargaining power. Hedging Currency Risks at AIFS has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Aifs Controllers to manage not only supply disruptions but also source products at highly competitive prices.
Diverse revenue streams
– Aifs Controllers is present in almost all the verticals within the industry. This has provided firm in Hedging Currency Risks at AIFS 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.
High brand equity
– Aifs Controllers has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Aifs Controllers to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Sustainable margins compare to other players in Finance & Accounting industry
– Hedging Currency Risks at AIFS firm has clearly differentiated products in the market place. This has enabled Aifs Controllers to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Aifs Controllers to invest into research and development (R&D) and innovation.
Cross disciplinary teams
– Horizontal connected teams at the Aifs Controllers are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Analytics focus
– Aifs Controllers 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 Mihir A. Desai, Anders Sjoman, Vincent Dessain 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.
Innovation driven organization
– Aifs Controllers is one of the most innovative firm in sector. Manager in Hedging Currency Risks at AIFS Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Effective Research and Development (R&D)
– Aifs Controllers 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 Hedging Currency Risks at AIFS - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses Hedging Currency Risks at AIFS | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Hedging Currency Risks at AIFS are -
Aligning sales with marketing
– It come across in the case study Hedging Currency Risks at AIFS 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 Hedging Currency Risks at AIFS can leverage the sales team experience to cultivate customer relationships as Aifs Controllers is planning to shift buying processes online.
Interest costs
– Compare to the competition, Aifs Controllers 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Hedging Currency Risks at AIFS HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Aifs Controllers has relatively successful track record of launching new products.
Low market penetration in new markets
– Outside its home market of Aifs Controllers, firm in the HBR case study Hedging Currency Risks at AIFS needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Increasing silos among functional specialists
– The organizational structure of Aifs Controllers is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Aifs Controllers needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Aifs Controllers to focus more on services rather than just following the product oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Aifs Controllers 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.
Slow to strategic competitive environment developments
– As Hedging Currency Risks at AIFS HBR case study mentions - Aifs Controllers 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Aifs Controllers 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.
Products dominated business model
– Even though Aifs Controllers 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 - Hedging Currency Risks at AIFS should strive to include more intangible value offerings along with its core products and services.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Hedging Currency Risks at AIFS, is just above the industry average. Aifs Controllers 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 operating costs
– Compare to the competitors, firm in the HBR case study Hedging Currency Risks at AIFS 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 Aifs Controllers 's lucrative customers.
Opportunities Hedging Currency Risks at AIFS | 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 Hedging Currency Risks at AIFS are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Aifs Controllers is facing challenges because of the dominance of functional experts in the organization. Hedging Currency Risks at AIFS 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.
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 Aifs Controllers 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Aifs Controllers 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 Aifs Controllers to hire the very best people irrespective of their geographical location.
Building a culture of innovation
– managers at Aifs Controllers 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
– Aifs Controllers can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Hedging Currency Risks at AIFS 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.
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 Aifs Controllers in the consumer business. Now Aifs Controllers can target international markets with far fewer capital restrictions requirements than the existing system.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Aifs Controllers can use these opportunities to build new business models that can help the communities that Aifs Controllers 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. Aifs Controllers can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Aifs Controllers 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.
Better consumer reach
– The expansion of the 5G network will help Aifs Controllers to increase its market reach. Aifs Controllers 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, Aifs Controllers 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, Hedging Currency Risks at AIFS, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Leveraging digital technologies
– Aifs Controllers 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. Aifs Controllers 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. Aifs Controllers 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.
Threats Hedging Currency Risks at AIFS External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Hedging Currency Risks at AIFS are -
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 Aifs Controllers 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 Aifs Controllers.
Stagnating economy with rate increase
– Aifs Controllers 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
– Aifs Controllers 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.
Shortening product life cycle
– it is one of the major threat that Aifs Controllers is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
High dependence on third party suppliers
– Aifs Controllers 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Aifs Controllers 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.
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. Aifs Controllers needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Aifs Controllers 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 Hedging Currency Risks at AIFS .
Increasing wage structure of Aifs Controllers
– 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 Aifs Controllers.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Aifs Controllers with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Environmental challenges
– Aifs Controllers 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. Aifs Controllers can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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.
Weighted SWOT Analysis of Hedging Currency Risks at AIFS 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 Hedging Currency Risks at AIFS 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 Hedging Currency Risks at AIFS 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 Hedging Currency Risks at AIFS 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 Hedging Currency Risks at AIFS 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 Aifs Controllers needs to make to build a sustainable competitive advantage.