Swot Analysis of "Note on Risk Arbitrage" written by George Chacko, Randolph B. Cohen, Marc Chennault includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Arbitrage Risk facing as an external strategic factors. Some of the topics covered in Note on Risk Arbitrage 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 Note on Risk Arbitrage casestudy better are - – competitive advantages are harder to sustain because of technology dispersion, increasing transportation and logistics costs, increasing energy prices, increasing inequality as vast percentage of new income is going to the top 1%, there is increasing trade war between United States & China, wage bills are increasing, challanges to central banks by blockchain based private currencies,
central banks are concerned over increasing inflation, technology disruption, etc
Introduction to SWOT Analysis of Note on Risk Arbitrage
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Note on Risk Arbitrage case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Arbitrage Risk, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Arbitrage Risk 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 Note on Risk Arbitrage can be done for the following purposes –
1. Strategic planning using facts provided in Note on Risk Arbitrage case study
2. Improving business portfolio management of Arbitrage Risk
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 Arbitrage Risk
Strengths Note on Risk Arbitrage | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Arbitrage Risk in Note on Risk Arbitrage Harvard Business Review case study are -
High brand equity
– Arbitrage Risk has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Arbitrage Risk to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Superior customer experience
– The customer experience strategy of Arbitrage Risk in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Innovation driven organization
– Arbitrage Risk is one of the most innovative firm in sector. Manager in Note on Risk Arbitrage Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Training and development
– Arbitrage Risk has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Note on Risk Arbitrage 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.
Diverse revenue streams
– Arbitrage Risk is present in almost all the verticals within the industry. This has provided firm in Note on Risk Arbitrage 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.
Effective Research and Development (R&D)
– Arbitrage Risk 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 Note on Risk Arbitrage - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Arbitrage Risk digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Arbitrage Risk 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.
Cross disciplinary teams
– Horizontal connected teams at the Arbitrage Risk 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.
High switching costs
– The high switching costs that Arbitrage Risk 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.
Analytics focus
– Arbitrage Risk 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 George Chacko, Randolph B. Cohen, Marc Chennault 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.
Organizational Resilience of Arbitrage Risk
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Arbitrage Risk does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Sustainable margins compare to other players in Finance & Accounting industry
– Note on Risk Arbitrage firm has clearly differentiated products in the market place. This has enabled Arbitrage Risk to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Arbitrage Risk to invest into research and development (R&D) and innovation.
Weaknesses Note on Risk Arbitrage | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Note on Risk Arbitrage are -
Lack of clear differentiation of Arbitrage Risk products
– To increase the profitability and margins on the products, Arbitrage Risk needs to provide more differentiated products than what it is currently offering in the marketplace.
Need for greater diversity
– Arbitrage Risk 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Note on Risk Arbitrage, is just above the industry average. Arbitrage Risk 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.
Skills based hiring
– The stress on hiring functional specialists at Arbitrage Risk 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Note on Risk Arbitrage 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 Arbitrage Risk has relatively successful track record of launching new products.
High bargaining power of channel partners
– Because of the regulatory requirements, George Chacko, Randolph B. Cohen, Marc Chennault suggests that, Arbitrage Risk is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Low market penetration in new markets
– Outside its home market of Arbitrage Risk, firm in the HBR case study Note on Risk Arbitrage needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Note on Risk Arbitrage, in the dynamic environment Arbitrage Risk has struggled to respond to the nimble upstart competition. Arbitrage Risk has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interest costs
– Compare to the competition, Arbitrage Risk 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 cash cycle compare to competitors
Arbitrage Risk 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Arbitrage Risk 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 Note on Risk Arbitrage | 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 Note on Risk Arbitrage are -
Building a culture of innovation
– managers at Arbitrage Risk 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Arbitrage Risk 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.
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. Arbitrage Risk 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. Arbitrage Risk 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.
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. Arbitrage Risk can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Buying journey improvements
– Arbitrage Risk can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Note on Risk Arbitrage 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Arbitrage Risk is facing challenges because of the dominance of functional experts in the organization. Note on Risk Arbitrage 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Arbitrage Risk 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 Arbitrage Risk to hire the very best people irrespective of their geographical location.
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 Arbitrage Risk in the consumer business. Now Arbitrage Risk can target international markets with far fewer capital restrictions requirements than the existing system.
Learning at scale
– Online learning technologies has now opened space for Arbitrage Risk 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Arbitrage Risk 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, Note on Risk Arbitrage, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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 Arbitrage Risk 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.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Arbitrage Risk can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Arbitrage Risk can use these opportunities to build new business models that can help the communities that Arbitrage Risk operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Threats Note on Risk Arbitrage External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Note on Risk Arbitrage are -
Regulatory challenges
– Arbitrage Risk 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.
Stagnating economy with rate increase
– Arbitrage Risk 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.
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. Arbitrage Risk needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Arbitrage Risk 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.
Environmental challenges
– Arbitrage Risk 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. Arbitrage Risk 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 Note on Risk Arbitrage, Arbitrage Risk 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 acceleration in Forth Industrial Revolution
– Arbitrage Risk has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Arbitrage Risk 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.
Consumer confidence and its impact on Arbitrage Risk 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.
Shortening product life cycle
– it is one of the major threat that Arbitrage Risk 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
– Arbitrage Risk 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.
Increasing wage structure of Arbitrage Risk
– 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 Arbitrage Risk.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Arbitrage Risk with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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 Note on Risk Arbitrage 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 Note on Risk Arbitrage 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 Note on Risk Arbitrage 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 Note on Risk Arbitrage 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 Note on Risk Arbitrage 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 Arbitrage Risk needs to make to build a sustainable competitive advantage.