This note introduces the basic motivation behind Islamic finance and how it is implemented in practice. The note contains background regarding the religious principles underlying the practice of Islamic finance as well as a discussion of several products designed to be Shariah compliant and the means by which these products achieve this compliance.
Swot Analysis of "Note on Islamic Finance" written by Stephen Sapp includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Islamic Finance facing as an external strategic factors. Some of the topics covered in Note on Islamic Finance case study are - Strategic Management Strategies, and Global Business.
Some of the macro environment factors that can be used to understand the Note on Islamic Finance casestudy better are - – increasing inequality as vast percentage of new income is going to the top 1%, competitive advantages are harder to sustain because of technology dispersion, central banks are concerned over increasing inflation, increasing commodity prices, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing transportation and logistics costs, customer relationship management is fast transforming because of increasing concerns over data privacy,
technology disruption, geopolitical disruptions, etc
Introduction to SWOT Analysis of Note on Islamic Finance
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Note on Islamic Finance case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Islamic Finance, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Islamic Finance 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 Islamic Finance can be done for the following purposes –
1. Strategic planning using facts provided in Note on Islamic Finance case study
2. Improving business portfolio management of Islamic Finance
3. Assessing feasibility of the new initiative in Global Business field.
4. Making a Global Business topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Islamic Finance
Strengths Note on Islamic Finance | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Islamic Finance in Note on Islamic Finance Harvard Business Review case study are -
Operational resilience
– The operational resilience strategy in the Note on Islamic Finance 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.
Low bargaining power of suppliers
– Suppliers of Islamic Finance in the sector have low bargaining power. Note on Islamic Finance has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Islamic Finance to manage not only supply disruptions but also source products at highly competitive prices.
High switching costs
– The high switching costs that Islamic Finance 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.
Innovation driven organization
– Islamic Finance is one of the most innovative firm in sector. Manager in Note on Islamic Finance Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Successful track record of launching new products
– Islamic Finance has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Islamic Finance 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.
High brand equity
– Islamic Finance has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Islamic Finance to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Training and development
– Islamic Finance has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Note on Islamic Finance 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.
Sustainable margins compare to other players in Global Business industry
– Note on Islamic Finance firm has clearly differentiated products in the market place. This has enabled Islamic Finance to fetch slight price premium compare to the competitors in the Global Business industry. The sustainable margins have also helped Islamic Finance to invest into research and development (R&D) and innovation.
Superior customer experience
– The customer experience strategy of Islamic Finance in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Digital Transformation in Global Business segment
- digital transformation varies from industry to industry. For Islamic Finance digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Islamic Finance 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.
Effective Research and Development (R&D)
– Islamic Finance 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 Islamic Finance - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Cross disciplinary teams
– Horizontal connected teams at the Islamic Finance 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.
Weaknesses Note on Islamic Finance | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Note on Islamic Finance are -
Capital Spending Reduction
– Even during the low interest decade, Islamic Finance 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 harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Islamic Finance is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Note on Islamic Finance 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 Note on Islamic Finance, is just above the industry average. Islamic Finance 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 Islamic Finance 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.
Aligning sales with marketing
– It come across in the case study Note on Islamic Finance 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 Note on Islamic Finance can leverage the sales team experience to cultivate customer relationships as Islamic Finance is planning to shift buying processes online.
Workers concerns about automation
– As automation is fast increasing in the segment, Islamic Finance 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.
Increasing silos among functional specialists
– The organizational structure of Islamic Finance is dominated by functional specialists. It is not different from other players in the Global Business segment. Islamic Finance needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Islamic Finance to focus more on services rather than just following the product oriented approach.
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 Islamic Finance supply chain. Even after few cautionary changes mentioned in the HBR case study - Note on Islamic Finance, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Islamic Finance vulnerable to further global disruptions in South East Asia.
Slow to strategic competitive environment developments
– As Note on Islamic Finance HBR case study mentions - Islamic Finance 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Note on Islamic Finance, in the dynamic environment Islamic Finance has struggled to respond to the nimble upstart competition. Islamic Finance has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow decision making process
– As mentioned earlier in the report, Islamic Finance has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Islamic Finance even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Opportunities Note on Islamic Finance | 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 Islamic Finance are -
Better consumer reach
– The expansion of the 5G network will help Islamic Finance to increase its market reach. Islamic Finance 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.
Developing new processes and practices
– Islamic Finance can develop new processes and procedures in Global Business industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Islamic Finance in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Global Business segment, and it will provide faster access to the consumers.
Loyalty marketing
– Islamic Finance 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Islamic Finance is facing challenges because of the dominance of functional experts in the organization. Note on Islamic Finance 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 Islamic Finance 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 Islamic Finance has opened avenues for new revenue streams for the organization in the industry. This can help Islamic Finance to build a more holistic ecosystem as suggested in the Note on Islamic Finance case study. Islamic Finance can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Building a culture of innovation
– managers at Islamic Finance 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 Global Business segment.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Islamic Finance can use these opportunities to build new business models that can help the communities that Islamic Finance operates in. Secondly it can use opportunities from government spending in Global Business sector.
Leveraging digital technologies
– Islamic Finance 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.
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. Islamic Finance can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Islamic Finance 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 Islamic Finance to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Islamic Finance 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 Note on Islamic Finance - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Islamic Finance to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats Note on Islamic Finance 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 Islamic Finance are -
Easy access to finance
– Easy access to finance in Global Business field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Islamic Finance can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
High dependence on third party suppliers
– Islamic Finance 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.
Shortening product life cycle
– it is one of the major threat that Islamic Finance is facing in Global Business sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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 Islamic Finance, Islamic Finance may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Global Business .
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Islamic Finance with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Regulatory challenges
– Islamic Finance 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 Global Business industry regulations.
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 Islamic Finance in the Global Business sector and impact the bottomline of the organization.
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 Islamic Finance 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 Islamic Finance.
Stagnating economy with rate increase
– Islamic Finance 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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Islamic Finance 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 Note on Islamic Finance .
Environmental challenges
– Islamic Finance 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. Islamic Finance can take advantage of this fund but it will also bring new competitors in the Global Business 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. Islamic Finance 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.
Weighted SWOT Analysis of Note on Islamic Finance 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 Islamic Finance 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 Islamic Finance 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 Islamic Finance 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 Islamic Finance 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 Islamic Finance needs to make to build a sustainable competitive advantage.