Cost of Capital at Ameritrade SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Cost of Capital at Ameritrade
Ameritrade Holding Corp. is planning large marketing and technology investments to improve the company's competitive position in deep-discount brokerage by taking advantage of emerging economies of scale. In order to evaluate whether the strategy would generate sufficient future cash flows to merit the investment, Joe Ricketts, chairman and CEO of Ameritrade, needs an estimate of the project's cost of capital. There is considerable disagreement as to the correct cost of capital estimate. A research analyst pegs the cost of capital at 12%, the CFO of Ameritrade uses 15%, and some members of Ameritrade management believe that the borrowing rate of 9% is the rate by which to discount the future cash flows expected to result from the project. There is also disagreement as to the type of business that Ameritrade is in. Management insists that Ameritrade is a brokerage firm, whereas some research analysts and managers of other online brokerage firms suggest that Ameritrade is a technology/Internet firm. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.
Swot Analysis of "Cost of Capital at Ameritrade" written by Mark Mitchell, Erik Stafford includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Ameritrade Brokerage facing as an external strategic factors. Some of the topics covered in Cost of Capital at Ameritrade case study are - Strategic Management Strategies, Costs, Financial analysis, Financial markets and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Cost of Capital at Ameritrade casestudy better are - – there is backlash against globalization, increasing transportation and logistics costs, talent flight as more people leaving formal jobs, increasing commodity prices, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing inequality as vast percentage of new income is going to the top 1%, increasing government debt because of Covid-19 spendings,
there is increasing trade war between United States & China, supply chains are disrupted by pandemic , etc
Introduction to SWOT Analysis of Cost of Capital at Ameritrade
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Cost of Capital at Ameritrade case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Ameritrade Brokerage, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Ameritrade Brokerage 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 Cost of Capital at Ameritrade can be done for the following purposes –
1. Strategic planning using facts provided in Cost of Capital at Ameritrade case study
2. Improving business portfolio management of Ameritrade Brokerage
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 Ameritrade Brokerage
Strengths Cost of Capital at Ameritrade | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Ameritrade Brokerage in Cost of Capital at Ameritrade Harvard Business Review case study are -
Diverse revenue streams
– Ameritrade Brokerage is present in almost all the verticals within the industry. This has provided firm in Cost of Capital at Ameritrade 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.
Low bargaining power of suppliers
– Suppliers of Ameritrade Brokerage in the sector have low bargaining power. Cost of Capital at Ameritrade has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Ameritrade Brokerage to manage not only supply disruptions but also source products at highly competitive prices.
Effective Research and Development (R&D)
– Ameritrade Brokerage 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 Cost of Capital at Ameritrade - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Innovation driven organization
– Ameritrade Brokerage is one of the most innovative firm in sector. Manager in Cost of Capital at Ameritrade 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
– Ameritrade Brokerage has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Ameritrade Brokerage 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.
Ability to recruit top talent
– Ameritrade Brokerage is one of the leading recruiters in the industry. Managers in the Cost of Capital at Ameritrade are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Sustainable margins compare to other players in Finance & Accounting industry
– Cost of Capital at Ameritrade firm has clearly differentiated products in the market place. This has enabled Ameritrade Brokerage to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Ameritrade Brokerage to invest into research and development (R&D) and innovation.
Highly skilled collaborators
– Ameritrade Brokerage has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Cost of Capital at Ameritrade HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Strong track record of project management
– Ameritrade Brokerage is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Ameritrade Brokerage digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Ameritrade Brokerage 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.
Analytics focus
– Ameritrade Brokerage 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 Mark Mitchell, Erik Stafford 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.
High switching costs
– The high switching costs that Ameritrade Brokerage 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.
Weaknesses Cost of Capital at Ameritrade | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Cost of Capital at Ameritrade are -
Aligning sales with marketing
– It come across in the case study Cost of Capital at Ameritrade 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 Cost of Capital at Ameritrade can leverage the sales team experience to cultivate customer relationships as Ameritrade Brokerage is planning to shift buying processes online.
Increasing silos among functional specialists
– The organizational structure of Ameritrade Brokerage is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Ameritrade Brokerage needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Ameritrade Brokerage to focus more on services rather than just following the product oriented approach.
Need for greater diversity
– Ameritrade Brokerage 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.
Low market penetration in new markets
– Outside its home market of Ameritrade Brokerage, firm in the HBR case study Cost of Capital at Ameritrade needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
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 Ameritrade Brokerage supply chain. Even after few cautionary changes mentioned in the HBR case study - Cost of Capital at Ameritrade, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Ameritrade Brokerage vulnerable to further global disruptions in South East Asia.
No frontier risks strategy
– After analyzing the HBR case study Cost of Capital at Ameritrade, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Cost of Capital at Ameritrade, in the dynamic environment Ameritrade Brokerage has struggled to respond to the nimble upstart competition. Ameritrade Brokerage has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High bargaining power of channel partners
– Because of the regulatory requirements, Mark Mitchell, Erik Stafford suggests that, Ameritrade Brokerage 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.
Interest costs
– Compare to the competition, Ameritrade Brokerage 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.
Products dominated business model
– Even though Ameritrade Brokerage 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 - Cost of Capital at Ameritrade should strive to include more intangible value offerings along with its core products and services.
High operating costs
– Compare to the competitors, firm in the HBR case study Cost of Capital at Ameritrade 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 Ameritrade Brokerage 's lucrative customers.
Opportunities Cost of Capital at Ameritrade | 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 Cost of Capital at Ameritrade are -
Building a culture of innovation
– managers at Ameritrade Brokerage 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.
Leveraging digital technologies
– Ameritrade Brokerage 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.
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 Ameritrade Brokerage 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.
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. Ameritrade Brokerage can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Ameritrade Brokerage 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, Cost of Capital at Ameritrade, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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 Ameritrade Brokerage in the consumer business. Now Ameritrade Brokerage can target international markets with far fewer capital restrictions requirements than the existing system.
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. Ameritrade Brokerage 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. Ameritrade Brokerage 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Ameritrade Brokerage 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Ameritrade Brokerage 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 Ameritrade Brokerage to hire the very best people irrespective of their geographical location.
Manufacturing automation
– Ameritrade Brokerage 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.
Buying journey improvements
– Ameritrade Brokerage can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Cost of Capital at Ameritrade 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, Ameritrade Brokerage is facing challenges because of the dominance of functional experts in the organization. Cost of Capital at Ameritrade 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Ameritrade Brokerage 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.
Threats Cost of Capital at Ameritrade External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Cost of Capital at Ameritrade are -
Shortening product life cycle
– it is one of the major threat that Ameritrade Brokerage is facing in Finance & Accounting 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 Cost of Capital at Ameritrade, Ameritrade Brokerage 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 .
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. Ameritrade Brokerage can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Consumer confidence and its impact on Ameritrade Brokerage 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.
High dependence on third party suppliers
– Ameritrade Brokerage 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.
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 Ameritrade Brokerage.
Regulatory challenges
– Ameritrade Brokerage 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.
Increasing wage structure of Ameritrade Brokerage
– 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 Ameritrade Brokerage.
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. Ameritrade Brokerage 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.
Stagnating economy with rate increase
– Ameritrade Brokerage 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.
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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Ameritrade Brokerage 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 Cost of Capital at Ameritrade .
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. Ameritrade Brokerage needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Weighted SWOT Analysis of Cost of Capital at Ameritrade 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 Cost of Capital at Ameritrade 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 Cost of Capital at Ameritrade 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 Cost of Capital at Ameritrade 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 Cost of Capital at Ameritrade 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 Ameritrade Brokerage needs to make to build a sustainable competitive advantage.
